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    The vision care plan industry’s vertical monopoly

    Vision care plans have become the bullies of ECPs, independent labs, and consumers

    Editor's note: This piece is a guest perspective, and it appears in the "Opinion" section of our publication.

    There is no question that certain vision care plans have dominated the eyecare market for the last two decades. Nearly 100 million Americans are covered by just two of these plans.1,2 As they have become dominant and integrated into new lines of business, they increasingly are coercing optometrists, ophthalmologists, independent laboratories, and consumers—the result higher prices, less choice, and reduced competition.

    The most significant antitrust case against a vision care plan comes from nearly 20 years ago.  In 1996, the Department of Justice Antitrust Division filed its only lawsuit against Vision Service Plan (VSP).3 The Department of Justice alleged that the “nation’s largest vision care insurance plan” was reducing price competition through “most favored nation” clauses, a contracting provision designed to ensure that VSP would get the most favorable rates from providers, thus reducing fees to competing vision care plans. While seen as a victory by the agency, the parties settled the matter by limiting only certain VSP conduct, including the usage of most favored nation clauses. The settlement agreement expired after five years in 2001.

    Controlling every step of production

    Since that 1996 case, vision care plans have faced limited scrutiny and have expanded the scope of their businesses through vertical mergers and contractual arrangements. Large plans such as Davis Vision, EyeMed (Luxottica), and VSP have acquired or opened retail stores, laboratories, and frame manufacturers, granting them control of the entire chain of vision care production. To quote Luxottica, such vertically integrated structures are “one of the competitive advantages underpinning the Group’s past and future successes.”4 These transactions have received limited attention from the federal antitrust agencies. In fact, the federal government has approved recent transactions without a full assessment of the likelihood of anticompetitive harm.5 Yet, as noted in a 2012 Bain & Company report on independent optometry, vision care plans are purposefully applying pressure to independent eyecare providers through “aggressive… marketing strategies.”6 The reason? To increase plan profits by forcing consumers into a vertically integrated monopoly.

    Union American Eye Care Providers initiates anti-trust complaint against vision care plans

    According to 2008 report by Consumers Digest, such aggressive tactics and vertical integration by vision care plans “could present problems to consumers”7 by limiting choice, lowering quality, and raising prices. One of the most common practices is the restriction of services an independent eyecare provider may offer. Patients of certain vision care plans are allowed to select an independent optometrist or ophthalmologist for their examination; however, that eyecare provider may be prevented from providing lenses, frames, or contact lenses to that patient. And the eyecare provider may be limited to only using the vision care plan’s laboratory. The patient is forced to make these secondary purchases through an entity owned or controlled by the vision care plan, regardless of the patient’s or doctor’s preference. Such practices restrict choice and can often cost consumers more money. Along with limiting choice, vision care plans are also specifically targeting independent providers’ patients. Some plans are directly contacting patients in an effort to switch them from their independent eye doctor to plan-employed or plan-associated eye care professionals and locations.

    The vision care plans’ conduct can also reduce competition. Before consolidation and vertical integration, providers could offer plan beneficiaries a wide range of vision care services and secondary sales. With vision care plans consolidating power and forcing patients into an integrated system, these plans are effectively restricting the ability of independent providers to provide routine vision care, laboratory services, or secondary sales to plan beneficiaries.

    David Balto
    David Balto is an antitrust attorney with over 25 years of experience in competition law. Previously, he was policy director of the ...

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    • Anonymous
      There is another aspect that many overlook. It drives prices up for patients. When an insurance company required a 40% discounts on frames, we told them it would put it close to our cost. The reply was you don't mark up your frames enough. So we raised prices significantly, but we do not differentiate prices with and without insurance. Therefore, the patient without this insurance have to pay more than we would have charged. This makes the insurer look good at the expense of our patients not insured by this company. Recently they informed us of the maximum they pay for each style of lens. In order to achieve this, we raised our lens prices to match. Again, the rest pay the price and put us at a competitive disadvantage. In addition, the word Copay is misleading. Patients without coverage for materials assume the insurance company is paying something for the glasses, when it is really a discount plan. When the insurance company insisted we send the patient's frame as we were no longer allowed to edge lenses, the patient called the insurer to complained. They were told by the supervisor that they required it as we did not provide the quality they do. If the patient insists on not being without their glasses, they should go to a company owned location to have their prescription filled. Our attorney informed them of committing slander and breaking state laws of steering.
    • CraigSteinberg
      Anonymous, Thank you for your comments. You are absolutely correct about how requiring discounts leads to higher prices overall for non-insured patients/consumers. We spent a fair amount of time explaining this to officials from the Department of Justice's Anti-Trust division when members of the Board of the Union of American Eye Care Providers met with them. Another impact is that these new higher prices then brings our prices closer to the high-priced VCP-owned retail outlets, taking away our price advantage over them. These are meaningful and important issues that are sometimes not obvious and not always easy to explain to people outside our industry. But it is one of the primary reasons we believe the mandatory discounts is anti-competitive and harmful to consumers. In a free and efficient market discounting will occur naturally and will vary among competitors. Set mandatory discounts are not helpful to consumers. Craig Steinberg, O.D., J.D. Executive Director Union of American Eye Care Providers [email protected] http://www.theaado.org