[Senate Hearing 113-893]
[From the U.S. Government Publishing Office]
S. Hrg. 113-893
PRICING POLICIES AND COMPETITION
IN THE CONTACT LENS INDUSTRY:
IS WHAT YOU SEE WHAT YOU GET?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ANTITRUST,
COMPETITION POLICY AND CONSUMER RIGHTS
of the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
JULY 30, 2014
__________
Serial No. J-113-72
__________
Printed for the use of the Committee on the Judiciary
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
U.S. GOVERNMENT PUBLISHING OFFICE
28-425 PDF WASHINGTON : 2018
COMMITTEE ON THE JUDICIARY
PATRICK J. LEAHY, Vermont, Chairman
DIANNE FEINSTEIN, California CHUCK GRASSLEY, Iowa, Ranking
CHUCK SCHUMER, New York Member
DICK DURBIN, Illinois ORRIN G. HATCH, Utah
SHELDON WHITEHOUSE, Rhode Island JEFF SESSIONS, Alabama
AMY KLOBUCHAR, Minnesota LINDSEY GRAHAM, South Carolina
AL FRANKEN, Minnesota JOHN CORNYN, Texas
CHRISTOPHER A. COONS, Delaware MICHAEL S. LEE, Utah
RICHARD BLUMENTHAL, Connecticut TED CRUZ, Texas
MAZIE HIRONO, Hawaii JEFF FLAKE, Arizona
Kristine Lucius, Chief Counsel and Staff Director
Kolan Davis, Republican Chief Counsel and Staff Director
------
Subcommittee on Antitrust, Competition Policy and Consumer Rights
AMY KLOBUCHAR, Minnesota, Chairman
CHUCK SCHUMER, New York MICHAEL S. LEE, Utah, Ranking
AL FRANKEN, Minnesota Member
CHRISTOPHER A. COONS, Delaware LINDSEY GRAHAM, South Carolina
RICHARD BLUMENTHAL, Connecticut CHUCK GRASSLEY, Iowa
JEFF FLAKE, Arizona
Caroline Holland, Democratic Chief Counsel
Bryson Bachman, Republican Chief Counsel
C O N T E N T S
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JULY 30, 2014, 2:16 P.M.
STATEMENTS OF COMMITTEE MEMBERS
Page
Klobuchar, Hon. Amy, a U.S. Senator from the State of Minnesota.. 1
Lee, Hon. Michael S., a U.S. Senator from the State of Utah...... 3
WITNESSES
Witness List..................................................... 29
Cockrell, David A., O.D., President, American Optometric
Association, Stillwater, Oklahoma.............................. 8
prepared statement........................................... 50
Knight, Millicent L., O.D., Head of Professional Affairs, Johnson
& Johnson Vision Care, North America, Jacksonville, Florida.... 7
prepared statement........................................... 45
Slover, George, Senior Policy Counsel, Consumers Union,
Washington, DC................................................. 10
prepared statement........................................... 60
Zeidner, R. Joe, General Counsel, 1-800 CONTACTS, Inc., Draper,
Utah........................................................... 5
prepared statement........................................... 30
QUESTIONS
Questions submitted to David A. Cockrell, O.D., by Senator
Klobuchar...................................................... 67
Questions submitted to Millicent L. Knight, O.D., by Senator
Klobuchar...................................................... 68
Questions submitted to George Slover by Senator Klobuchar........ 69
Questions submitted to R. Joe Zeidner by Senator Klobuchar....... 70
ANSWERS
Responses of David A. Cockrell, O.D., to questions submitted by
Senator Klobuchar.............................................. 71
Responses of Millicent L. Knight, O.D., to questions submitted by
Senator Klobuchar.............................................. 72
Responses of George Slover to questions submitted by Senator
Klobuchar...................................................... 74
[Note: At the time of printing, after several attempts to obtain
responses to the written questions, the Committee had not
received responses from R. Joe Zeidner.]
MISCELLANEOUS SUBMISSIONS FOR THE RECORD
Alcon Laboratories, Inc., Fort Worth, Texas, statement........... 89
Zeidner, R. Joe, General Counsel, 1-800 CONTACTS, Inc., Draper,
Utah, follow-up statement...................................... 76
PRICING POLICIES AND COMPETITION
IN THE CONTACT LENS INDUSTRY:
IS WHAT YOU SEE WHAT YOU GET?
----------
WEDNESDAY, JULY 30, 2014
United States Senate,
Subcommittee on Antitrust, Competition Policy
and Consumer Rights,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:16 p.m., in
Room SD-226, Dirksen Senate Office Building, Hon. Amy
Klobuchar, Chairman of the Subcommittee, presiding.
Present: Senators Klobuchar and Lee.
OPENING STATEMENT OF HON. AMY KLOBUCHAR,
A U.S. SENATOR FROM THE STATE OF MINNESOTA
Chairman Klobuchar. I call the hearing to order and thank
our witnesses for being here on an afternoon in Washington, DC.
More than 35 million Americans use contact lenses to
correct their vision. Contact lenses are an essential part of
our daily lives--even though I have not worn mine since the day
I got married, Senator Lee. But they are a very big part of
many--luckily I am still married. They are an essential part of
many people's daily lives and can cost hundreds of dollars per
year.
Senator Lee and I are having this hearing to examine recent
pricing policies initiated by contact lens manufacturers that
would affect retail price competition for contact lenses. The
policies boil down to this: A manufacturer tells retailers that
if they want to sell a particular contact lens, then they
cannot sell them below a set price set by the manufacturer. If
a retailer sets the lenses for below that price, then the
supply of that particular contact lens would be cutoff.
This means that retailers, whether they are independent
optometrists, national chain retailers like Lenscrafters or
Pearle Vision, a big box store like Costco or Walmart or
Target, or an online retailer like 1-800 CONTACTS or Vision
Direct, cannot discount those contact lenses that are subject
to this agreement below a certain price.
For consumers, this can mean no coupons, no rebates, no
bundled discounts, or any other specials that could lower the
price to below what the manufacturer has set.
This does raise legitimate questions about what the
policies will do to competition and what kind of prices
consumers will be paying because of these policies. Are they
lower or are they higher? What is the effect?
We can all agree that manufacturers generally have the
right to decide which retailers they want to sell their
products to. A nearly 100-year-old Supreme Court case, U.S. v.
Colgate, confirms that they are free to make those decisions
based on retailers' adherence to a suggested retail price.
Today we will hear a variety of views on the justification for
those policies and if those policies are good.
We also know that contact lenses are not typical retail
products like computers or televisions or laundry detergents
where consumers drive all of the choices. They can decide which
product or which brand to purchase. Sometimes consumers have a
prescription for a specific brand or model of a contact lens
that is made by their eye professional. Eye care professionals
also typically sell the contact lenses that they prescribe,
creating the potential for a conflict of interest.
In addition, there may be limits on which specific contact
lenses a consumer can wear and significant costs required to
switch contact lenses in response to pricing changes.
After spending time and money on fitting, it may turn out
that there is no other lens that would address a particular
consumer's health needs, so this is a market where retail
competition may be the only competition in the market.
In this discussion, we need to also consider competition at
other points of the distribution chain, but the fact is that
the contact lenses market is relatively concentrated. Three
companies--Johnson & Johnson Vision Care, and thank you for
being here, Cooper Vision, and Alcon--make up about 90 percent
of the market, and adding in Bausch & Lomb brings the total
close to 100 percent.
So we need to ask whether inter-brand competition between
these four companies is sufficient to make up for the
elimination of intra-brand competition on the retail level.
Although the manufacturers have been very clear about the
fact that their pricing policies are unilateral and do not
involve agreement with retailers, we have to look at the
relevance of the Supreme Court's 2007 Leegin decision. This is
the case where the Court significantly relaxed the almost 100-
year-old ban on agreements between manufacturers and retailers
to set minimum retail prices. Many experts believe that this
decision paved the way for more unilateral pricing policies
which, prior to the decision, were more risky because they
could inadvertently between construed as agreements.
But whether we are here today with whatever views we have,
we do not know that we are not here as judges or juries in an
antitrust case, as much as Senator Lee would make a great
judge, regardless of whether a minimum resale price was entered
into through some sort of agreement or unilaterally. We are
here, in fact, to discuss the policies and try to shed some
light on what they will mean for competition for the millions
of Americans who wear contact lenses.
With that, I will turn it over to my Ranking Member,
Senator Lee.
OPENING STATEMENT OF HON. MICHAEL S. LEE,
A U.S. SENATOR FROM THE STATE OF UTAH
Senator Lee. Thank you very much, Madam Chair, and thanks
to all of you for joining us today. Our hearing today focuses
on the effect on consumers of recent pricing policies that have
been implemented by certain manufacturers of contact lenses. It
makes sense that our focus should always be on the consumer.
As Robert Bork made clear in his seminal work on antitrust,
``The Antitrust Paradox,'' the only legitimate goal of
antitrust is the maximization of consumer welfare. And, in
fact, the very name of our Subcommittee reflects this
observation, reflects this same focus on the consumer: the
Subcommittee on Antitrust, Competition Policy and Consumer
Rights.
Business decisions are no doubt complex, and neither
Congress nor regulators can always be in a position to
understand all the different motives and imperatives that
result in a particular business adopting a particular policy.
So we have to be careful not to second-guess business judgment.
Our interest goes no further than to protect competition so as
to maximize consumer welfare, and we seek an understanding of
certain business practices for that purpose, and only for that
purpose.
Any analysis we conduct, as well as any analysis conducted
by the antitrust enforcement agencies within the Federal
Government, must be grounded in evidence and must be consistent
with well-established economic policy.
During its short history, antitrust law has at times been
subject to attempts by competitors to use the process not to
benefit competition within the marketplace, but instead to
modify it in a way that might inure to their own benefit, that
might advantage their own particular business interests. That
temptation will always be present in antitrust law, and so we
must always be on guard to ensure that we aim only to protect
competition rather than any particular competitor or
individual. By so doing we can help create market conditions
that result in the most choices, in the highest quality, and
the most favorable prices for consumers, who, as I mentioned at
the outset, are the proper focus of our antitrust analysis.
With this in mind, I look forward to hearing from the
witnesses today regarding the state of competition in the
market for contact lenses and any effect that new pricing
policies implemented by a few of the manufacturers might have
on that market.
As I understand it, the market for contact lenses is a
little different than most other product markets. It is joined
by only a few other industries, such as industries involving
pet medications and in some instances dermatological
preparations, in that the retailer of the product is also an
essential gatekeeper without whose permission in the form of a
required medical prescription the product simply cannot be
purchased, it cannot be obtained.
I am interested in how Federal laws might be affecting
competition in the market for medications for pet animals and
during recent weeks have been looking into potential
legislation to address issues in that market.
With respect to the market for contact lenses, within the
last 2 years three significant manufacturers have announced a
new pricing scheme whereby the manufacturers will not provide
lenses to distributors, whether that distributor is an
optometrist or a big box store like Walmart or somebody else,
if that distributor sells the product to consumers below
certain minimum prices.
When such policies involve an agreement between the
manufacturer the retailer, they are often referred to as
``resale price maintenance agreements.'' Minimum price
arrangements can in some circumstances be justified, whether by
increases in service, concerns about free riding, or for other
reasons. But in most cases, the most immediate result is an
increase in price as consumers no longer have the option of
seeking the product at a lower price from a business that
offers it at discounted prices.
This is intended as an exploratory hearing to give the
Subcommittee and regulators a better understanding of the
reasons for minimum price arrangements in this particular
market. Tens of millions of Americans pay for contact lenses
each year, spending hundreds of millions of dollars. Price
matters. For example, I have heard concerns that as prices for
contact lenses go up, some consumers wear their lenses longer
than they should, and in so doing, risk doing some damage to
their eyes, specifically in an attempt to save money. It is,
therefore, fairly important that we consider very carefully the
effect that minimum price arrangements might have on prices for
contract lenses, and thus in turn on the consumers who wear
them.
I thank the witnesses for being here today and look forward
to their testimony. Thank you, Madam Chair.
Chairman Klobuchar. Thank you very much.
I would like to now introduce our distinguished witnesses.
Our first witness is Joe Zeidner. He has been the legal counsel
at 1-800 CONTACTS since 2003, the chief legal officer, and
prior to that was general counsel and corporate secretary of
the company.
Our second witness is Dr. Millicent Knight. Dr. Knight was
named head of professional affairs at VISTAKON, Johnson &
Johnson Vision Care, in April 2014. Before that, she was a
practicing optometrist for 25 years and has owned her own
practice twice.
Next we will hear from Dr. David Cockrell. He is president
of the American Optometric Association. He and his wife, Dr.
Cheryl Cockrell, own a practice in Stillwater, Oklahoma, which
is called the Cockrell Eye Care Center.
Our final witness will be Mr. George Slover. He is the
senior policy counsel in Consumers Union's Washington office.
Prior to that he worked for the House Judiciary and Energy and
Commerce Committees, as well as the Justice Department's
Antitrust Division.
Thank you all for appearing at our Subcommittee to testify.
I ask our witnesses to raise their right hand and stand as I
administer the oath. Do you affirm that the testimony you are
about to give before the Committee will be the truth, the whole
truth, and nothing but the truth, so help you God?
Mr. Zeidner. I do.
Dr. Knight. I do.
Dr. Cockrell. I do.
Mr. Slover. I do.
Chairman Klobuchar. Thank you.
We will start with you, Mr. Zeidner. Thank you.
STATEMENT OF R. JOE ZEIDNER, GENERAL COUNSEL,
1-800 CONTACTS, INC., DRAPER, UTAH
Mr. Zeidner. Madam Chairwoman, Senator Lee, my name is Joe
Zeidner. I am General Counsel of 1-800 CONTACTS. This is my
first time testifying before the U.S. Senate, and I appreciate
you giving me this honor. I am proud to have my son, Pierce,
here with me today.
I am here to talk about resale price maintenance programs
that have been adopted by three of the four largest contact
lenses manufacturers. These programs prevent us and every other
retailer from selling those lenses below the price set by the
manufacturer.
This development will fundamentally change our industry and
in the process dramatically reduce options available to
consumers. Consumers prescribed lenses covered by RPM will no
longer be able to shop around for a discount. They will pay
higher prices, generally now and especially in the future, as
discounted sellers are forced out of the contact lens business.
Decades of work by Congress, the FTC, and the State Attorneys
General to separate the prescription from the purchase of
contact lenses will be reversed.
Thirty-eight million Americans, two-thirds of whom are
women, wear contact lenses. They will spend $4.2 billion
annually on contact lenses and billions more on solutions and
services such as eye exams. RPM agreements are a problem for
these consumers because the marketplace for contact lenses is
different. It is different in four ways.
First, under Federal law, consumers cannot purchase contact
lenses without a prescription.
Second, contact lens prescriptions are brand-specific and
optometrists, not the consumer, determine the brand.
Third, under Federal law, the consumer cannot substitute
one brand for another, so there is no inter-brand competition
and the consumer is locked in.
And, fourth, optometrists wear two hats, both as a
professional and as a retailer. They sell what they prescribe.
As this graphic clearly illustrated, there is an inherent
conflict of interest.
Because of these constraints, RPM agreements function
differently here than in other retail markets. Because
consumers cannot buy contact lenses without a prescription,
they cannot switch brands once prescribed. For decades, our
Government has worked to prevent these constraints from being
exploited for anticompetitive purposes.
In 1996, 34 State Attorneys General sued the AOA and the
major manufacturers for conspiring to impede competition from
alternative sellers. This map shows the States that
participated. We appreciate the role played by then-Connecticut
Attorney General Blumenthal.
In 2002, Senator Ted Cruz, who was then the director of the
Office of Policy Planning at the FTC, proposed a verification
system to make it easier for consumers to purchase their lenses
from retailers other than their eye doctor.
In 2003, Congress enacted the Fairness to Contact Lens
Consumers Act, guaranteeing consumers the right to
automatically receive copies of their prescriptions and
enacting the verification system proposed by the FTC.
In 2005, legislation was introduced, cosponsored by now-
Chairman Senator Leahy, to bar manufacturers from
discriminating against alternative retailers and the
distribution of their products.
The latest attempt to frustrate these efforts are RPM
programs. They are being introduced in the market, which is
already concentrated and dominated by only four players who,
between them, control the market.
The RPM program now covers 40 percent of the market and it
is growing. As we sit here today, millions of Americans who
have been prescribed one of these brands have unwittingly been
thrown into a controlled marketplace. Those who have been
choosing to buy from retailers other than their eye doctor will
see fixed prices, they will see higher prices, and they will
lose their ability to shop around based on price. They will
have no alternative but to pay a fixed price or expend the time
and money to return to their eye doctor and have him prescribe
an alternative brand.
What does this mean to the contact lens wearer? As is
summarized on this graph, depending upon which type of J&J lens
the consumer wears, she could see costs increase as high as 112
percent above recent discount prices. Since vision correction
is genetic, the cost impact on a family could be much greater.
Even a consumer who has worn the same lens for years will
suddenly have fewer choices and inexplicably higher prices the
next time they reorder.
And to the extent RPM programs limit a consumer's ability
to purchase their lenses from anyone other than her eye doctor,
she and those like her will spend hundreds of millions of
dollars more in time and transportation costs, in addition to
having to spend more for the lenses themselves.
The irony is that ocular health is served when contact lens
wearers switch out their lenses on a timely basis. By
preventing consumers from shopping for a discount, RPM programs
will make replacement lenses more expensive and more difficult
to obtain, making it less likely that wearers will abide by the
replacement schedule.
Unless someone steps in to stop these programs from
dominating an already highly concentrated industry, discount
shopping will be a thing of the past. Consumers will have far
fewer choices of where they can purchase their lenses. They
will pay higher prices, especially as discounters drop out of
the market and eye care providers gain more pricing power.
We appreciate the Subcommittee holding today's hearing, and
I thank you for the opportunity to testify.
[The prepared statement of Mr. Zeidner appears as a
submission for the record.]
Chairman Klobuchar. Thank you very much.
Dr. Knight.
STATEMENT OF MILLICENT L. KNIGHT, O.D., HEAD OF PROFESSIONAL
AFFAIRS, JOHNSON & JOHNSON VISION CARE, NORTH AMERICA,
JACKSONVILLE, FLORIDA
Dr. Knight. Good afternoon, Madam Chairwoman and Ranking
Member Lee. Thank you for the opportunity to testify today.
Again, as you indicated, my name is Dr. Millicent Knight, and I
am the head of professional affairs and a member of the North
America Management Team for Johnson & Johnson Vision Care, the
makers of ACUVUE brand contact lenses. I serve as a liaison
between the company and our professional customers, which
include the 50,000 independent eye care professionals who
prescribe contact lenses for their patients.
Before my role, as Senator Klobuchar indicated, I was a
practicing optometrist for 25 years. Although I do not see
patients now, I continue to advocate on their behalf by helping
our company best understand what doctors need to better serve
their patients. And it is with the patient in mind that I would
like to share our perspective on consumer pricing within the
contact lens industry.
Let me begin by stating we have not implemented resale
pricing maintenance, called an RPM, with retailers on the
prices at which they will sell ACUVUE products. Rather, we have
established a unilateral pricing policy, called a UPP. It is
the minimum price in the market--a price that is actually lower
than the current national average selling price to consumers.
There are no agreements with any resellers now, nor are any
planned for the future.
We believe the implementation of a UPP on several of our
most widely prescribed ACUVUE brands will benefit consumers who
depend on these products.
First, by implementing UPP, we are lowering the price for
the most widely prescribed ACUVUE brand lenses, and based on a
review of current average consumer prices across all channels--
and that includes independent eye care professionals, national
retailers, and online retailers--we estimate that two-thirds of
patients who buy ACUVUE brands will pay a lower price for their
product as a result of the UPP. An additional 17 percent of
consumers will see little to no change.
In looking at Internet sales, 1-800 customers will see on
average an 8.5-percent decrease in the price of ACUVUE brands
if 1-800 sells at our UPP minimal retail price.
For example, one box of ACUVUE Oasys for astigmatism is now
$47.00 on their website. If they charge our UPP price, the cost
to the consumer will be $40.
Second, by implementing the UPP, we are passing the
benefits of rebates across our entire customer base. We are
replacing the burdensome rebate process with instant savings
for every box purchased, regardless of the quantity. In fact,
our data suggests only a very few ACUVUE consumers complete the
process to redeem a rebate. With the UPP, lower prices are
available to more consumers, including those who are more
likely to purchase one box at a time. Typically, these are less
affluent consumers who would benefit most from lower prices.
Third, by implementing the UPP, we are offering consumers
more pricing transparency. Today an advertisement may show a
low box price that is only obtained if the consumer buys the
maximum quantity and redeems a mail-in rebate. Often the
consumer is not aware of these conditions until the transaction
is already underway. With our UPP, consumers will have
significantly improved visibility to the price they can expect
to pay, regardless of where they choose to purchase their
contact lenses.
Finally, we believe that the transparency of UPP minimum
retail price is the best way to effect a consumer price
reduction. Historical pricing data shows that retail prices in
the contact lens market rarely go lower. Of the 12 most popular
contact lenses prescribed in the last 5 years, only Johnson &
Johnson Vision Care's 1-day ACUVUE Moist showed a material
price decline. Consumers like 1-800 have already shared this
information with their consumers.
In closing, by instituting a UPP, lowering our prices, and
by making the process by which consumers can access these lower
prices simpler and more convenient, we believe we can better
compete with other manufacturers in the contact lens market,
and, more importantly, our UPP will lead to lower prices for a
large majority of our consumers.
Thank you.
[The prepared statement of Dr. Knight appears as a
submission for the record.]
Chairman Klobuchar. Thank you very much.
Dr. Cockrell.
STATEMENT OF DAVID A. COCKRELL, O.D., PRESIDENT, AMERICAN
OPTOMETRIC ASSOCIATION, STILLWATER, OKLAHOMA
Dr. Cockrell. Thank you. Good afternoon, Chairperson
Klobuchar, Ranking Member Lee. I am Dr. David A. Cockrell,
president of the American Optometric Association and an
optometrist in independent practice in Stillwater, Oklahoma. I
am joined today by my colleague Dr. Kerry Beebe of Brainard,
Minnesota, who is here on behalf of the Minnesota Optometric
Association. Like me, Dr. Beebe is currently treating patients
with serious complications arising from improper contact lens
use.
I do want to ask a question. My understanding is that our
full submitted statement will be included in the record?
Chairman Klobuchar. That is correct. Thank you.
Dr. Cockrell. Thank you.
Along with our colleagues Dr. Michael Duenas and Dr. Beth
Kneib, who participated in a meeting last week with the
Subcommittee staff, we are pleased to be a resource for this
panel on patient health and safety concerns and to discuss the
high-quality eye care provided by the Nation's doctors of
optometry.
The AOA, with more than 36,000 member doctors and
affiliated associations representing each State, DC, and our
Armed Forces and Federal service optometrists, is the national
voice for the optometric profession, the tens of millions of
patients who depend on us, and the cause for eye health care.
Optometrists provide a full range of primary eye health and
vision care to our patients, including children and working
adults. In my own practice, we see patients ranging in age from
babies just a few months old to centenarians. Within that
group, our contact lens patients range in age from the age of 2
up to over 90 years of age.
My own office's main focus is on the management and
treatment of vision-related problems and eye diseases. As a
team of four primary eye care physicians, we regularly see
patients with conjunctivitis, cataract, glaucoma, diabetic
retinopathy, and macular degeneration. Also, we perform surgery
for lid procedures as well as laser surgeries for glaucoma and
secondary cataract in our office.
Often we are working closely with our ophthalmologist
colleagues to ensure that every patient gets the care that she
or he needs. Many ophthalmology practices also prescribe and
dispense contact lenses for the same reasons that optometrists
do, and there is considerable agreement between the respective
national organizations on appropriate patient care, eye health,
and consumer safety concerns.
Given the topic of today's hearing and the AOA's role in
educating the public, it is essential to state that contact
lenses have been recognized in law and regulation since the
1970s as a medical device. A doctor's supervision and care for
their proper and safe use is required. However, since contact
lenses are so widely and successfully used by consumers, I have
been asked from time to time why physician supervision is
needed and what it consists of.
In my own personal experience, I have seen unsupervised or
non-prescribed contact lens use result in corneal
neovascularization; giant papillary conjunctivitis; corneal
infections, ulcer, infiltrates and other forms of inflammation;
corneal scarring; and permanent loss of vision.
As an eye doctor, what I find so profoundly tragic is that
the majority of these conditions are completely preventable.
With expectations and care implications so notably high, my
colleagues and I want and frequently insist on the very best
contact lens products to meet our patients' needs. There have
been historic innovations in these medical devices over the
last three decades which I believe have benefited patients in
three key ways:
First, innovation in the contact lens industry has enabled
more patients to use contact lenses for a greater proportion of
their vision needs;
Second, innovation has improved the quality of contact
lenses so that they are easier for patients to use with less
risk of harm to the eye.
Third, innovation has created healthy competition among
contact lens manufacturers to bring high-quality products and
competitive pricing to consumers.
The priority for the AOA is to support best practices and
high standards to benefit the tens of millions of Americans who
entrust their vision and eye health to my colleagues and to me.
On the subject of competition generally, the AOA believes
strongly that competition in the contact lens industry is
positive and needed.
As I understand it, I share this table with executives
representing the largest manufacturer of contact lenses in the
United States and the largest seller of contact lenses in the
world. They are in a better position than am I to describe and
discuss their own pricing policies and strategies. Suffice it
to say that in my experience of over 30 years of prescribing
these devices, my contact lens patients have never had more
choices, products of a higher quality, or greater affordability
in their options.
As the national voice of 36,000 doctors of optometry--
notably including Senator John Boozman, a longtime doctor of
optometry in private practice and an AOA and an Arkansas
Optometric Association member--and the tens of millions of
patients we serve, we work to educate the public about the safe
use of these contact lenses as a medical device and the dangers
posed by unscrupulous sellers.
With consumers still facing risks, the AOA is partnering
with the Food and Drug Administration on a new national public
health awareness campaign to alert teenagers and young adults
to the dangers connected to the improper use of contact lenses.
I commend the FDA for listening so closely to concerned
optometrists and the AOA.
Again, thank you very much for the opportunity to be here
and to participate in today's questions.
[The prepared statement of Dr. Cockrell appears as a
submission for the record.]
Chairman Klobuchar. Thank you very much, Dr. Cockrell.
Mr. Slover.
STATEMENT OF GEORGE SLOVER, SENIOR POLICY
COUNSEL, CONSUMERS UNION, WASHINGTON, DC
Mr. Slover. Thank you, Chairwoman Klobuchar, Senator Lee.
At Consumers Union, the policy and advocacy division of
Consumer Reports, we work for a fair, just, and safe
marketplace for consumers and to empower consumers to protect
themselves. Product safety, square dealing, and competitive
choices are all key to that mission. Our efforts in recent
years to promote safety for contact lenses have included
calling attention to recalls, calling for better warning labels
on cleaning solution, and publishing contact lens safety tips.
On consumer choice, our efforts have included working for
passage of the Fairness to Contact Lens Consumers Act of 2003.
It requires eye doctors to give patients a copy of their
prescription, without charge and without having to ask, so they
can shop around for the best price. Before that law, many
doctors were making it impossible to shop around, tying the
professional eye care to purchase of contact lenses from the
doctor.
And now, after the 2003 law closed off that pathway to
restricting consumer choice, we are witnessing a new avenue
being paved to the same destination.
We supported efforts in Congress to stop erosion of the per
se antitrust prohibition against vertical price fixing, a.k.a.
resale price maintenance or RPM. We saw the per se prohibition
as a bulwark protector of retail competition and consumer
choice.
We were dismayed when the Supreme Court overruled the
century-old Dr. Miles precedent and swept away the per se
prohibition in its 2007 Leegin decision. We believe the kinds
of good-faith business goals the Court cited in abandoning Dr.
Miles, including the kinds of important patient health and
safety goals described by other witnesses here today, can be
pursued effectively without denying the rights of consumers to
shop for a better price and the rights of retailers to offer
one.
The Colgate precedent allows a manufacturer to
unilaterally, independently set retail price. But in
fundamental ways, it runs counter to a manufacturer's interest
to impose pricing terms that stand to reduce retail sales, and
profits, by putting its product out of reach for consumers who
cannot afford the higher markup.
In a competitive market, if one manufacturer tries this
kind of rigid pricing on its own, another will step in and give
cost-conscious consumers what they want. This kind of pricing
policy makes the most sense when the manufacturer is confident
it will not be undercut by competition.
So it is important to keep all that in mind when a
manufacturer describes its pricing policy as ``unilateral,''
particularly where its competitors seem to be joining in, and
where others in the marketing chain--the full-price retailers--
are clearly benefiting.
Whether what is being described here as unilateral may
actually cross over into antitrust territory, under Colgate and
now Leegin, is a question for antitrust enforcers and the
courts to determine. But it certainly warrants a closer look.
And whether or not there is an antitrust violation from a
legal standpoint, from a practical standpoint, no discounting
means consumers cannot get better deals, because retailers
cannot offer them--not good for consumers however you look at
it.
Not long ago, ``Buy your contact lenses at Costco'' made
our ShopSmart Top 15 list of money-saving tips. It looks like
contact lenses may not make that list again.
The typical reason offered for tolerating RPM--that it
helps prevent so-called free riding by discounters taking
advantage of the extra consumer services provided by some full-
price retailers--does not really come into play here. Here, the
doctor charges for the eye exam the consumer needs to get the
correct prescription, and for any follow-up care. The 2003 law
requires the doctor to give the patient a copy of the
prescription, but it does not touch the requirement that there
be one. So here, the doctor is being paid separately for those
extra services. So even if you accept the free rider idea in
general--and there are reasons to be skeptical--but even if you
do accept it, it is not really an issue here.
In short, there is no reason for professional eye care
services to be tied to the sale of contact lenses. The 2003 law
removed chains that once tied them tightly together, but
unilateral pricing is now replacing those chains with a silken
cord, softer but with a similar binding effect. Consumers are
still free to shop around, but not in hopes of saving any
money.
Thank you.
[The prepared statement of Mr. Slover appears as a
submission for the record.]
Chairman Klobuchar. Thank you very much to all of you.
Thank you. After I said we are not juries or judges, I'll just
start out with that case, that Colgate decision from 1919. I
assume you've all read every word.
The Supreme Court precedent from the Colgate case
establishes that manufacturers are free to decide who they can
sell their products to, as I mentioned earlier, and they can
decide to stop selling products to retailers who sell below
their suggested retail price.
Given the unique nature of the contact lens market, Mr.
Slover, are the policies we're talking about in the contact
lens industry, do you think they're somehow distinguishable
from the ones outlined in the 1919 case?
Mr. Slover. Well, in general, the Colgate doctrine allows
pricing restrictions to harm consumers in the name of freedom
of contract. That's an accommodation that's been made. But to
be under Colgate, the pricing policy has to be truly unilateral
and not the product of communication and coordination. That is
where the details lie. That is ultimately a factual question
for investigators and the courts.
Things are not always what they might appear, so you have
to dig a little deeper. It is not always clear what has induced
the new policy, and once it's out there there's the question of
deciding as you go forward whether and how to maintain it over
time in the face of positive and negative reactions that you
get in the marketplace.
So in this market, there are a number of ways that the eye
doctors have of interacting with the manufacturers and making
their views known in determining what products are available to
the consumers. So it does not really change what the Colgate
doctrine says, but it does raise some unique issues to be
looking at.
Senator Klobuchar. Okay. Anyone else want to comment on
that?
[No response].
Senator Klobuchar. Okay. The next case we talked about here
was this Leegin case. In 2007, the Supreme Court decided that
minimum resale price maintenance, which we know here is RPM
agreements, should not be banned outright, overturning, as I
mentioned, nearly 100 years of precedent.
Instead, they said they should be considered on a case-by-
case basis under the rule of reason test which balances pro-
competitive justifications for pricing policy with the anti-
competitive effects.
The policies at issue today are specifically called
unilateral pricing policies, so presumably, as you mentioned,
there's not supposed to be an agreement between the
manufacturer and the retailer on the minimum retail price.
Are there any circumstances, do you think, Mr. Slover,
under which a unilateral minimal retail price policy could be
considered a form of resale price maintenance and then subject
to greater scrutiny?
Mr. Slover. Well, I would just say that it's in the details
of the facts, if it's truly unilateral, then it's not going to
be an antitrust violation, and Colgate made that clear 100
years ago and still makes that clear. The question is whether
it's truly unilateral, and whether you can maintain a
unilateral policy in the marketplace going forward without some
kind of interaction and communication and coordination
developing.
Senator Klobuchar. Okay. And I do want to ask unanimous
consent to include a written statement in the record from Alcon
Laboraties, which is another contact lens manufacturer.
[The information referred to appears as a submission for
the record.]
Senator Klobuchar. I'll start with Mr. Zeidner and then
you, Mr. Slover. In testimony submitted, this testimony from
Alcon which is the second largest contact lens manufacturer,
they said that they instituted minimum retail prices to assure
that the selling price for the product was sufficient to
motivate eyecare professionals to invest their time in learning
and communicating the benefits of the product.
They cite the free rider problem, which I can also ask you
guys about, where eye care professionals incur the cost of
studying and appraising the new technology, but online and big
box retailers do not. Does this make some sense? Do you agree
with this assessment? Maybe I'll just go down the row here.
Mr. Zeidner. Sure. We do not agree with it. We do not
believe that eye doctors need to have any extra incentive to
fit contact lenses. They're already paid a special fitting fee
to do that so they're already being paid for that.
And giving doctors an incentive through UPP may or may not
promote competition among manufacturers, but it destroys
competition among retailers because the consumer can't choose
the brand, the brand is chosen for them by the eye doctor. They
can only choose where they purchase it.
In fact, Johnson & Johnson's president said that in a
Vision Monday article where she was interviewed: ``The new
policy sets minimum retail pricing, which has been communicated
to all customers. In addition, manufacturers' rebates have been
eliminated by building those discounts into the retail price of
these legacy products rather than requiring customers to send
in proof-of-purchase to obtain rebates. This gives the
optometrist the ability to improve his or her capture rate in
the office. Now the patient has no incentive to shop around.''
That's really what this is about. It's about getting
patients to buy from the doctor and not shopping for a discount
price because there's none available.
What will happen now is a doctor can just say, here's
screen shots of every discounter that you might be considering
going to. There's no reason to shop around because everybody
has the same price as I do.
Senator Klobuchar. And so before this happened were your
prices significantly lower than the other ones?
Mr. Zeidner. Yes. In fact, we've got--we just did this
before the UPP prices which go into effect on all of J&J's
products, except for ACUVUE 2, on August 1st. You can see the
lowest internet price, and this is the most popular lens,
ACUVUE Oasys. By the way, it used to be sold as a 6-pack, now
it's sold as a 12-pack. So when we were talking earlier about
buying one box, that's not available any longer.
Senator Klobuchar. It's kind of hard to see. Maybe I need
better contact lenses or something.
Mr. Zeidner. Oh. We can pass it up.
Senator Klobuchar. Yes.
Mr. Zeidner. Maybe you need some more. So you can see, this
is the same price for a 6-pack before and after. So the
percentage increase at the lowest internet price just on this
box is a 111-percent increase. On our product right here, it's
$25.87 before, $33.75 after, a 30-percent increase.
Senator Klobuchar. This is what? Before? Okay. Before the
retail----
Mr. Zeidner. Right. So across the board, everyone is going
to be paying more for this most popular lens.
Senator Klobuchar. Is it on all lenses that they've done
this?
Mr. Zeidner. They've done it on all lenses except for the
most antiquated lens, which is ACUVUE 2.
Senator Klobuchar. Okay. All right.
Mr. Zeidner. Correct.
Senator Klobuchar. Dr. Knight, so I have two things going
here, actually. One, is--maybe we'll start with this, this
pricing. I know you may have a different view of this, of what
the pricing differences are. Then the second thing is about the
free rider issue and if Alcon, which I know is your competitor,
but their claim on this in terms of the free rider issue.
Dr. Knight. First of all, our goal, as I indicated earlier,
was--is to--with implementing the UPP, was to provide an
opportunity for consumers to receive lower prices, and I have
not had a chance to analyze the information that you have on
the board there. But we have looked at your prices and as I
indicated, a specific example of where your price would go down
considerably, from $47.99 to $40.00, if you implement the UPP
price.
If you implement our prices, your products across the board
go down, on average, by 8.5 percent. That is, of course, a
choice that you have and it's a choice that all retailers had
prior to the implementation of this UPP policy. Some of them
chose to lower their prices and many of them have not.
Senator Klobuchar. Okay.
Dr. Knight. In regards to the----
Senator Klobuchar. Alcon's claim about--you know, sort of
in my head I think about, I have a lot of sympathy for our
retailers like Best Buy and Target with this marketplace
fairness issue. A totally different issue, but you know, Amazon
can sell a TV on the internet without having any--much employee
description to customers and things like that.
Then, in fact, the person then spends an hour with their
Geek Squad or whatever, and then they go online and buy it, you
know, for less because the taxes are different. It's kind of a
mess that I hope we're going to fix. A totally different issue.
But the reason I thought of it was that you've got
optometrists and other people advising about these lenses, and
maybe it's the same thing. And Mr. Zeidner pointed out that the
optometrists get paid separately for that work. I just wondered
what you thought about that free rider argument that Alcon
makes.
Dr. Knight. Well, I think that I don't know a lot about
Alcon's business philosophy, but the product that they
released, Dailies Total 1, was new innovation and there's a lot
of cost involved in creating new innovation. There's a lot of
time spent by the doctors in continuing education to learn
about new products.
I believe that what they were suggesting is that this is a
way of being able to ensure that doctors will take time and
ensure that they learn as much as possible about new products.
Most doctors are really excited when new technology comes out.
It keeps us stimulated and it's good for the consumer. So I
think it would happen even without it, but at my best guess I
would think that that's what the reference is about.
Senator Klobuchar. Okay.
Dr. Cockrell?
Dr. Cockrell. In reference to Alcon?
Senator Klobuchar. Yes. I'm not going to hold you
responsible for the pricing dispute.
Dr. Cockrell. Perfect.
[Laughter.]
Senator Klobuchar. Okay.
Dr. Cockrell. In reference to Alcon's comments in their
letter, I read that last night as well. I find it interesting.
It's certainly not how it was presented to me and that's
certainly not how I think the average optometrist operates.
Just as Dr. Knight said, our goal must always be to find the
most viable product to maintain the patients' eye health,
regardless of how that lens is priced by the manufacturer to us
or with or without a UPP pricing policy.
At the end of the day, if the lens doesn't fit and the
patient either (a) can't see or (b) has some problem with the
lens, pricing policy doesn't matter. So for us, that pricing
policy doesn't make any difference for me as a private
optometrist. As far as the AOA is concerned, we clearly have no
position on how any company sets its pricing policy.
Senator Klobuchar. Okay.
Mr. Slover?
Mr. Slover. The free rider argument is the classic argument
for tolerating resale price maintenance and it does, you know,
have some plausibility and persuadability and it was part of
what persuaded the court to overturn the Dr. Miles per se rule.
Among those who've studied it more closely, it's still
controversial--both as to how much it really affects business
decisions, and as to whether it's really necessary to restrict
pricing in order to address it.
So I think there could very well be a perception among
people in business that if they restrict pricing, that it can
help address a free riding problem. We would just hope that
they would find other ways to get the services that they want
that don't involve restricting discounters from offering better
options for consumers.
Senator Klobuchar. Okay.
Well, I think I'll turn it over here to Senator Lee. Thank
you.
Senator Lee. Thank you very much. Thanks to all of you for
being here.
Dr. Cockrell, I didn't understand most of those terms
referring to horrible eye conditions you described at the
outset. I nonetheless don't want to get any of them. None of
them sound pleasant at all.
I want to get back to Senator Klobuchar's question from a
minute ago regarding the statement submitted by Alcon. Is there
a free rider problem in this industry?
Dr. Cockrell. You know, you're talking to a non-attorney,
so the free rider language is new to me.
Senator Lee. Let's just think of it not in legal terms.
Just think of it in terms of somebody being able to profit off
of somebody else's services. In other words, a retailer, a
distributor, whether online or big box or otherwise, sells a
product that you as an optometrist invests a lot of time in
learning about, in learning how to fit, in learning the
advantages and disadvantages to each patient.
Those big boxes and other retailers don't invest the same
amount of time that you do. Does that result in them benefiting
from work that you put in that you might not otherwise be able
to be compensated for?
Dr. Cockrell. I think at the retail end of a patient's
interaction, whether I sell a contact lens or whether an online
marketer sells a contact lens, at that point in line it's a
product that we're selling. We provided our services for a fee,
whatever that fee happens to be for the appropriate service.
So if I understand your question correctly, I think that
whether that lens is discounted by me or discounted by anybody
else, it's the same lens, regardless of the pricing, it's the
same product at the end of the day. So I think the answer's
``no.''
Senator Lee. Okay. And that is because you're being paid a
fee for a service that's a separate service?
Dr. Cockrell. By the patient.
Senator Lee. By the patient
Dr. Cockrell. Correct.
Senator Lee. By the patient.
And then Senator Klobuchar referred to this briefly, but I
want to make sure I understand your answer on this one. Have
you found that the profit margin for eyecare professionals in
the context of selling contact lenses is diminishing?
Dr. Cockrell. Over--well, I'll give you two answers to
that. Over a period of years--in other words, I have practiced
for 30 years. Over that period of time, I would say it's
probably about the same but somewhat down. What happened is, as
the price of contact lenses came down over time, service fees
moved in one other direction.
When it comes to an actual price of a box of contact lenses
that Mr. Zeidner was referring to, it's hard to relate that
back to before we had disposable contact lenses. With the
advent of any of these UPP policies, I think that the
profitability is probably going to be much less because I would
think that, in my particular case, in my practice--and I am not
speaking for the AOA--I can't buy a lens in the same volume
that 1-800 can, so I can't buy a lens at the same price,
probably.
I certainly cannot afford to sell at the same price because
I have those built-in, inherent costs that Senator Klobuchar
referred to, like Target or big box does in selling a
television. I've got people on the ground handling that
discussion back and forth with a live patient in the room. I've
got a lot more time invested in a person selling one or two
boxes as opposed to if they buy boxes as a commodity. So my
cost of doing business for that product, the product itself, is
higher because of that.
Senator Lee. Have you taken this up with Dr. Knight? I'm
just kidding.
What do you make of the fact that you do have optometrists
in many instances serving two roles, both as a health care
provider where they're expected to offer their sound medical
judgment and they're also a vendor--they're also a retailer who
sells to the very same people who buy their products. In your
experience as an optometrist, does this influence judgment--if
not your judgment, then the judgment of others that you've
known in the industry?
Dr. Cockrell. I'd like to give a long answer to that. The
short answer is no. The long answer is, at the end of the day
whether I fit you or anyone else with a contact lens, I am
ultimately responsible for the health of your eye and the
outcome of that fitting policy. And in our office's case, and I
think I can speak for virtually all optometrists, those
problems I discussed are real and we actually see them.
The trouble that occurs for a patient is, if the lens
doesn't fit, it's not like having two pairs of shoes that are
both size nine and one feels good and one doesn't. If that lens
is too tight and you don't get enough oxygen, because of that,
you may develop corneal neo-vascularization.
If the patient chooses to over-wear that lens and extend
the lens life far past the time it was designed by the
manufacturer, then the lens builds up debris and gets dirty,
and again you don't get enough oxygen through the contact lens
into the cornea and you may develop neo-vascularization and the
possibility of all the scarring problems I mentioned earlier.
So at the end of the day, the price of the lens or the
possible profitability is really a very, very, very small
factor for two reasons. First, keep in mind, from the
professional side, we want to make sure that patients' eyes
stay healthy.
From the business side, we want that patient/consumer to
come back and see us over the next 20 or 30 years. If we don't
take care of that patient and do a good job with their eye
health and their vision, they're really not likely to come
back. So we keep both of those factors in mind and always err
to the side of safety and the best eye health for the patient.
I'll put on one more hat. I've been on the State Board of
Examiners in Oklahoma for 20 years and the problems that we see
that come before us from the public, every single problem I
have seen in 20 years has come about because of a poorly
fitting or a contact lens that was purchased from a fraudulent
dealer where we've had patients' eyes harmed. We've had two
cases in the past 3 years where they lost vision and ultimately
wound up having to have a corneal transplant. Those situations
never turn out perfectly the rest of the patient's life.
So every optometrist and ophthalmologist who fits a contact
lens or deals with those problems is very careful to ascertain
that the health of the eye is the most important part of that
process, absolutely.
Senator Lee. Of your patients that you treat, what would
you say is the rough ratio of them that choose to purchase
their contact lenses from you rather than going to a third
party retailer?
Dr. Cockrell. We think--we have four doctors in our office.
We think in our office it's probably closer to 50 percent, and
that's pretty significant. We live in a college town. We have a
large practice with a variety of patients. As I said, we have
patients as young as two, due to specific eye disease, that
wear contact lenses.
We have patients with a myriad of different eye diseases
that purchase them from us because they're specialty contact
lenses they might not be able to get online. But across the
board, they purchase from all vendors. They purchase from other
vendors in town where we live, as well as online. So it's a
pretty high percentage.
Senator Lee. I'm guessing that putting a contact lens in a
2-year-old is not an easy thing.
Dr. Cockrell. There's a lot of noise involved.
Senator Lee. Yes.
Dr. Knight, you mentioned that one of the reasons why you
pursued UPP was to keep prices down. I just wanted to make sure
I understand how that works. One would assume more intuitively,
perhaps, that if you wanted to keep prices down you might
experiment with a maximum price rather than a minimum price. So
why do you seek to achieve this through a minimum price? Was a
maximum price something you considered either as an alternative
or in addition to this?
Dr. Knight. A maximum price was not part of our business
strategy. We did not consider it. Our strategy focused, again,
around lowering prices. We felt that the best vehicle by which
to have that outcome would be to use a UPP policy. We tried
lowering prices in the past without any other tool and it has
not always translated into a reduction in price to the
consumer.
Senator Lee. Okay. So that's how you ended up there?
Dr. Knight. Yes.
Senator Lee. Do you--I see my time has expired.
Senator Klobuchar. That's okay. I went on for quite a
while.
Senator Lee. Yes, but you are the Chair.
Senator Klobuchar. Oh, yes. I see.
[Laughter.]
Senator Lee. She wields the gavel very effectively. Thank
you, Madam Chair.
You heard Dr. Cockrell mention a minute ago that he does
not think that there is a free rider problem. I just wanted to
get back to you on that. I know you addressed that briefly with
Senator Klobuchar. Do you agree that there are--are you saying
that there is not a free rider problem? Would you agree with
that?
Senator Klobuchar. You know, just to be fair, should I read
him the paragraph from the Alcon testimony?
Senator Lee. Yes.
Senator Klobuchar. I just found it, so we can see what it
is. What they said was: ``In recent years, however, eyecare
professionals,'' or ACP's--that's you, right? Okay. ``Have
found their profit margins on the sale of contacts to be
narrow. The profit margin is low because of a classic free
rider problem.'' This is them saying this.
``An online seller or mass merchandiser which does not
incur the cost of studying the technology, appraising what is
best for a particular patient, or recommending a lens can
generally under-price eyecare professionals who do bear those
substantial costs and without whom there would be no market for
contact lenses.'' That's what they're saying.
Dr. Knight. Okay. I just wanted to make sure I was on. I
don't really find there to--I have to use my particular case.
When I was in practice, we charge for our fitting and
evaluation fees, as Mr. Slover indicated. So I kept my prices
very competitive and some patients stayed with our practice to
purchase their products and others were given their
prescription to go elsewhere. Being able to sell the contact
lenses in our office, though, really presented a convenience
factor for a number of our patients.
We had a lot of patients who had small children, young
mothers with small children, we had working professionals, and
for them to be able to just have their examination, get their
lenses in an office they trusted, and check one more thing off
their box--list of things to do, was very helpful.
And from my vantage point, it also really helped with
compliance because I really focused a lot on if the patient
needed an annual supply of lenses, making sure they had all
their products available so that they would stay compliant and
not have some of the nasty things that Dr. Cockrell just talked
about.
Senator Lee. I get that. But is there a free rider problem
and are profit margins diminishing?
Dr. Knight. I think it's the competitive market. Profit
margins are diminishing, in a sense. But I really didn't focus
so much on the cost of the products; I priced them
competitively and then I charge for my services.
Senator Lee. Okay. You heard Dr. Cockrell say a minute ago
that he expects his profits will diminish, at least on the
retail end of things, as a result of this. Does that surprise
you, and do you expect that to be the norm among eyecare
professionals?
Dr. Knight. Well, I'll give you an example of my office
again, and I'll use a specific product. We sell the Oaysis
brand contact lenses. And again, my goal is usually to give a
patient an annual supply--that's what I prescribe--so that they
stay compliant. That price is $250 for the annual supply. The
UPP is $220. So my office will need to make an adjustment in
the price, but that's in the best interests of the consumer.
Senator Lee. Okay. My time is way over. I'm sure we will
follow up afterward.
Senator Klobuchar. Okay. Good.
So in the end, Dr. Knight, including in your testimony, you
say that ensuring lower prices for consumers was the reason you
did this because--I think, just to--I don't want to
characterize this, but you said that some of the price lowering
wasn't passed on to the consumers when you guys would do this.
Dr. Knight. Correct.
Senator Klobuchar. So the reason was--or your belief and
the reason was that you set these low minimum prices and then
they're guaranteed to be passed on. Is that right?
Dr. Knight. Well, our goal is that that--the hope is that
that would be passed on. We also lowered our prices to each of
the customers across the board, not just eyecare professionals
but everyone who sells our products received a reduction in the
cost.
Senator Klobuchar. Okay.
Dr. Knight. And that is what we hope would be passed on to
the consumer.
Senator Klobuchar. Okay. And you have five examples of
minimum retail prices and all but one of them is lower than the
national average retail price. How about the other products,
are they all priced lower than the national average? This is in
your written testimony.
Dr. Knight. Okay. I don't have that in front of me.
Senator Klobuchar. It's all right.
Dr. Knight. The majority of our products would be priced
lower. There are some that would be priced higher and those are
usually the more specialty lenses, the latest in innovation.
It's a very small margin, comparatively speaking.
Senator Klobuchar. Okay.
So Mr. Zeidner, you've heard this about, from Dr. Knight's
standpoint, when they would lower prices without having these
minimum price--unilateral price policies in place, oftentimes
it wasn't passed on, from their perspective. I assume they've
got data to show that. So what is your response to that?
Mr. Zeidner. Well, generally speaking, in the market all of
the online sellers are going to be less expensive than the
doctors, and that's the average OD price that we have there. So
your online sellers are always going to be lower. When Dr.
Knight talked about 8.3 percent on average, what's interesting
is our prices--now, we have not put the new UPP prices into
effect yet because we don't have to, and we're not going to
raise prices on our consumers until we have to, which is August
1st.
But for some of the products, Johnson & Johnson will give
rebates. We have higher prices and then, since we're not
provided those same rebates from Johnson & Johnson, we rebate
down to the same price that Johnson & Johnson is giving to
doctors and that they're selling them for, or lower. So
that's--I don't know. I'm--we're happy to supply you----
Senator Klobuchar. Are your prices now, right now, lower
than what their minimum price is?
Mr. Zeidner. On----
Senator Klobuchar. What their minimum price will be August
1st, or whatever it is?
Mr. Zeidner. On some products they are, but we have to
change all those August 1st or we get cut off.
Senator Klobuchar. So we're going to be able to know
September 1st how this is going?
Mr. Zeidner. Absolutely.
Senator Klobuchar. Is that right? If they're--compared to
where they were the last year?
Mr. Zeidner. Yes. And if the point is to save consumers
money, I don't know why we have a minimum price we can't go
below.
Senator Klobuchar. I think--I don't want to put words in--I
think she'd argue that before when they did this it somehow
wasn't being passed on.
Mr. Zeidner. Well, but--but they don't have to do that now
either. It's the minimum price but every--she said that they
have to adjust their price in their office. That's--in fact,
they don't have to do anything. They can actually raise the
price. What we believe is manufacturers are setting that price
so doctors can say, ahh, no one can compete below that.
We can stay at that price or even go higher if we want to
increase our margin. So there's no expectation, at least in our
minds, that that price is going to be passed on to consumers.
From our point of view in the business, all that is is
insulating optometrists from having to compete with discounters
that go much lower than that price.
Also, on the whole----
Senator Klobuchar. So what are you--you have--I think I had
asked someone else this before this hearing, but you have what
percentage of the market? Like, online is what percentage, not
maybe you personally?
Mr. Zeidner. Well, of--of online, we're probably three-
quarters. And for----
Senator Klobuchar. Three-quarters of--oh, you are three-
quarters of online?
Mr. Zeidner. Of the online, yes.
Senator Klobuchar. I thought you meant you're probably
three-quarters of the market.
Mr. Zeidner. No, no, no. No, no, no.
Senator Klobuchar. So you are what percentage? Do you know
what percent of the market?
Mr. Zeidner. Yes. We're roughly 10 to 11 percent of the
entire market. However, because it's so fragmented, because, as
Dr. Knight mentioned, there's 40,000 to 50,000 optometrists,
we're still the largest seller because it's so fragmented.
Senator Klobuchar. I see.
Mr. Zeidner. So we are the--and we have the most data.
We're happy to show as well Johnson & Johnson is not offering
us, as Dr. Cockrell mentioned--we're not getting any price
discount for buying volume. In fact, that's been taken away. So
now the same price per box, if you----
Senator Klobuchar. But that's going to be taken away with
this?
Mr. Zeidner. Yes, ma'am.
Senator Klobuchar. Okay.
Mr. Zeidner. Yes, ma'am.
Senator Klobuchar. Okay. All right.
Mr. Slover, what do you think is going to happen with
prices when this goes into effect August 1st?
Mr. Slover. Well, from what I've heard today, when the
policy is instituted, I think for some patients who are getting
their lenses from some retailers, the price is going to go down
in the short term. It sounds like that's the intent and the
direction. But the prices for consumers who care the most about
cost and are willing to shop around for options, for them the
price is going to go up and it's going to stay up.
I agree with those who have said that if the goal is to
lower prices, it's more logical to put a maximum of ceiling on
the retail price and to allow the retailers to go below that if
they want to, than to put a floor on the price and allow the
retailers to go above that. Now, historically, the courts have
often found that maximum prices end up encouraging price fixing
anyway, but they're treated differently under the antitrust
laws. You can sort of see why they would be.
Senator Klobuchar. And do you think the fact that it's more
concentrated with three companies having 90 percent of the
market share, and you know, sort of like--a little bit like the
railroads are right now, but do you think that's going to make
a difference in how this is rolled out, like it was less
concentrated and people were offering these minimum price
agreements? Do you think there might be a different effect than
the fact that you have a more concentrated industry?
Mr. Slover. Well, in general, the more concentrated a
market is, the greater the risk for coordination, because it
becomes easier for competitors to coordinate their conduct. And
here, if--it's easier for them all to kind of watch what each
other is doing and to go along and it's easier for each of them
to control the situation.
Senator Klobuchar. Dr. Knight, what do you think the effect
this is going to have on innovation to do this? That's another
piece we're talking about, about pricing. Then Dr. Cockrell
brought up innovation. What do you think the effect it will
have on innovation?
Dr. Knight. Well, I think and I hope that it will continue
to stimulate innovation. It's a competitive market and we will
always react to the market, as will our competitors. Our goal
is to increase our market share whenever possible and to be
able to, at the same token, lower our consumer prices. But the
market tends to adjust for those things.
Senator Klobuchar. Could I just say one more thing with
these price--minimum price agreements? Like, how long do they
last? Can they be adjusted right away? Because if you had a
competitive market you'd want to adjust your product right
away.
Dr. Knight. That is correct. They can be adjusted right
away. They are not a permanent solution.
Senator Klobuchar. Or a year long, or 6 months or anything?
Dr. Knight. We really didn't put a timeframe on it. It is
one of the means by which we wanted to try and accomplish our
goal of lowering prices and if it doesn't work then we'll make
an adjustment.
Senator Klobuchar. Do you want to add anything, Dr.
Cockrell? Do you have your microphone on there?
Dr. Cockrell. It is now. In our particular practice I
continue to hear that they occupy the top three spots in 90
percent of the marketplace. In our office--I checked before I
came--on a monthly basis we order from between 10 and 15
different manufacturers. There are over 90 manufacturers and
each of them provide many different lenses, so we have hundreds
of lenses available.
So outside of these pressing policies of the big three that
you've talked about, we can buy other products to do the same
thing that may not fit the same, that may fit differently, may
have different parameters.
So there's a significant amount of competition in the field
when you think about 90 different vendors for a lot of these
products. There are specialty lenses that we order where
there's only a handful because of the disease states I talked
about, and things like that. So there's really a lot of
competition.
The other thing I would say on the competition, in our
office, as I said, in some cases we charge lower, I think, than
1-800 does. I'm certain that we do on some products, and some
are probably higher. But there's also a part of competition
that is value, and it's not just value, i.e. price, it's also
service, as Dr. Knight said, those patients who find it
convenient to purchase in her office while they're there, or
those patients who like the care they receive in her office
when the transaction takes place, or they want to be able to
look across the counter and talk to somebody when they have a
question about it. That's all part of the value of where they
purchased those lenses as opposed to just shopping for what
might or might not wind up being the lowest cost provider of
that lens.
The other thing that we find happens that we explain
literally on a weekly basis, our staff does this, is the
confusion over rebates. You know, I don't know what percentage
of rebates are actually redeemed, but from what I've read
across all industries it's pretty small.
So you can have one price and then have a very big rebate,
understanding that it's not going to be redeemed or that the
majority are. We wind up making that explanation very
frequently. So I think having one price eliminates a lot of
price confusion and benefits the consumer overall, regardless
of where that is, because it eliminates confusion.
Senator Klobuchar. Okay.
Senator Lee.
Senator Lee. Dr. Knight, so you're saying that although
prices may go up for some they may go down for others, but
overall the objective here is to decrease the price paid by the
typical contact lens consumer, and do you think that's what
will happen?
Dr. Knight. Yes, I do. And to comment to what Dr. Cockrell
mentioned, in our estimates the number of consumers who
actually redeem the rebates is about 6 to 8 percent.
Senator Lee. Okay. Mr. Slover, what's your response to
this, particularly the assertion that on the whole for the
average customer, prices are going to go down as a result of
the unilateral pricing policy?
Mr. Slover. Well, I think for the cost-conscious consumers
who are looking for the lowest price, that lowest price isn't
going to be there anymore, so the prices for them are going to
go up. I think there are a lot of consumers who are less cost-
conscious, and for them the benefits of getting the contact
lenses while they're at their doctor's office may be more
important to them, and they should have that choice. But the
consumers who need the extra money and are willing to shop and
get the lower price ought to be able to do that.
Senator Lee. I assume there are probably a lot of customers
who become relatively attached to a particular brand of contact
lenses and they don't want to change, necessarily. Does that
have an impact on this? I mean, does that have an impact on the
extent to which prices could go up?
Mr. Slover. Well, I've heard that a lot of the
prescriptions that are written are for a particular brand and a
particular lens. To the extent that's the case, it puts a lot
of the control in the optometrist's office. How that
optometrist uses that authority will depend on the particular
optometrist, but it has the potential to lower options for
consumers.
Senator Lee. Thank you.
Do you want to follow up on that?
Dr. Knight. Yes, if I may. I think more than brand, the
modality of the lens is probably even more important. If I have
a patient, for instance, who has a family history of macular
degeneration or is at risk for cataracts, I'm going to be
looking at putting that patient in a lens that maybe has a UV
component to it, for instance, to protect their eyes from that
particular situation.
If I have a patient who has allergies, maybe the best
modality for that patient might be to go into a lens that they
dispose of on a daily basis to keep their eyes as clean and
healthy as possible, and there are a variety of choices along
that modality. So if a patient has a particular brand in mind
that they're interested in I probably can find something along
that line that would work for them, but more so than----
Senator Lee. And is your ability to do that as an
optometrist enhanced by UPP? I'm just trying to figure out how
it ties in to unilateral pricing.
Dr. Knight. Well, whether you have a unilateral pricing
policy or not, that's something that I think should be first
and foremost with most practitioners. It's not so much--Mr.
Slover was speaking about brand issues. Brand issues are a
factor, but the bigger factor is, what's the best type of lens
to put a patient in, what's the best system to put them in
first and foremost, and then you choose a brand.
Senator Lee. Okay. Got it.
Mr. Zeidner, what's your response to the point that the
price, on average, to the consumer of contact lenses will be
reduced as a result of this?
Mr. Zeidner. We don't see how that can happen. Just to
respond to some of the comments, every single prescription is
written for a brand. That is required by law, so there is no
choice by the consumer to change their brand. If they have a
doctor that will allow them to ask for a specific brand for
whatever reason they can, but they are locked into that brand.
Senator Klobuchar. So, when they go on 1-800 CONTACT LENS--
we're going to say it as much, you know, for your marketing. So
when they do that, they have to have a prescription with them
to get it?
Mr. Zeidner. Yes, ma'am.
Senator Klobuchar. Okay. Thank you.
Mr. Zeidner. They have to have a prescription or we will
verify it with the doctor's office, but it is always a brand.
So there's no choice here. If it were about modality and the
doctor said you need to have a 2-week lens that has these
properties and then the consumer could choose the brand, that
would be a competitive marketplace. That does not exist right
now. That would be a competitive marketplace. This is really
what we think the main issue is. We talk about and we mix these
metaphors together about free riding and best buy, but this is
not----
Senator Klobuchar. Just to be very clear--do you love how
I'm intervening?
Senator Lee. It's okay, Madam Chair.
Senator Klobuchar. I said there was a difference between
that----
Mr. Zeidner. No, no, no.
Senator Klobuchar [continuing]. But it reminded me of some
of those issues.
Mr. Zeidner. And that is the difficulty.
Senator Klobuchar. I didn't mix it up?
Mr. Zeidner. No, no, no. And I'm not suggesting you do. We
think consumers get mixed up that way because it is not a
consumer product. You don't get to go and shop for the brand
you want, you're told what brand you're going to get, then you
go and shop for where you want to purchase it.
That is being taken away because at this point, after UPP,
you're prescribed a brand and you have to pay that price. So
it's really not like any other consumer product, and that is
because you have a medical professional who is selling what
they prescribe in the office.
It would be a lot more convenient if I could buy all my
Lipitor or whatever from my doctor, but I can't because we
don't allow that in medicine. But in this part of the market,
we do. That's really the fundamental issue here, is because on
the one hand we're talking about what's best for the patient,
what they should be prescribed, on the other hand, where they
can get the best price.
Well, now all that's been concentrated into one gatekeeper,
and that's the optometrist. Because with UPP, there's no way to
get a lower price. The doctor tells you what you're going to
wear and then he tells you you can't get it cheaper anywhere
else.
Senator Klobuchar. But couldn't the doctor charge a higher
price?
Mr. Zeidner. Absolutely. But then----
Senator Klobuchar. But then wouldn't that make people go to
1-800 CONTACT LENS to get a cheaper price?
Mr. Zeidner. It would, but Dr. Knight just said that
they're going to adjust their prices down to UPP, which every
doctor could do that as well, too. But you can't go below UPP.
Senator Klobuchar. Right.
Mr. Zeidner. So we can't discount any more.
Senator Klobuchar. I get it.
Mr. Zeidner. It wouldn't make any sense for someone to want
to come to us because we don't have--after this we won't have
any lower price.
Senator Klobuchar. Sorry.
Senator Lee. Well, that's okay.
By the way, can you tell me, or if not you can any of you
tell me, why it is that there is not the equivalent in the
contact lens industry of a generic prescription or of some kind
of fungibility between brands?
Mr. Zeidner. Well, it's an interesting question. What Dr.
Knight was just saying is really an interesting option. If the
prescription said the modality, you need to have a modality
with these type of protections, you have this type of an eye,
then the consumer could say, you know what, I want to check on
prices and then fit me for a couple of these and I'll choose
which one I want, then you would have competition at the
consumer level but you don't have that now. This is a strange
market. I don't know why we don't have those, I don't know why
doctors sell them. It's a different market than any other
medical product.
Senator Lee. So taking your hypothetical one step further
then, it's analogous, you would say, to what--not just going to
a doctor and being told, I'm prescribing you Lipitor and you
may now purchase that from me, but going to a doctor and being
told, I'm prescribing you Lipitor, there is no generic
alternative, there are no other alternatives anywhere----
Mr. Zeidner. And the price is the same everywhere.
Senator Lee. Okay.
Mr. Zeidner. That's what the market's becoming.
Senator Lee. Dr. Knight, did you want to--oh, and Dr.
Cockrell, you wanted to respond also? Let's go in that order.
Dr. Knight. Sure. The modalities is only a part of the
scenario. The brands are not all the same, and so to make
assumption that you can switch into a generic from one
manufacturer to another is just faulty. The parameters are
different, the materials are different, the oxygen content is
different, the water content is different; they're different
materials. Patients need to be fit with those lenses to
determine what's best for them.
Senator Lee. Okay. So that's why the law is the way it is,
as a result of that, of those factors that you've just
identified?
Dr. Knight. Yes.
Senator Lee. Dr. Cockrell?
Dr. Cockrell. I'd like to comment. You know, when you talk
about a generic medication like Lipitor, the bioavailability of
a chemical has to be the same, the bioavailability of the
molecule has to be the same. As Dr. Knight mentioned, today I'm
wearing two different lenses from two different manufacturers
because I cannot see well and can't feel good with the same
lens and the same manufacturer.
Senator Klobuchar. That would be called like advanced eye
treatment.
Dr. Cockrell. Absolutely. But really you can't have
anything such as an equivalent curve or diameter because every
single characteristic of that lens is different.
Within these manufacturers, I'm not sure how many different
lenses that Vistakon sells, or Cooper, but they sell many
different lenses with many curves, many, many molecules that
make up the actual chemical properties, and then you've got to
put that on the eye.
If it's a woman who's pregnant, as her estrogen level
changes the curvature of the cornea can change, so maybe the
contact that fit before she was pregnant no longer fits. If
someone is above 55, most people have dry eye. Maybe the lens
they could wear before, they think, ``I should still be able to
wear it, now it's too dry and now I can't wear it.''
So maybe the patient needs to go into a different modality,
like Dr. Knight was talking about, where they had been wearing
a lens that they replaced on a weekly, or 2-week, or monthly
basis, and now the patient needs to replace that lens on a
daily basis. There are so many different characteristics that
must be considered.
If you leave those decisions up to the consumer to say I
want to pick Brand A because it costs less, then we get back to
all that myriad of problems that I talked about that may result
in bad healthcare for the patient and the problems that occur.
It's no different than letting me pick out which orthopedic hip
replacement that I want. To say, ``I want that one because it
costs less'' is just faulty logic, to say the least.
Senator Lee. I think I saw your hand go up. Did you want to
respond?
Mr. Zeidner. Yes. Just two quick things. The most popular,
growing area of contact lenses is the daily lens. In fact,
Novartis Ciba Vision's lens doesn't come in a base curve.
Because it's so thin, it fits anyone that can wear it. So you
don't have that in every contact lens.
When you look at the 510(k) filings of the major
manufacturers, what the FDA says is that the base curve is in
this range, it's between this and this. The manufacturer
chooses which number they want, and they all chose different
numbers. So it does depend on the eye and on how it fits the
person, but those numbers are set by the manufacturer and
they're given a range.
So it's not like they're made microscopically to that level
of that exact--but it is a range and it does depend on how it
fits the person's eye. But I think the point is very good, that
if people want to be able to get a lower price, if Dr. Cockrell
says that we don't want them choosing their own lens, what
we've now done is just the opposite.
We've told them, you can't choose where to buy them because
it's the same price everywhere, so we've really taken away
choice completely from the consumer. If it's a bad idea for the
consumer to choose their lens, we think they should at least be
able to choose what they want to pay for it and now they're not
able to with these RPM policies.
Senator Lee. Madam Chair, may I ask one more follow-up on
that?
Senator Klobuchar. Yes.
Senator Lee. Mr. Slover, from--so let's take as a given
what we've heard from these witnesses about the fact that, for
whatever reason, for reasons medical or reasons just related to
the way the law is, we do have a marketplace in which there is
not--there is not a type of prescription a doctor can write;
whether the doctor should or should not be able to write that
is a different question and one probably far outside the
jurisdiction of this committee.
But given that a doctor cannot write a prescription for
just a type of contact lens but has to write a prescription for
a particular brand, a particular lens manufactured by a
particular manufacturer, does that trigger special antitrust or
consumer welfare concerns that might not exist elsewhere?
Mr. Slover. Well, in listening to the other witnesses and
the health considerations that they were discussing and the
patient safety concerns that they were discussing, I agree with
all of those. Consumers Union would take a backseat to no one
in the importance of health and safety for the patients. I
don't think the health and safety questions need to be
connected to the marketing questions.
The better those can be separated, the better for patients
as consumers, I think. The 2003 law moved in the right
direction toward separating those. I think the new pricing
policies move in the opposite direction.
I think for antitrust you're looking for choices for
consumers here, and the fact that there are sort of some built-
in limitations in the marketplace are the kinds of things that
the antitrust investigators and the courts would take a look
at, and I think those are all important. But the bottom line, I
think, is trying to separate out those two sets of
considerations.
Senator Lee. Okay. Thank you very much.
Thank you, Madam Chair.
Senator Klobuchar. Okay. Well, thank you. This has been a
very good hearing and we've learned a lot. It's clearly
something where we'll know a lot more in terms of the pricing
issues a few months from now, or 6 months from now--I don't
know how long it will take--so that we should come back and
look at this again because I know how much you guys like
testifying anyway.
I think we came in at this at a good time in terms of the
fact that we're seeing this major change, and it could have an
effect on consumers and that's why we have this committee. I
realized as I was sitting here that I have to correct the
record because I did wear a contact lens since my wedding--and
I didn't know who made it, and it turned out it was you guys--
when I had actually a condition that Dr. Cockrell is going to
know is very bad called corneal abrasions for a period of
years. Every so often I would have to put a Band-Aid contact
lens on and they prescribed an ACUVUE, which turns out you guys
make. So, there you go.
And actually one very good ophthalmologist fixed it with
Lasik so I no longer have this problem, but it makes it hard to
wear contacts. So you never want to lie on the record, right,
Senator Lee, in front of our witnesses, but I do want to thank
all of you for being here.
And again, this is a really important issue when you look
at how many Americans wear contacts with a change in the
pricing, possibly in response to the Supreme Court decision. I
think it's really important that we keep our eye on this and
see what the outcomes are going to be for consumers and
continue to monitor this in the months to come.
Do you want to add anything, Senator Lee?
Senator Lee. Thank you very much.
Senator Klobuchar. Okay. Thank you. This has been a
productive hearing. We will keep the record open for 1 week for
any additional submissions or follow-up questions. Thank you.
The hearing is adjourned.
[Whereupon, at 3:39 p.m. the hearing was concluded.]
[Additional material submitted for the record follows.]
A P P E N D I X
Additional Material Submitted for the Record
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