The Updated Contact Lens Rule: A Sound Step Forward for Taxpayers, Consumers, and Competition
Both the Eyeglass Rule of 1978 and the Contact Lens Rule of 2005 represent some of the Federal Trade Commission’s (FTC) finest work. Using sound economic analysis and other evidence-gathering techniques, the agency identified and removed regulatory barriers to consumer choice and business competition. The results not only benefited vision care customers, they also benefited taxpayers.
Free-market advocates continue to vigorously support both of these rules, particularly the proposed update to the Contact Lens Rule now under the Commission’s consideration. They agree with the FTC’s conclusion that requiring eye care providers to retain for three years a customer’s simple signed acknowledgement (in paper or electronic form) of receipt for a prescription is a “relatively minimal” burden on the business that is “outweighed by the benefit of having more patients in possession of their prescriptions.”
Millions of consumers continue to benefit from increased accessibility and reduced costs as a result of the revolutionary Contact Lens Rule of 2005. Given these gains, an updated Rule would serve as a lasting model that strengthens the relationship between customers and providers. Furthermore, technological advances in telehealth have shown that accessibility, affordability, and personalized care to the specific needs of individuals can improve as a result. Thus, there is a dynamic in which the updated Contact Lens Rule is both a reflection of, and a catalyst for, a transformation in consumer-centric care. It is a bridge between the practical and the potential.
The following Issue Analysis combines recent comments and observations submitted to the Commission from National Taxpayers Union (NTU) and its colleague organizations, as well as new material in order to make a concise case for approving the update to the Contact Lens Rule. This update is based on thoughtful analysis, carefully balanced priorities, and evidence from more than a decade of experience with how the Rule has been implemented. The FTC should confidently and swiftly proceed with its proposed action.
The landscape for purchasing contact lenses has drastically changed since the late 1990s. For decades, optometrists had what appeared to be a monopoly on the sale of contact lenses due to the fact that American consumers were so often limited to purchasing lenses from the provider who wrote them their prescription. This principal-agent model is a clear conflict of interest, where consumers are the principals and the optometrists are the agents. By dominating the marketplace, this group was able to control pricing and thereby artificially boost the cost of lenses.
However, by 2003 Congress took notice. That year, Congress passed, and the president signed into law, the Fairness to Contact Lens Consumers Act (FCLCA) of 2003 which the Federal Trade Commission subsequently implemented through its Contact Lens Rule in 2005. The rule, which was intended to facilitate consumer choice and spur competition among sellers of contact lens products, requires contact lens prescribers to give a copy of the prescription free of charge to the patient after a fitting. In addition, prescribers are also required to verify the patient’s prescription to anyone, including contact lens providers, authorized by the patient. The result is less market distortion and more competition.
Over the course of the last decade, the FCLCA has completely transformed the contact lens marketplace for the better. The law has injected competition between traditional retail and online options for consumers, which has reduced prices, and thus expanding accessibility for millions of consumers. An analysis conducted by Contact Lens Spectrum shows that the number of adults purchasing lenses grew from 36 million in 2005 to 40.9 million in 2015.
The FCLCA provides that the Commission conduct a review and issue a new Contact Lens Rule every ten years to ensure consumers are being optimally served by the underlying intention of the law. The Rule is just one example of how government policy can foster innovative new online technology solutions that are creating easier, less expensive ways for consumers to renew their contact lens and eyeglass prescriptions from the comfort of their own home or office. These solutions increase competition and choice while reducing consumer burdens – especially for those in remote and rural areas who need to travel longer distances to visit an optometrist. Such developments likewise benefit taxpayers, who help to underwrite insurance plans for government employees and who seek cost-effective service-delivery models that other health care programs can emulate.
I. Free Market Advocates Agree: The Eyeglass Rule and Contact Lens Rule are Models for FTC Policymaking.
Over 30 years ago Timothy J. Muris, FTC’s then-Director of the Consumer Protection Bureau, analyzed a number of FTC rulemaking proceedings subsequent to the Moss-Magnuson Act, and found that most were withdrawn, made obsolete, or delayed. In his words, it was “hardly a record to justify the enthusiasm that launched the Commission on its one-proposal-a-month binge in 1975.” Not coincidentally, this period marked a serious reconsideration of the FTC’s role – indeed its future existence – as an agency.
Muris compared and contrasted several of these rules, concluding that most failures stemmed from two factors: 1) A lack of clear theory to show how a given practice violated the law and why a government remedy is superior to the market; and 2) A lack of “systematic projectable evidence” that confirms, not just coincides with, the theory.
Muris cited two cogent examples to illustrate his point – proposed rules that would lift states’ restrictions on advertising for eyeglasses and regulations regarding disclosure of funeral home pricing. In the former case, the FTC relied on systematic projectable evidence that states with advertising proscriptions had “significantly higher prices” than those with more open information environments.” In the latter case, the FTC plowed ahead with a rule requiring price disclosures via telephone and point of sale, relying on “no more than a score of anecdotes” in a funeral industry with (at that point) some 2 million transactions a year.
The resulting Eyeglass Rule (16 CFR Part 456) remains the progenitor of what free-market advocates would call “deregulatory rulemaking”: clearing away thickets of rules often created by state or local governments with little sound evidence or even at the behest of rent-seeking interests.
Although Muris and other FTC officials such as former Commissioner Joshua Wright have expressed a preference of rigorous factual analysis over public surveys, we believe that both methods, in proper context, can be of assistance to the Commission.
Such is the case the case today with the Contact Lens Rule, in which the FTC can rely upon evidence such as:
Retail data showing that renewal of contact lens prescriptions online can be far less expensive than through retail outlets -- as much as 75 percent less.
Economic sector data demonstrating the job creation potential of the Internet ecosystem, even for smaller businesses that might characterize a number of “brick-and-mortar” optometry offices. In May of 2011 the McKinsey group conducted an exhaustive survey of 13 countries called “Sizing the Internet.” One fascinating finding came from a sub-survey of 4,800 small businesses, which determined that for every job “lost” due to “technology-related efficiencies,” 2.6 jobs were created. The majority of those benefits accrued to businesses outside the tech sector.
Polling data and surveys indicating consumer awareness of their rights under the current Contact Lens Rule. For example, a 2017 Consumer Action-ORC International poll of 685 contact lens customers determined that 60 percent of respondents were unaware of the right to automatically obtain their prescription from their examiner, while 31 percent reported not actually having received their prescription.
These and other sources of empirical data has informed the Commission’s decision to carefully modify the Contact Lens Rule of 2005 with additional safeguards that will maximize consumer welfare and competition. Free market advocates wholly support this method of policymaking as a government-wide standard.
II. Private-Sector Burdens of Rulemakings Should be Taken Seriously -- and the FTC Has Done So with the Contact Lens Rule Update.
The deadweight costs that public-sector taxes and regulations impose on private-sector businesses and their customers are of paramount concern to free-market organizations. The National Taxpayers Union, for example, has for three decades intensely engaged in discussions over how best to capture the true burdens of compliance with the federal income tax system.
Thus, NTU was particularly interested in a study submitted last year to the Commission by Avalon Health Economics and the American Optometric Association that estimated the industry-wide compliance costs associated with the Contact Lens Rule update to be as high as $744 million annually – roughly ten times the amount that FTC’s own calculations indicated.
A closer look at the limited details available on the report suggests that the labor costs associated with staff training, informing customers about the new prescription acknowledgement were conducted in a straightforward manner: extrapolating responses of compliance time estimates from 130 respondents out of tens of thousands of establishments and applying Bureau of Labor Statistics compensation data to those estimates. NTU is familiar with this methodology, as it was employed in various forms with tax compliance burden estimates required under the federal Paperwork Reduction Act. Avalon’s conclusion of $108 million of burden associated with this component may be plausible, but could be mitigated by factors such as economies of scale (e.g., large chains standardize training and customer consent procedures) or actual customer experience (e.g., fewer customers ask lengthy questions after being given notification forms to sign).
Yet, the remaining component of the estimate -- more than $600 million -- is attributed to “administrative time associated with adhering to rules.” Avalon is certainly correct in pointing out that “many regulations can be a drag on industry productivity.” Here again, however, more detail is needed to evaluate whether a $600 million outcome would be mitigated by other factors. As the FTC has stated:
The majority of states already require that optometrists maintain records of eye examinations for at least three years, and maintaining a one page acknowledgment form per patient per year should not take more than a few seconds of time, and an inconsequential, or de minimis, amount of record space.
This is not idle speculation. In a classic book by Professor James L. Payne entitled Costly Returns, the author recounts the biases in the survey-based study of tax paperwork burdens conducted by Arthur D. Little in 1988:
One issue concerns the accuracy of the self-reported times. When people are asked to declare how much time they spend on tax compliance activities, are they accurate, or do they misstate the actual times? It appears there may be tendencies both to overstate and understate. There probably would be a tendency to exaggerate the time taken for specific, recognized activities. If a taxpayer actually sat at a table for four hours one evening filling out his return, he might report this as five or six hours. He might overlook the time he spent away from the table getting a sandwich, for example. Also, his annoyance at the activity might lead him to exaggerate.
Unlike new tax laws, the employee and consumer learning curve about the Contact Lens Rule update is easily surmountable: a new, short acknowledgement form that must be provided, read, and stored. Economic, family, or other circumstances can easily change a taxpayer’s compliance profile in a given year, but this is not the case with a customer at an eye care practitioner. On the other hand, annoyance on the part of providers at having to furnish one more form to the customer, on top of HIPAA and other government requirements, might be palpable. The remedy here is obvious, but out of FTC’s immediate purview: reduce the paperwork burdens of those HIPAA and other government mandates instead.
Other organizations have weighed in on the compliance questions surrounding the Contact Lens Rule update, and have offered more direct analogies. The Information Technology and Innovation Foundation remarked:
The Commission is also right to include in the proposed rule the requirement to maintain the signed acknowledgement for a period of at least three years. Without such a requirement enforcement of the original Contact Lens Rule will remain difficult. Moreover, despite what some in the optometry industry might claim, such a requirement should be easy to administer, particularly if prescribers use an electronic device such as a tablet to present the information to the patient and record the signature electronically. Given that a low-end tablet comes with 32 gigabytes of memory, this means that such a device could hold approximately 1.8 million patient acknowledgement forms. In other words, optometrists could store all their patient signature records for long periods of time at virtually no cost.
Nonetheless, it is a complex undertaking to put a precise estimate on compliance. Free-market advocates would contend that the FTC has made laudable efforts to tailor the Contact Lens Rule update to only the most necessary additional regulatory impositions on the industry.
No exploration of paperwork costs in this area of the economy would be complete without noting the considerable burdens on the optometry industry from other types of regulations. Medicare provider participation rules, as well as establishing infrastructure for ICD-10 codes utilized by public and private insurers, can be onerous, particularly for smaller eye care establishments. While these are not within the direct control of FTC, another area of regulation certainly is. In 2017 the National Association of Optometrists and Opticians submitted comments urging the Commission “to continue to promote limited use of occupational licensing only after careful, evidence-based analysis of the need for and benefits of licensing. … When there is consensus among states that occupational licensing is appropriate to protect the public from a demonstrable risk of harm, the FTC should work with the states to encourage either interstate compacts or adoption of model laws to ease licensure mobility.”
Free-market advocates wholeheartedly agree with this assessment.
III. Government Employers and Employees, Like the Private Sector, Benefit from the Contact Lens Rule Update.
Compared to in-person exam fees, online vision services are less expensive and more convenient. Federal, state and local government workers, who have vision care through their employer, can save money to the taxpayer-funded system compensating them as well as increase their own productivity by saving the time of visits to brick-and-mortar retail outlets for simple prescription renewals.
According to a Pew Charitable Trusts report, utilizing data from the Milliman Atlas of Public Employee Health Plans, in 2013 states and their employees spent $30.7 billion to provide health coverage to 2.7 million households of active state-level employees (not including local government employees, even those who could join state-level plans). State governments – i.e., taxpayers – covered $25.1 billion of this cost (the employees themselves covered the remainder). This is probably the smallest universe of expense attributable to state and local employee insurance. Taxpayers cover more than 70 percent of the premium costs associated with the Federal Employee Health Benefits Program, which pays out over $40 billion to current workers and retirees.
When compared to other services such as hospitalization coverage, eye care may be a less of an outlay to government insurance plans. Still, as the Bureau of Labor Statistics reported in December 2017, average employer compensation for states and localities totaled nearly $49 per hour versus closer to $34 per hour for the private sector. Health insurance was a driving factor in this differential – states and localities paid out nearly 12 percent of compensation to that benefit, higher by nearly half than what the private sector offered. Thus, with all governments facing long-term liabilities due to employee benefit programs, the need to find solutions that suit both workers and employers has never been more acute. Those solutions can begin with technologies such as ocular telehealth, provided they are allowed to develop through wise policies such as the updated Contact Lens Rule.
IV. Other Taxpayer-Funded Programs Stand to Save If Telehealth Flourishes, and the Contact Lens Rule Update Sends an Important Signal.
Insurance for government employees is not the only area where taxpayers could gain from online vision care. Governments should be making regulatory burdens less onerous, allowing new services and technologies to participate more fully in the marketplace. Three-quarters of the states allow online vision prescription renewals for consumers, while the U.S. Department of Veterans Affairs utilizes the technology for several eye care purposes. FTC helped to open the door for this increasingly accepted technology, as well as applications related to other areas of health.
As Medicaid programs continue to evolve in offering vision services, online options will become increasingly important in delivering quality care that is affordable to taxpayers. This is especially true in rural states, where Medicaid participants may have easier access to an online connection and smartphone (even through a friend or family member) than they would to an eye care provider’s office that could be miles away from their homes. For instance, the Healthy Indiana Plan, approved under a federal Medicaid waiver, makes use of a premium-based benefit coverage (one option for which includes some vision care) along with individual health expense accounts. This structure will over time involve more decision making among individual beneficiaries on where to prioritize their own healthcare dollars. To give another example, if Kentucky’s ambitious post-Affordable Care Act overhaul of Medicaid is to succeed, it is important for the Commonwealth to avail itself of every advantage afforded by technology. The proposed work requirement for able-bodied Medicaid recipients would be made more viable by innovations that allow workers to obtain eyeglass and contact lens prescription renewals more affordably and conveniently, without taking costly time off their jobs.
And while Medicare and Medicaid generally do not provide for online lens purchases, the stifled development of new examination and purchasing venues will impact other areas of healthcare delivery. At the same time, citizens who might be deterred from maintaining their eye care because of more onerous procedures for purchase could eventually suffer health problems that will rack up more Medicare and Medicaid expenses. Governments in the U.S. must continue to embrace technologies and service delivery models that can provide quality care at fiscally sustainable levels, and the FTC’s leadership is vital in this regard. We have noted that some federal entities, including budget “scorekeepers,” have failed to appreciate the fiscal advantages to ocular and other telehealth services that we have briefly outlined in these comments. Common mistakes among such agencies include a failure to account for the net benefit of an initial investment in the technology over a sufficient number of years, along with the preventative effect that can head off costlier treatments over time.
Such savings can often be found in unlikely places: as a 2016 report from Pew Charitable Trusts concluded, “States increasingly have adopted telemedicine in prisons to save money, improve inmates’ health, and lessen the risk of taking prisoners to outside hospitals.” Even in this environment, where there is obviously not the same dynamic of consumers making purchases from contact lens prescriptions, the ocular telehealth technologies engendered by FTC rulemaking has paid, and will pay, dividends to taxpayers.
All of these developments have a strong connection to the Contact Lens Rule and the update you are now deliberating. By creating a competitive marketplace that focused on lower cost, more convenience, greater choices, and increased access for contact lens consumers, the original rule illustrated how new service delivery options and the technologies supporting them can integrate and become even more innovative as a whole compared to the sum of their parts. Such added value is the very foundation of the larger evolution of healthcare happening now. At the same time, the updated Contact Lens Rule is necessary to ensure that eye care consumers aren’t left behind as this evolution progresses.
V. States Must be Reminded that When the “Precautionary Principle” Wins, Taxpayers Lose.
As is the case with innovations throughout the economy (e.g., the Internet of Things), preemptive regulation on the part of governments in the name of protecting consumers can actually cause harm. This unfortunate problem also extends to taxpayers. Presupposing that a given technology is harmful and must “prove” itself non-disruptive too often serves to protect market incumbents. Although FTC has, in our opinion, unevenly applied proper standards of actual harm to consumer welfare rather than precautionary principles, in its promulgation of the Contact Lens Rule the agency has been admirably outspoken.
As an example, FTC recently recognized this fact when staff from several of the agency’s divisions commented on legislation in Washington State undermining the Contact Lens Rule, which has heretofore provided customers with more purchasing options for corrective eyewear. The staff wrote that “the Bill, if adopted, may reduce competition, access, and consumer choice in eye care services, and might also raise costs for consumers.” We would add that Washington State’s bill could also have a “chilling effect” on the development of other telemedicine technologies that have the potential to save taxpayer dollars in state healthcare programs.
Continued consumer benefits stemming from the FCLCA should be a model for other telehealth priorities. By removing government’s control over the market that once protected a select few entrenched special interests, significant taxpayer and consumer savings resulted, all the while spurring competition and innovation in the private market.
VI. FTC’s Updated Contact Lens Rule Can be Trailblazer for Future Taxpayer Savings.
Two recent government reports further highlight the connection that FTC’s action on the Contact Lens Rule update can have on the future of healthcare policy -- a future that envisions consumer choice, competition, value-based care decisions, and taxpayer savings. According to a November 15 report from the Centers for Medicare & Medicaid Services, significant barriers to the expansion of Medicare telehealth services are 1) Requiring the originating site to be located in certain types of rural areas and 2) Not allowing the beneficiary’s home to be an eligible originating site. The regulatory remedies to these problems are not within FTC’s purview, but the Commission can certainly help to facilitate policies that transform any remaining culture of hesitation that may persist in government over deploying telehealth.
The Contact Lens Rule has enabled providers located in all kinds of areas to deliver services to consumers online, with service delivery models tailored to each customer’s preferences. As a “spillover” benefit, online refractive exams are allowing both the provider’s and the customer’s homes to be originating sites. This rich volume of experience can be translated to public sector telehealth programs, allowing their evolution to proceed with confidence that others in the private sector have already paved the path.
A similar analogy can be made with a joint report, “Reforming America’s Healthcare System through Choice and Competition,” published by the Departments of Health and Human Services, Treasury, and Labor. Among the problems this document identified in reaching the goals embodied in its own title were “meaningful and timely consumer access to prices” in order to help them “choose lower-cost, higher-value providers.” Even in so-called “non-competitive healthcare markets,” interoperability of data and lack of communication among networks were identified as major impediments to utilizing information technology for patients’ economic benefit. Here again, the experience of markets and industries engendered by the Contact Lens Rule in designing consumer-friendly interfaces that function smoothly among various platforms could greatly assist government program managers. It is therefore vital that the Contact Lens Rule update be approved to continue fostering the potential for cross-pollination that can make taxpayer-funded healthcare more efficient and effective. This cross-pollination will become all the more critical as government health programs become less sustainable financially within the next ten years.
Taxpayers and consumers alike commend you for your continued commitment to expand accessibility and affordability, but to be clear, the FTC stands at a critical juncture between progress and stagnation. The original Contact Lens Rule, which has served as a bridge to connect customers, eye care professionals, and eyewear providers in more efficient and effective ways, needs to be upgraded to both embody and inspire new advances in consumer-driven health systems. Failing to do so will signal to those customers – as well as taxpayers – that they will not take part in the exciting benefits of these advances even as other areas of care continue to innovate.
From the perspective of free-market, limited-government advocates, the Contact Lens Rule has been one of the most balanced and successful examples of “deregulatory rulemaking” in the FTC’s history. The updated rule the FTC has proposed reflects equal care and foresight.
This Fall, the FTC initiated a new series of “Pitofsky hearings” to examine the entire panoply of FTC’s mission-driven activities as well as the direction they may take in the years ahead. Nothing could better reflect the pro-consumer, pro-competition, and – as this analysis has hopefully demonstrated – pro-taxpayer future to which the FTC could commit than to approve the Contact Lens Rule update now.