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Federal Trade Commission Eyes Costly New Contact Lens Rules

One of President Donald Trump’s central campaign promises was to slash red tape by reducing government overregulation. As described in CEI’s new Ten Thousand Commandments report, the plethora of small, seemingly inconsequential rules promulgated by federal agencies adds up to an enormous annual hidden tax on American families of about $15,000 per household. The good news is that minor changes across government agencies could just as easily amount to huge savings. President Trump took steps toward achieving that when he directed every federal agency to establish a task force with the purpose of identifying unnecessary regulations. However, the Federal Trade Commission (FTC) does not seem to have gotten the memo.      

Despite a decent track-record when it comes to promoting an open and competitive market for eyeglasses and contact lenses, the FTC recently made a notable misstep. Last year, the agency proposed a small rule change intended to increase eye doctors’ compliance with a law that requires them to provide patients with a copy of their contact lens prescription. The proposed rule appears to be a solution in search of a problem, one that—if finalized—will significantly increase compliance costs for small optometry and ophthalmology businesses, costs that will likely pass those increased costs along to consumers.

In the early 2000s, a four-eyed war raged between eye doctors and discount contact lens retailers like 1-800-Contacts. Retailers claimed that by not giving patients copies of their prescription, doctors unfairly forced them to purchase the lenses at providers’ offices. Doctors raised concerns that online retailers used out-of-date and sometimes incorrect prescription details to fill contact orders on the cheap, putting patients’ eye health in jeopardy.

In 2004, Congress enacted legislation that the FTC implemented in 2005 via its Contact Lens Rule. The rule deftly balanced the concerns of all parties. It requires providers to supply a copy of contact lens prescriptions to patients at no additional charge and compels lens retailers to verify with providers that prescriptions are accurate and up to date before filling them. Both sides seemed relatively happy with the outcome, until 2015.  

As per standard agency procedure, FTC began reviewing the Contact Lens Rule 10 years after its implementation, soliciting feedback from members of the industry and consumers. To the providers’ surprise, at the end of the comment period the FTC announced a proposed change that would add additional requirements on prescribers due to the assertion—mainly from discount lens retailers—that they weren’t complying with the law and existing rule by failing to give copies of prescriptions to patients. To increase compliance, the FTC proposed requiring prescribers to not only fork over copies of prescriptions, but also to obtain (and keep on file for three years for possible investigation) a signed receipt from patients, confirming that their provider complied with the law. 

While a confirmation of receipt might seem like a modest additional requirement, industry analysts estimate it would cost between $24,000 and $68,000 per office each year, and $10.5 million for the industry overall, to train staff, monitor compliance, maintain records, and explain the new form to patients. And, for instance, most optometry practices are small businesses with an average of two employees and taking in less than $350,000 in profits—before federal and state corporate taxes. For them, this is a significant expense. Most likely, these businesses will pass on new costs to consumers in the form of higher prices and shorter appointments.

More importantly, the supposed need for the rule change does not seem to exist. According to data obtained by a Freedom of Information Act request (filed and provided to me by the American Optometric Association), the FTC received just 309 complaints about prescribers failing to provide customers with copies of their contact lens prescriptions between 2011 and 2016. While FTC should investigate and act on legitimate violations of the rule, these appear to be isolated cases. There are 41 million contact lens wearers in the U.S. Even if we assume every complaint represents a legitimate failure to comply with the law, they still represent an infinitesimally small number of violations that does not justify costly new industry-wide rules.

If we truly want to reduce the size of government and the burden of overregulation and put money back in consumers’ pockets, this type of unnecessary rule is exactly the type of regulation government agencies should avoid.

For more on regulation of the contact lens industry, see the study from earlier this year by my colleagues Ryan Radia and W. Thomas Haynes on resale pricing agreements.