FTC Staff Comment Before the New Mexico Board of Optometry Concerning Proposed Revisions to Rules Governing Optometry

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Statement! of
Gary Kennedy
Attorney, Dallas Regional Office
Federal Trade Commission
Before the
New Mexico Board of Optometry
Santa Fe, New Mexico
at the
Presbyterian Heart Healthplex
Albuquerque, New Mexico
August 23, 1997
!This testimony represents the views of the Dallas Regional Office of the Federal Trade
Commission. They are not necessarily the views of the Commission or any individual
Commissioner.

Mr. Chairman and Members of the Board, I am pleased to appear before you today to
discuss the proposed revisions to New Mexico's rules governing optometry. The views
expressed in this testimony are those of the staff of the Dallas Regional Office of the Federal
Trade Commission. They are not necessarily the views of the Commission or any individual
Commissioner.
The Dallas staff believes that some of the proposed revisions may prevent agreements
that may foster efficiency, and may unduly constrain nonnal commercial relationships. As the
Commission found in its rulemaking proceedings involving the optometric industry, such
constraints are likely to increase costs and restrict consumers' access to eye care without
providing countervailing consumer benefits. Indeed, such restrictions on competition have cost
consumers across the country millions of dollars annually. We urge the Board to consider
carefully how these proposed revisions might affect consumers and competition and to avoid
imposing limitations that may impose unwarranted constraints on the functioning of a free
market for optometric goods and services.
I. 	The FTC's Experience in the Eye Care Industry.
The Federal Trade Commission is charged by statute with preventing unfair methods of
competition and unfair or deceptive practices in or affecting commerce. 2 Under this statutory
mandate, the Commission has investigated the effects of restrictions imposed by private parties
215 U.S.C. Section 45.
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and by government action on the business practices of professionals, including optometrists.
In seeking to improve consumer access to professional services, the Commission has initiated
antitrust enforcement proceedings against and conducted studies about the regulation of
licensed professions. The Commission's investigation of the optometry industry in 1975 led to
the 1978 trade regulation rule, Advertising of Ophthalmic Goods and Services.3 That
investigation revealed that restrictions on advertising were not the only government-imposed
restraints that appeared to limit competition unduly, increase prices, and reduce the quality of
eye care provided to the public. As a result, the Commission examined other restraints on
commercial practices. These included prohibiting optometrists from forming business
relationships with non-optometrists (for the purpose of offering eye care to the public) and
from locating in mercantile locations, such as in shopping malls and inside optical stores. The
Commission also addressed provisions prohibiting optometrists from owning or operating
more than one office and against practicing under nondeceptive trade names.
To examine the effects of these other restraints, FfC staff conducted two
comprehensive studies. 	The fIrst, published in 1980 by the FfC' S Bureau of Economics,
compared the price and quality of optometric goods and services in markets with differing
316 CPR Part 456 ("Eyeglasses Rule"). The Commission found prohibiting nondeceptive
advertising by vision care providers and failing to release eyeglass lens prescriptions to the
customer to be unfair acts or practices in violation of section 5 of the FfC Act. The
Eyeglasses Rule prohibited bans on nondeceptive advertising and required vision care
providers to furnish copies of prescriptions to consumers after eye examinations. On review,
the court upheld the Eyeglasses Rule's prescription release requirement but remanded the
advertising portions for further consideration in light of the Supreme Court decision in Bates
v. State Bar of Arizona, 433 U.S. 350 (1977) (fmding state supreme court rules against
attorney advertising exempt from antitrust challenge). American Optometric Association v.
FTC, 626 F.2d 896 (D.C. Cir. 1980). Rather than reinstate the advertising portions of the
Eyeglasses Rule, the Commission has chosen to address advertising restrictions through
litigation; see, e.g., Massachusetts Bd. of Optometry, 110 F.T.C. 549 (1988).
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degrees of regulation.4 The second, published in 1982 by the Bureaus of Consumer Protection
and Economics, compared the price and quality of the cosmetic contact lens fitting services of
commercial optometrists and other provider groups.5 Both of these studies were conducted
with the assistance of eye care providers.
The FTC staff studies provided evidence that restrictions on optometrists' commercial
practices raise prices but do not improve the quality of care. The Bureau of Economics Study
was conducted with the help of two colleges of optometry and the Director of Optometric
Services of the Veterans Administration. It examined the effect of advertising and commercial
practice on the price and quality of optometric services. The resulting data showed that
restrictions on commercial practice in a market resulted in higher prices for eyeglasses and eye
examinations but did not improve the overall quality of care in that market. In particular, the
study data showed that prices were 18 percent higher in the markets that barred commercial
chain firms.
The Contact Lens Study was based on a methodology developed after consultation with
representatives from the American Academy of Ophthalmology, the American Optometric
Association, and the Opticians Associations of America. This study examined the effects on
consumers of state laws prohibiting contact lens fitting by opticians. The data showed that, on
average, "commercial" optometrists (for example, optometrists who were associated with
4Bureau of Economics, Federal Trade Commission, Restrictions on Advertising and
Commercial Practice in the Professions: 	The Case of Optometry (1980) ("Bureau of
Economics Study").
SBureaus of Consumer Protection and Economics, Federal Trade Commission, A
Comparative Analysis of Cosmetic Lens Fitting by Ophthalmologists, Optometrists, and
Opticians (1983) ("Contact Lens Study").
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chain optical firms, used trade names, or practiced in commercial locations) fitted cosmetic
contact lenses at least as well as other fitters (based on field-test reviewing criteria developed
with the assistance of eye care professionals), but charged significantly lower prices.
During the 1980s, the Federal Trade Commission conducted an extensive rulemaking
proceeding to address these state-imposed restraints on commercial eye care practice. In the
course of the formal rulemaking that has become known as Eyeglasses II, the Commission
received 243 initial comments, 24 rebuttal comments, and testimony from 94 witnesses during
three weeks of public hearings.6 The commenters and witnesses included consumers and
consumer groups, optometrists, sellers of ophthalmic goods, professional associations, federal,
state and local government officials, and members of the academic community.
The evidence assembled in that proceeding showed that many regulatory and legislative
restraints on commercial practice had harmful effects. Specifically, the Commission found that
the evidence
demonstrates that these restrictions raise prices to consumers, and, by reducing the
frequency with which consumers obtain vision care, decrease the overall quality of care
provided in the market. The rulemaking record establishes that the presence of
commercial optometric firms lowers the cost of eye care to patients of both commercial
and noncommercial optometrists. The evidence also indicates that these restrictions do
not provide offsetting quality-related benefits.'
6S ome organizations sponsored several witnesses; 74 organizations or individuals presented
testimony.
'Ophthalmic Practices Rule ("Eyeglasses II"), Statement of Basis and Purpose, 54 Fed.
Reg. 10286 (March 13, 1989) ("Commission Statement").
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The Commission concluded that restrictions on commercial practices have caused significant
injury to consumers, in both monetary losses and less frequent vision care, without providing
consumer benefit. 8 The Commission also found that, while each of these restrictions may
impede the growth and efficiency of chain firms or volume practices, a combination of
restrictions may completely bar their entry. Consumers spent over eight billion dollars on eye
examinations and eyewear in 1983, a figure that the Commission found included a substantial
cost attributable to the inefficiencies of an industry protected from competition.9 Based on the
evidence in the rulemaking record, the Commission adopted a rule lO to prohibit state-imposed
restrictions on four types of commercial practices: affiliating with non-optometrists; locating in
commercial setting; opening branch offices; and using nondeceptive trade names. l1
The rule the Commission adopted in 1989 is not in effect. 	The Court of Appeals
vacated the Eyeglasses II rule in 1990, on the grounds·that the Commission lacked the
statutory authority to make rules declaring state statutes unfair. In doing so, the court neither
rejected nor addressed the CommissionI s substantive fmdings that the restrictions harmed
consumers. 12 In addition, in a memorandum opinion accompanying the court's denial of
rehearing, the court explicitedly recognized that its order vacating Eyeglasses II would not
9Commission Statement at 10285-86.
lOCommission Statement at 10285.
11In addition, the Commission decided to retain, with modifications, the prescription
release requirement from the original Eyeglasses Rule.
12Califomia State Board of Optometry v. nc, 910 F.2d 976 (D.C. Cir. 1990), reh'g
denied, January 8, 1991.
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"bar the FTC from initiating a new rulemaking ... within the limits of its proper authority. "13
The Commission, however, has not chosen to take such an action.
II. 	New Mexico's Proposed Rule.
New Mexico's proposed rule would impose restrictions on optometrists' commercial
arrangements that appear similar in likely effects to those that were the subject of the proposed
Eyeglasses IT rule. Our principal concerns are with several provisions in proposed Rule 11.
This proposed rule would prevent optometrists from entering leases or any other kinds of
business arrangements that display certain prohibited features. Yet these prohibited features
are common aspects of mutually beneficial business arrangements among business ventures of
all kinds. And they have at best only a remote relationship to the stated purpose of the rule,
which is to protect the "visual welfare of the public" and to defend optometrists' professional
judgment against undue influence.
Several provisions appear likely to inhibit potentially efficient and convenient
coordination between an optometrist and other professionals or complementary businesses such
as optical goods sellers. For example, proposed Rule 11.2.2 would prevent an optometrist
from agreeing to leave some block or portion of time available to see walk-in patients.
Proposed Rule 11.3 would prevent optometrists from agreeing to maintain particular office
hours. These two rules would make it difficult for consumers to count on the availability of the
optometrist's services. Proposed Rule 11.2.4, by restricting "non-consensual" agreements to
share support services or personnel, could inhibit potentially efficient arrangements such as
sharing receptionists or bookkeeping services. This provision, therefore, may raise the costs of
providing optometric services. Proposed Rule 11.2.5 would prevent an optometrist from
13Id., (Jan. 8, 1991) (mem. op.).
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agreeing to have credit accounts handled by a mercantile establishment. This too could
preclude a potentially efficient combination of purely business functions. 14
Restrictions on affL1iations with non-professionals and on associations with other
businesses discourage potentially efficient and pro-eompetitive ways or providing services and
may tend to inhibit ttIc devdopmem CYf ~practices that can take advantage of volume
purchase discounts and other economies of scale. The likely result of excluding high-volume
practitioners from the market and preventing practitioners from operating at the most efficient
level is higher prices for optometric goods and services without corresponding additional
benefits. 15
We also encourage the deletion of provisions prohibiting optometrists from working for
lay persons or entering into partnerships or other associations with them. In our experience,
restrictions on these types of business formats are likely to prevent the formation and
development of forms of professional practice that may be innovative and more efficient and
that provide comparable or higher quality services while offering competition to traditional
providers. 16
14Several other proposed provisions would treat optometrists differently from other
professionals in carrying on ordinary commercial relationships. For example, proposed Rule
11.1.3 appears to prohibit an optometrist from agreeing to lease an office if the lease could be
terminated on less than 90 days' notice, regardless of the reason for termination. It is not clear
why an optometrist who does not comply with ordinary commercial lease terms should be
treated differently from any other commercial tenant in a similar situation. In addition, longer
lease terms also may impose higher costs on the optometrist that may be passed on to
consumers without added benefits.
IS Commission Statement at 10288-10289.
161d.
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We are pleased to have this opportunity to present our views on the Board's proposed
rules, which would place restrictions on certain commercial aspects of the practice of
optometry. We encourage the Board to consider carefully whether such restraints are truly
necessary for the purpose of protecting optometrists' freedom to make professional judgments,
because restraints like these may impose costs on consumers without providing corresponding
consumer benefits.
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