Costco, J&J Spar Over Contact-Lens Business

By Sarah Nassauer 

Costco Wholesale Corp., 1-800 Contacts and other retailers attacked newly proposed legislation they say would water down a federal law that opened eye doctors to competition from online sellers and discounters.

The U.S. Senate bill concerning contact lens was introduced this week by Sen. Bill Cassidy (R., La.), a physician, and Sen. John Boozman (R., Ark.), a former optometrist, and is backed by the American Optometric Association as well as Johnson & Johnson and Alcon, the eye-care unit of Novartis AG.

Unlike most physicians, many optometrists make money from filling the prescriptions they write. They provide eye exams and then sell glasses and contact lenses. But ever since a 2004 federal law required optometrists to give patients their contact-lens prescriptions or allow a retailer to ask on their behalf, many of those sales have moved to online rivals like 1-800 Contacts or discounters like Costco.

Under the 2004 law, a retailer must attempt to verify a contact-lens prescription but can proceed with the sale unless the doctor communicates any concerns within eight hours. The new legislation says a prescription cannot be filled until a retailer obtains "affirmative confirmation" if the doctor raises concerns by phone, fax or email within eight hours. It also requires retailers to provide a toll-free number or email for doctors to communicate concerns.

"We have found repeatedly that [optometrists] block efforts to fill a prescription," Brian Bethers, chief executive of 1-800 Contacts, said. "This is a very intentional effort to convert passive verification into positive verification."

The bill makes it easier for doctors to voice any concerns about a prescription, said Steven Loomis, president of the American Optometric Association. The legislation would stop a sale until an accurate prescription is provided if there are concerns, says Dr. Loomis. "This challenges the issue of passive verification."

The legislation is the latest twist in a long-running battle over the estimated 40 million Americans that buy contact lenses. Manufacturers like J&J have been fighting to keep contact-lens sales inside optometrists' offices because doctors -- with which manufacturers develop relationships -- decide the brand that patients use, opponents of the bill say. Prescriptions for contact lenses are brand specific.

Costco won a victory this week when J&J, which has about 30% of the U.S. market, said it would abandon a policy that prevented retailers from charging less than a minimum price set by the manufacturer. Costco had challenged the practice last year in an antitrust lawsuit, which is still pending. Other big contact-lens makers, including Alcon and Bausch & Lomb, however, said Friday they would continue to enforce minimum prices.

"We are clearly at a crossroads where the doctor-patient relationship and eye health are clearly at risk," said Peter Menziuso, president of J&J's eye-care business in North America. The company, in bending on minimum prices, wants to focus its resources on "what is critically important and it's that federal legislation," Mr. Menziuso said.

Costco says the legislation would increase costs for consumers and make it harder to buy contact lenses at its stores. The warehouse club has eye doctors in some of its locations but says around 45% of its contact-lens prescriptions come from outside doctors.

The retailer is fighting against "barriers thrown up by doctors who prefer that they, rather than Costco, sell our members contact lenses," said Richard Chavez, a senior vice president at the retailer. "I don't blame them...but the reality is sometimes there are better ways to do something," Mr. Chavez said. The new rule "circumvents that eight-hour limitation," he said.

The legislation doesn't circumvent the eight-hour requirement, according to a spokesman for Sen. Cassidy, because doctors are required to send a valid prescription if they raise a concern about the original one. "The seller will always have an accurate prescription to fill within the eight-hour period," he said.

Fast-growing online eyeglass retailer Warby Parker said it opposes the legislation. "If passed and signed into law, contact lenses will become more expensive and take longer to receive," said Neil Blumenthal, co-CEO of Warby Parker. "We worry that the same forces pushing to make it more difficult to buy contact lenses will do the same for eyeglasses."

Write to Sarah Nassauer at [e-mail]

(END) Dow Jones Newswires

April 15, 2016 16:00 ET (20:00 GMT)

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