Are pet drugs like contact lenses?

Lessons in market competition and the law

September 19, 2012 (published)
By Edie Lau

As an optometrist in practice for 30 years, Dr. Neil Gailmard remembers a time not so long ago when some of his colleagues resisted giving patients prescriptions for contact lenses, unwilling to cede the sale to a competitor.

Then came the Fairness to Contact Lens Consumers Act in 2003. With that law, eye doctors became obligated to provide prescriptions, like it or not.

Nine years later, industry statistics show that independent eye care practitioners still maintain a greater share of the contact lens market than any other source, although the proportion of practice income they derive from lens sales is in decline.

An unexpected benefit of the law to practitioners and to patient health has been that lens wearers visit their eye doctors more frequently, observers say.

The experience of optometrists with contact lens sales may be instructive today to veterinarians facing keen competition for sales of pet medications and flea and tick control products.

So apparently similar are the marketplace rivalries that the Federal Trade Commission (FTC) is scrutinizing the pet arena in the same way it did the contact lens sector, and directly comparing the two.

An FTC workshop coming up Oct. 2 in Washington, D.C., to examine competition and consumer protection issues in the pet medications industry, devotes one of three panels to “lessons learned from the contact lens industry.” 

FTC attention to the market was drawn by the Fairness to Pet Owners Act — legislation introduced last year requiring veterinarians to provide prescriptions to clients when recommending medication for their pets. According to a statement on the website of sponsor Rep. Jim Matheson, D-Utah, the bill was modeled after the contact lens law.

The bill hasn’t found traction in the current Congress, but the FTC’s examination continues. “Our interest was piqued, especially once we realized more than half of all U.S. households own a pet, and pet owners in the United States spend nearly $7 billion annually on pet medications,” Stephanie Wilkinson, an attorney in the agency’s Office of Policy Planning, told the VIN News Service in July.

In 2002, the year before the contact lens law passed, the contact lens market was worth $1.9 billion, according to an FTC report. Online vendors and retail chains wanted a share.

Gailmard said some optometrists refused patients’ requests for prescriptions that would enable them to buy lenses from alternative sources. “Some would stand pretty firm and say, ‘I don’t trust anyone else to dispense your lenses’ and just flat-out wouldn’t do it,” he recalled.

He was not among those. “We were a practice that really believed in the patient’s right to take their prescription,” said Gailmard, who practices in Munster, Ind. “We want them to buy their contacts from us because they want to buy their contacts from us.”

As a result, Gailmard said, passage of the law requiring prescription portability, as it’s called, did not significantly change his business. He continues to sell contact lenses to patients at prices that he says are comparable to competitors’.

“I would say that the law’s effect was in gradually reduced pricing and profit margins in order to compete,” he said, “but (the margins are) not extremely low.”

Many similarities exist in how contact lenses were sold a decade ago and pet medications are sold today.

Historically, eye care practitioners dispensed contacts directly to patients, just as veterinarians traditionally have dispensed medications and therapeutics directly to their patients’ owners or caretakers.

In the contact lens industry, manufacturers had a policy of selling their goods exclusively to eye care providers. Most veterinary pharmaceutical companies have a policy of selling drugs and therapeutics exclusively to licensed veterinarians.

Both industries are lucrative enough to attract other aspiring vendors. Unable to obtain product directly and openly from manufacturers, the alternative vendors sought product from the gray market, an unofficial market in controlled goods.

In the animal health world, some veterinarians are players in the gray market — buying product from manufacturers and reselling it to third parties that, in turn, supply online pharmacies and retail chains. That same dynamic existed in optometry, according to Dr. Howard Braverman, a former president of the American Optometric Association (AOA). “A lot of the gray-market lenses would come from other doctors,” he said.

(Braverman works now for the insurance company Humana; his remarks to the VIN News Service represent his personal views, knowledge and experience, not those of his employer.)

The exclusive sales policies drew notice from attorneys general in 32 states, who in 1994 brought an antitrust suit against three major contact lens manufacturers — Vistakon, CIBA Vision and Bausch & Lomb — and the AOA, alleging that they had illegally contracted to limit the sale of products to eye-care clinics, excluding alternate sellers such as mail-order and Internet vendors.

By 2001, the litigation had been settled out of court by the various parties, including the AOA, which paid $750,000 to put the suit behind it. Braverman, president of the AOA at the time, told Primary Care Optometry News: “This was an honorable settlement. We did not admit to any wrongdoing; we are not changing anything we do.”

But the settlements as a whole did change the contact lens market: Manufacturers agreed to make lenses available to alternative vendors.

The antitrust litigation did more to open the market than the Fairness to Contact Lens Consumers Act, which followed two years later, said Menderes “Mendo” Akdag, a former president and CEO of Lens Express Inc., a seller of replacement contact lenses. Lens Express was acquired in 2002 by 800 Contacts, which bills itself as the “World’s Largest Contact Lens Store.” 

Akdag had left Lens Express two years earlier, in 2000. The following year, he became CEO of PetMed Express, also known as 1-800 PetMeds, which calls itself “America’s Largest Pet Pharmacy.” As an online, non-clinic source of veterinary medications, PetMed Express has had an antagonistic relationship with the veterinary community in the same way that Lens Express and 800 Contacts vexed optometrists.

Akdag said PetMed Express would like very much to purchase pet medications directly from manufacturers. However, he said, the company was not involved in development of the Fairness to Pet Owners Act nor in the FTC’s inquiry into pet medication sales channels. In fact, PetMed Express will not participate in the FTC workshop, he said, because it does not wish to be perceived as opposed to veterinarians.

“We are working on improving our relationships with the veterinary community, so we decided not to participate,” he said, noting that the company recently began airing a new advertisement titled “We love our vets.”

Akdag added that veterinarians increasingly do verify prescriptions that clients bring to PetMed Express, an improvement over years past when many veterinarians refused communications with the company.

Accepting outside vendors of contact lenses as legitimate players in the marketplace has become routine for optometrists since the advent of the Fairness to Contact Lens Consumers Act, leaders in the profession say — and that has proven in some ways a boon.

“Though there was much consternation among our profession when the law was passed, it has actually turned out to be more positive than negative, in my opinion,” said Dr. Carmen Castellano, who was chair of the Contact Lens and Cornea Section of the AOA when the law passed. He now serves on the association’s Industrial Relations Committee.

“Our sales of contacts to patients have remained pretty constant, and we give out prescriptions to patients,” continued Castellano, who has practiced in St. Louis for 30 years. “The law has made it more difficult for the system to be abused, though in some instances abuse continues. Third-party dispensers are required to confirm with doctors the validity of a contact lens prescription before dispensing. This gives doctors the opportunity to communicate with patients, especially in the case of expired prescriptions or invalid requests.”

Gailmard, the practitioner in Munster, Ind., has had a similar experience.

“Now my office will get a fax, or sometimes a voice message after hours, that will say, ‘Your patient Mary Smith is trying to buy contact lenses from us, but her prescription has expired. Will you please renew it?’ ” he said. “That’s an opportunity for us to get the patient in for a renewal.”

Previously, he said, patients could obtain contacts simply by providing the particulars of their lens prescription to a vendor. “The doctor didn’t have to be involved at all. They would go years and years and years and never have a checkup,” Gailmard said.

The law changed that by requiring that prescriptions more than one year old be renewed.

Figures compiled by the Vision Council, an organization representing manufacturers and suppliers in the optical industry, show that the share of contact lens sales made by independent optical practitioners has declined only slightly since the market opened to alternative vendors.

In 2001, practitioners’ market share was 42.2 percent. In 2011, it was 40.1 percent. The second-largest market share, about 25 percent, currently is held by mass merchants such as Wal-Mart and wholesale clubs. Internet sales, which include online purchases made through independent eye care providers, claim 16.4 percent of sales, up from 7 percent a decade ago.

The data are derived from an online consumer study called VisionWatch.

While independent eye care practitioners may be holding their own on contact lens sales, other statistics suggest that the proportion of practice income they derive from contact lens sales has declined.

An article published Jan. 1 in Contact Lens Spectrum reported that gross and net profits derived from contact lens sales were down in 2011 for at least the second year in a row. The net profit, for example, was 26 percent in 2011, 28 percent in 2010 and 29 percent in 2009. The figures come from annual online surveys of practitioners.

How much contact lens sales contributed to practice revenues before 2004 when the contact lens legislation went into effect is unclear. In comments submitted to the FTC in 2004, 800 Contacts wrote:

“Today, ECPs [eye care professionals] generally make more money off of the sales of ophthalmic goods such as glasses and contact lenses than ophthalmic services, with goods accounting for up to 65 percent of the average practice. As a result, ECPs have a powerful motivation to ensure that patients buy lenses from them.”

The VIN News Service was unable to ascertain what proportion of that 65 percent was derived from sales of contact lenses vs. glasses or other ophthalmic goods.

(The comments from 800 Contacts and others were solicited by the FTC for a study mandated by the contact lens law. The report, “The Strength of Competition in the Sales of Rx Contact Lenses,” was published in February 2005.)

Braverman said the way optometrists typically have coped with lost revenues from contact lens sales is by charging a fee for contact lens fittings — a service that used to be included in an overall package along with lenses.

For example, an eye doctor might charge $300 for the complete package, or $75 for a fitting and provide a prescription that the patient may have filled elsewhere, he said.

Braverman said he knows of no colleagues who have gone out of business because of diminished contact lens sales income, though some optometrists may have given up selling them.

Gailmard believes doing so is a mistake. In a commentary published in 2005 in Optometric Management, he wrote:

“We can talk about the fact that providing contact lenses is a patient convenience, or that it allows the optometric practice to ensure that the patient receives the correct lens parameters, but there is a far more practical reason. There is a profit to be made. As doctors, we often get uncomfortable with that concept, but we are in practice to make a profit. This newsletter is about the business aspects of professional practice, and profit is a primary goal of all businesses. We should never reject a profit center, as long as it's within our practice scope and is ethical.”

At the same time, Gailmard told the VIN News Service, it’s unproductive for doctors to resist those patients who wish to purchase their products elsewhere. “I think ... it is a big red flag to the patient (in) that they see the doctor has a financial interest in this product. The doctor might retain the ... sale but (ultimately) lose the patient.”

Although the contact lens and pet medications markets are much alike, they are not exactly the same.

Prescription veterinary drugs must be dispensed by pharmacists if not veterinarians. And pharmacists generally are untrained in veterinary pharmacology. Veterinarians complain that it’s not uncommon for pharmacists to question and even make unauthorized changes to veterinary prescriptions presumably because they believe the doctors have made a mistake.

Additionally, a requirement that veterinarians provide prescriptions to pet owners could prove problematic in the case of prescriptions for controlled substances — a problem that doesn’t apply in the contact lens analogy, said Dr. Kate McDuffee, a veterinarian in Dahlonega, Ga.

“I don’t really care if patients fax multiple copies of their contact lens ’script to different distributors but what is to keep them from doing the same with controlled substance ’scripts?” she commented on a message board of the Veterinary Information Network (VIN), an online community for the profession.

Dr. Donn Griffith, a clinic owner in Columbus, Ohio, said veterinary drug dispensing is more than a matter of dollars and cents. Elaborating on a VIN message board, Griffth wrote:

“A prescription’s value is in the availability, the timing, the assistance in teaching how to use and administer, dealing with the side effect, evaluating the need and efficacy. The pharmacist can't do that, especially over the Internet. How is the pharmacist going to demonstrate the administration of the first dose to a client?

“The cost is more than the selling and shipping cost. The cost is more than convenience. The cost is the outcome for the pet.”

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