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In another key test of state laws designed to protect the independent professional judgment of licensed eye care professionals from the inappropriate influence of business interests, a federal appeals court has upheld a California law that bars optical shops from providing and advertising eye examination services in the same location where eyewear is sold.

A three-judge panel of the 9th U.S. Circuit Court of Appeals in San Francisco, May 28, unanimously overturned a ruling by a Sacramento federal district court judge that California Business & Professions Code provisions that prohibit optical shops from offering or advertising the services of optometrists or ophthalmologists interfere with interstate commerce in violation of the “dormant” Commerce Clause of the United States Constitution.

The panel dissolved an injunction against further enforcement of those code provisions imposed in December 2006 and returned the matter to the trial court for further proceedings consistent with its decision.

The three judges found that the “dormant” Commerce Clause does apply to the case but that a different constitutional test must be applied to determine the statute’s impact.

“This decision is a victory for every optometrist who wants to exercise his or her best professional judgment on behalf of each individual patient, regardless of where he or she practices,” said Hilary L. Hawthorne, O.D., president of the California Optometric Association. “We look forward to the next step in the process.”

That ruling came as the result of an action filed by the National Association of Optometrists & Opticians (NAOO), LensCrafters, Inc., and Eye Care Centers of America, Inc., who argued the California code provisions amounted to “protectionist” measures for independent optometry and ophthalmology practices.

Plaintiffs also argued the provisions effectively discriminated against large out-of-state optical companies. However, the appeals court ruled the code provisions are “health regulations” necessary to protect eye care practitioners’ judgment from the influence of “commercial interests.”

In addition, appellate judges ruled the lower court had failed to properly apply a key test in interstate commerce cases: weighing the benefit provided to the local population by state regulations against any potential hindrance of interstate commerce.

In the case of the California Business and Professional Code provision, the appellate court found the state regulations to significantly benefit the state’s population with relatively minor adverse effects on interstate commerce.

The California federal appeals court judges noted their ruling was virtually identical to that of the U.S. District Court for the Middle District of Tennessee, which upheld a similar law in 2002.

Every U.S. state has at least some provisions intended to restrict the influence of lay persons or business interests on the independent professional judgment of licensed eye care practitioners, ranging from a prohibition against any “lay influence” to a complete prohibition against practice in a “commercial setting,” the AOA State Government Relations Center notes.

Several of these state laws have been challenged as high as the federal appeals court level – all unsuccessfully, the center notes.

Some optical companies have imposed management contracts or rental of space agreements that require or encourage practitioners to limit time with patients or that may effectively influence practitioner decision-making, the AOA State Government Relations Center says.

To guard against conflicts of interest that could influence professional decisions, the California Business & Professional Code prohibits optical shops and licensed eye care professionals from “any membership, proprietary interest, co-ownership, landlord-tenant relationship, or any profit-sharing arrangement in any form, directly or indirectly” with each other.

The code prohibits opticians from advertising or furnishing the services of an optometrist or ophthalmologist. If a licensed eye care practitioner rents office space from “a commercial concern,” that office space must be separate and distinct from those of other occupants on the premises.

The optometrist or ophthalmologist cannot be linked in advertising or any other manner with the optical shop, the court noted.

“Because they have different responsibilities, different purposes and different business structures, opticians are not the same as optometrists or ophthalmologists,” the California federal appeals court ruled.

“(O)ptometrists and ophthalmologists are health care providers and opticians are commercial interests.”
Business structures that are appropriate for commercial concerns are not necessarily appropriate for health care providers, the court added.

The state business and professional code “has sought to protect optometrists and ophthalmologists as health care professionals from being affected by subtle pressure from lay or commercial interests.

The pressures of co-ownership and profit sharing prohibited by the statues are more obvious, but potentially even a landlord-tenant relationship could undermine health care quality if the landlord required a certain level of performance to maintain the lease,” the court ruled.

“…it is the subtle pressure to conform to commercial desires the statutes seek to avoid,” the court ruling continues. “These subtle pressures would be difficult to regulate as violations of professional or ethical standards.”

The state code provisions in this case are “health regulations,” the appellate court noted; an important distinction when the importance of state laws are being weighed against the constitutional protections afforded interstate commerce.

“Where the (state) statute regulates even-handedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, (state statute) will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits,” the federal appeals court noted, quoting a definitive U.S. Supreme Court ruling on the subject.

Appellate judges said that in declaring the code provisions unconstitutional, the federal district court had failed to consider local public interest served by the code’s health regulations, focusing on only protections for interstate commerce.

Plaintiffs argued that the California code interferes with safeguards on interstate commerce by inappropriately discriminating against large out-of-state chain optical companies.

The code effectively prohibits optical companies from offering “one-stop shopping” for vision examinations and eyewear in the state, plaintiffs said. Independent optometry and ophthalmology practices can provide such one-stop service under the code, plaintiffs added.

However, the court noted large optical shop chains, as a result of their size, enjoy advantages, such as lower wholesale costs for the purchasing of eyewear, which offset any competitive disadvantage that optical chains may encounter as a result of the state code provisions.

The appeals judges remanded the case back to federal district court for a formal determination of the relative merits of the state code provision and the federal interstate commerce protections. The burden to prove substantial adverse impact on interstate commerce will rest on the plaintiffs, the appellate court noted.