ECONOMIC INTELLIGENCE AN ANTIDOTE TO HEALTH COSTS?
By Rob Norton

(FORTUNE Magazine) – Health care spending, as we all know, is so out of control that only a radically new management system can rein it in. But wait a minute: How come costs in America's $12 billion eye care industry -- a close relative -- have been flat or falling for years? Is there a lesson here? At ''For Eyes'' Optical, a 90-store chain that was one of the industry's first discounters, the price of the basic eyeglass package ($49) has risen a mere 3.4% per year since the firm's founding in 1972 -- well below the 6.1% average for overall inflation. That's typical for the industry as a whole. When soft contact lenses were introduced in the early 1970s, they cost $650 in 1992 dollars. Today they go for less than $50. All that's kept total eye care expenditures from falling is an ever-expanding menu of new products -- designer frames, new thinner plastic lenses, ''invisible'' bifocals, and disposable contact lenses. There is a lesson here, and it's called -- gasp -- free-market economics. First and most important, prices are controlled by the most efficient agency known: the consumer. Only 16% of corporate health care plans cover glasses, according to Foster Higgins, the employee benefits consulting firm. Another 12% pay for exams only. For everyone else, it's caveat emptor. Another reason for the industry's vitality: Unlike health care, eye care has remained largely unregulated, especially since 1978, when U.S. courts struck down state bans on professional advertising. As a result, it is as competitive and innovative a business as you're likely to find this side of personal computers. Discount outlets are everywhere. Service innovations abound, from in-store optometrists to contact lenses by mail. The distinguishing characteristic of the eye care business is the price war.