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VSP, Medicare Private and GenOp postpone starting date for program

In Decber, General Optical said more than 300 optometrists had signed up to participate in the program, which involves a contract stipulating that they must each purchase a minimum of $1,800 worth of frames and lenses each month from General Optical ($21,600 a year); that 76 frames supplied or approved by General Optical must be stocked and dispensed; and that they must give a 20-per-cent discount for glasses and 15 per cent discount for contact lenses to mbers of Medibank Private under its no-gap Mbers Choice Optical Plan.
In return for that, they are to benefit from promotion by Medibank Private designed to attract clients as well as managent of the program by VSP. Such promotion had not been sighted at press time.
In the Novber issue of Insight, it was reported that VSP is a not-for-profit organisation, based on a statent to that effect by VSP and General Optical at meetings with practitioners around Australia the previous month.
In the Decber issue, that was corrected, Insight reported that VSP had been found by three courts in the United States, as recently as June 2010, to be for-profit companies, with one court being critical of VSP’s claim to be a not-for-profit company due to its community and charity work.
The crux of VSP’s court actions against the IRS over the years goes back to when the IRS revoked VSP’s tax-expt status following the introduction of section 501(c)(4) of the Internal Revenue Code (made law in 1986).
VSP argued that its community and charity work entitled it to tax-expt status after the IRS decided in 2002 that VSP no longer satisfied the requirents of that section of the code and that its tax exption no longer applied.
District Judge James Graham said in the court in June 2010: “The maximum percentage achieved for community and charity work by any of the [VSP] plaintiffs was eight-tenths of one per cent”.
Furthermore, he said the six plaintiffs charitable and community outreach efforts for each tax year were “insubstantial” in relation to non-expt activity and that Sight for Students and disaster relief represented just two-tenths of one per cent of one plaintiff’s total paying enrolment.
VSP had argued in all three courts that it should be granted income tax exption as it operated “exclusively for the promotion of social welfare and that it engaged in considerable charity and community outreach work to non-subscribers to its health-services plans”.
It referred to its work with the American Red Cross to provide free eye examinations and glasses to disaster victims – in 2001 about 1,800 claims were processed through that program. Another program was the American Optometric Association’s “Vision USA’, to which VSP contributed some funding.
However, none of the three courts accepted that argument, Judge Graham in the District Court in June 2010 going so far as to make summary judgment (i.e he threw out VSP’s case without proceeding to a full hearing).
Disquiet about VSP’s activities in the US started to surface around 2003, with VSP continuing to promote itself as non-profit organisation starting to be of concern when it did not appear to be operating like a non-profit company, with its business practices appearing more like a for-profit one. And, as it turns out, the IRS agreed, as did the three courts.
Back in 2005, it was revealed in court that VSP earned $34.5 million in net income in 2003 and that the company’s top executives received bonuses drawn from that net income. It also became known that the salaries of its top executives were relatively high (the chief executive officer had received $395,000 plus bonuses in 2003) and that they enjoyed perks such as the use of a “luxury company car”.

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