Issues Regarding Disposable Hearing Aids

The introduction of disposable hearing aids poses many questions to the audiologist. What effects will such a product have on our traditional, custom fit, 'durable' environment? What systemic changes will such a product produce? Will shear volume outpace high priced, high margin individual unit sales? Will some audiologists be replaced by technicians working under the 'legal' umbrella of one licensed audiologist or an MD/ENT structure?

These are the types of questions all evolving industries have had to address at one time or another. Audiology is no different. This article will discuss issues relating to disposable hearing aids, the profession of audiology, and the hearing aid industry.

Those Who Forget History are Destined to Repeat It:

An interesting parallel to the emerging disposable hearing aid scenario can be found in optometry. Until the late 1970's, optometrists' enjoyed a healthy revenue stream from the sale of contact lenses. Optometrists were initially able to charge for initial eye exams, the contact lens themselves, a multitude of solutions and follow-up appointments for one year. Their professional services were usually bundled into a single offering averaging around $400.00 per patient.

The late 1970's and early 1980's saw the introduction of the disposable contact lens (DCLs). Corporate giants such as Johnson & Johnson flooded the market with the new disposable products, based on low cost, low margin, contact lenses. Manufacturers exploited the idea that eye health was contingent upon keeping a 'fresh', clean, contact lens in the eye. Many optometrists jumped on board. The low cost of DCLs fueled patients' favorable reaction and high demand, and empowered patients to manage themselves 'out-of-the office'. Margins dropped off the chart, from hundreds of dollars to approximately 12 dollars per pair of contact lens.

Solutions (saline and cleaning solutions, etc.) were readily available at local grocery and drug stores. Patient loyalty to optometrists diminished due to the undifferentiated characteristic of the disposable product. Most optometrists carried the same brand name contact lens. Patients called optometrists to obtain their prescriptions and began to make purchase decisions based upon location, convenience, price and ease of appointment. The service component became less of an issue as the patient re-defined his or her buying criteria. Optometrists soon found themselves in a rapidly declining profitability scenario.

In hindsight, a couple of key business practice issues came back to haunt the optometry industry: Optometrists had grown accustomed to 'bundling services' together with the sale of contact lenses. Individual components such as the eye exam and follow-up visits were hidden (a.k.a. 'bundled') into the overall contact lens package. When disposable contacts were introduced at roughly $30.00 per pair, the patient quickly discovered where and how the optometrists were making their profits.

Customers/patients appear to have reasoned that the $400.00 contact lens package, in terms of its perceived value, was unable to justify itself against the $30.00 package.

Hence, optometrists had to re-introduce charges for the eye exam and follow-up appointments. Patients showed significant resistance to paying for services which they perceived previously as 'free'. Additionally, optometrists had positioned the contact lens package as their leading source of revenue. When the leading revenue stream disappeared (with the introduction of DCLs) many optometrists were left scrambling.

The distribution system of the disposable contact lens is another corporate invention. Today you can pick up your groceries, 4 quarts of motor oil, your monthly supply of Prozac and a months supply of contact lenses at any 'super' discount chain. If your prescription is current (usually 6 months to a year with an eye exam) you can add your DCLs to your shopping cart. Manufacturers of DCLs have discovered it is even more profitable to place a dispensing optometrist in a given discount chain store at no cost to the individual store. The payoff is in the quantity of units sold. Manufacturers realized that convenience and price are the primary drivers for customer purchase decisions regarding disposable products.

What saved the optometrist? Some of it is luck, specifically the development of corrective vision surgery and the aging and emergence of the Baby Boomer into the vision correction market. PRK, and the more recent Lasik procedure, emerged at about the time when the DCL market started moving into full force. Wise optometrists quickly formed working relationships with ophthalmologists. This new referral-based revenue stream helped recover some of the revenues lost to DCLs.

Today, optometrists have to be knowledgeable, business-wise practitioners. With DCLs becoming 'loss leader' products, and while the venues from which customers can purchase DCLs continues to grow (food stores, retail drug stores, the internet etc) at dramatically reduced prices, optometrists have had to re-think and re-tool their entire professional offering. Everything from services to products has been re-examined.

It's interesting to note, some of my research has indicated that optometry-based buying groups with over 1000 optometrists cannot buy DCLs at the same low rate as Walmart. As a rule of thumb, optometrists purchase DCLs wholesale, at about the same price Walmart (and other large discount chain stores) retails them to customers.

The successful optometrist no longer treats only eye diseases and vision impairment. The successful optometrist offers total vision services. Reading skills, vision training for athletes (eye & hand coordination), sunglasses, glasses, anti-glare products, specialized testing, all offered in addition to their core mix of products and services. Most optometrists charge for every possible type of appointment (eye exams, follow-up visits, etc.).

The clinical staffing model has changed as well. Thriving optometry practices today are no longer groups of degreed optometrists -- they simply can't justify the salaries. Clinics today have one optometrist (usually the owner/partner) with technicians performing most of the tests. The optometrist typically makes a 5-10 minute visit to the patient to verify the results and to prescribe the treatment. Optometrists today typically see between 30-40 patients a day.

Recommendations for Audiologists.

It is prudent to maintain the policy of charging set fees for office visits and services, rather than bundling the service and professional fees into the cost of the product. This ensures that whatever the change in the product, your practice remains solvent and credible.

Audiologists are the professionals with the requisite knowledge base, the many years of formal education, the research and clinical degrees from colleges and universities in hearing sciences, the clinical training, the fellowship experience, the academic foundation, the many formal and practicum-based courses in amplification during graduate education, the many hearing aid oriented textbooks researched and written by audiologists, and the state license in audiology, all of which serves to separate audiologists from all other dispensing personnel. Simply, any serious observer must conclude that the audiologist is indeed, the hearing health care expert.

I believe audiologists should view themselves as being in the communication business, not just the hearing aid business. This lesson, also referred to as 'seeing the big picture', was exemplified by the narrow focus and tunnel vision which destroyed the streetcar industry and almost destroyed the railroad industry. Rather than viewing themselves as transportation businesses, they viewed themselves within the constraints of their least common denominators.

The communication business is a much broader arena than traditional audiology and it contains vast and varied product and service opportunities, all of which the professional audiologist is best qualified to provide. For example, speech reading classes, aural rehabilitation classes, professional auditory services for musicians (including testing and hearing protection), cell phone integration, infant hearing screening programs, vestibular rehabilitation programs, intraoperative monitoring programs, industrial hearing screening and protection programs, communication devices, FM systems, custom head-set sales and services, protection in noise programs and hearing protection devices, wireless systems and on and on.

In brief, audiologists must develop their areas of expertise and importantly, they must quickly develop recognition for their expertise to allow tangible and reliable alternative revenue streams.

Traditional clinical fees for services such as; diagnostic audiometric evaluation, tests, hearing screenings, hearing aid dispensing fees, auditory brainstem response tests, acoustoic reflex tests, tympanometry, hearing aid checks, central auditory processing evaluation, CAP rehab, aural rehabilitation consultation and classes, FM system recommendations, cochlear implant tune-ups, middle-ear implant evaluation, referral and tune-up, ALD consultation, hearing protection guidance and recommendation, are needed, justified and deserved.

These fees should no longer be contained/hidden within the price of the product, as the value of the clinical knowledge and skill need to be underlined and promoted.

Professionals may have been able to afford service 'giveaways' in competitive marketplaces in years past when 'bundling' allowed a revenue stream, but now, these practices seem unwise.

Songbird:

Sarnoff, formerly RCA Laboratories, is a research 'think tank' with over 400 Ph.D. scientists/researchers. Sarnoff is the corporation who designed and developed and financed Songbird. The Songbird disposable hearing aid was created by a team of these scientists. My research indicates that Songbird is backed by several well financed corporations including; Bank of America, the University of Texas and Johnson and Johnson. They have raised approximately $70 million in capital. Songbird has expertise and leadership that understands mass marketing, hearing aids, distribution channels and price point strategy. They have a completely automated production facility and they are projecting sales of over 6 million units in their first year of operation.

Perhaps Songbird knows something about our patients/customers that we (the audiologists and the hearing aid manufacturers) have been very late in realizing? If so, we need to wake up and smell the coffee. We need to become visible very quickly.

In recent article by Mark Ross Ph.D., published via Audiology Online (8-16-2000), Dr. Ross commented 'The issue I'm concerned with here is not the fact that the aid is disposable and very inexpensive, though this is significant in its own right. Rather, I'm thinking about the hearing aid's fitting rationale, which clearly implies that the current generation of modern digital hearing aids may be over-engineered. Does this mean that fewer electroacoustic options would serve the majority of people with hearing loss as well as the nearly infinite choice of electroacoustic options which are now available?' Songbird appears to be answering yes to the question raised by Dr. Ross. We'll see what the marketplace says in the near future.

Systemic Changes, Questions and Issues:

Several systemic changes could emerge which may impact audiology and the hearing aid industry. If the introduction of the disposable hearing aid is successful, many practices will have to adjust their staffing models in response to the dramatic decline in profit margins and revenue streams. Audiology practices (including ENT practices) will no longer be able to afford to pay salaries which are not tied to performance and/or productivity. Practice owners will be forced (due to shrinking profit margins) to consider hiring the most inexpensive professionals and possibly technicians at lesser hourly rates to carry the bulk of the work load (programming, fitting, paperwork, adjustments/follow-ups, etc.). The owner/professional/audiologist in the practice will possibly only perform the necessary duties required by state regulations (testing, prescribing, etc.). Gross charges in a practice (under a disposable hearing aid scenario) may stabilize after the initial disruption caused by an increase in patients willing to try the product. However, profits will fall dramatically -- even in successful disposable hearing aid practices!

Today, an average of 3-5 visits per patient are required to successfully fit a patient with custom made hearing instruments. How will these hours of time spent per patient be recouped (with respect to cost) when the instrument sells for 40 dollars? Of course, as mentioned previously, unbundling may help. However, as also mentioned previously, patients will be extremely hesitant to pay for services which were previously offered for 'free'.

Shear volume is the only way a disposable product can make any type of profit for the dispenser. Unfortunately, the volume of dispensed disposables required to pay the rent, salaries, insurance, utilities and taxes will likely preclude the audiologist from spending appropriate time counseling patients and discussing aural rehabilitation to assure a successful transition from hearing loss to hearing aid wearer. What are the chances your patients fit with disposables will not be coming back into your office with complaints? Not very good, I believe. How will you charge them for your time and energy and expertise when you trouble-shoot, solve and correct their problems?

What's to stop your competition from using this product (disposables) to generate traffic? Do disposable hearing aid manufacturers regulate sales techniques such as 'giving away' the product to attract new patients into the office? If not, expect disposables to be utilized much like hearing aid batteries: 'Free pack of batteries (or disposables) included with your free hearing test/otoscopic exam through Dec 31st, 2000!' These strategies will ensure that disposables will become a loss leader product in your practice.

Currently, disposable hearing aids are classified as Class II Medical Devices and therefore must be dispensed (fit) by a licensed professional. This (for now) should make internet sales illegal. But then again, isn't Crystal Ear still in business?

Another issue to think about is -- What if audiologists 'push back', refuse to sell disposables, or are resistant to selling the product for whatever reasons they might see as reasonable? The disposable hearing aid manufacturers (at the urging of their stakeholders) could 'go around' the established hearing aid dispensing model.

How? They could easily place audiologists or licensed dispensers in major discount chain stores (Pearl Vision, Walmart, etc.) to move their product exactly like the DCL model mentioned earlier.

If the suggested mechanism for replacing your patient's disposable hearing aid (next months supply) is via U.S. mail -- directly from the manufacturer, why does the manufacturer need the audiologist after the initial test and sale? Of course, the next question is, 'How long is an audiogram (legally) valid? 6 months, a year'?

Will disposable hearing aid patients consider patronizing your practice based only on convenience, location, or price? Will patients whose needs are filled by the manufacturer require you at all?

These are questions and issues which need to be addressed as new innovations such as the disposable hearing aid, begin to enter and impact our profession and our industry.

The survivors will adapt through preparation, strategy mapping and scenario planning. The losers, with vision limited only to hearing aid sales, will disappear.


Tom J. Northey
Audiology Economics
tnorth@gateway.net