Interview with Charles Stone, AuD, Founder and Executive Chairman, ESCO

Carolyn Smaka:  Charlie, it’s great to talk to you. Before we get in to our topic today, can you tell me how ESCO got started?

Charlie Stone: The idea started back when I was in private practice, 23 years ago. Just before their warranty ran out and I would tell my patients, “Here are your options.  You can do nothing and if you have a repair or a loss, then you’re on your own.  Or you can take out extended coverage

Unfortunately, at the time there was only one company offering this extended coverage and their claims process was complicated and inefficient.  It caused the patient to be without their instruments for longer then necessary. Example:  When the patient had a claim they would call this insurance agent and they would mail them a form that they had to fill out and get notarized.  They then had to mail it back to the insurance agent for approval.  The insurance agent would approve it and then tell the patient to see their practitioner.   They would then make an appointment at my office for an ear mold impression.

I would take the impression.  The patient would mail it to the insurance agent.  The insurance agent would package it up and mail it to the manufacturer, who returned it to the insurance agent. The insurance agent would mail it to the patient and the patient would make an appointment with my office.  This ten step process delayed the patient from getting their instrument repaired or replaced and created an undue hardship.

I knew this process could be made much more efficient and more productive with fewer complications.  So when I would call concerning a claim I would make suggestions on how the process could be made easier.  One day I was fortunate enough to get the owner of the business on the phone and I may have caught him on a bad day as he said, “You know, Charlie!  If you think you can do it better, why don’t you do it yourself?”

And so, with the help of two friends in the insurance business, I did!  I am proud to say that we started ESCO and cut the steps in half and reduced the processing time to days rather than weeks.

Carolyn:  That is a great story!  How has the industry changed since that time, and how has your business impacted hearing aid warranties?  

Charlie:  Hearing aid warranties are even more attractively priced today.  Let me put this into perspective.  When we started ESCO approximately 23 years ago the policy cost between $55 - $95, and the hearing instrument itself sold for between $600 - $1000. So it was about 10 percent of the replacement cost to cover the instrument with a loss and accidental damage policy.

Today while hearing instruments cost more than $3,000 the price of the loss and damage coverage is  $180 to $240, about 6 to 8 percent.  So hearing aid coverage is even less expensive today.

It’s commensurate with other consumer electronic devices.  If you go to Best Buy for an electronics purchase, they will sell you an extended warranty contract, for about 10% of the purchase price.  But it does not cover loss replacement.

One of the MarkeTrak studies from 2008 noted that consumers purchased new hearing aids about every 5.7 years. Since that data came out, hearing aids cost more. Consumers now feel that because they are paying so much more for the product, that the life expectancy should be longer.  

The sales cycle, of 5.7 years, to convert a person into a new set of instruments, is not diminishing. In fact it may be growing longer because of the versatility and programmability of the newer instruments and the fact that the price of hearing aids continues to raise. The consequence is a time gap between when the warranty expires and when the consumer purchases a new set of instruments.  Also, due to increased price competition, the practitioner can’t mark up the hearing device enough to make up for that lost revenue from the longer sales cycle. Therefore, it is necessary to come up with another source of revenue.  

The complexion of the marketplace is changing.  Years ago an audiologist’s main competition may have been the newest audiologist or dispenser in town, or the ENT practice down the street.  Now we have big box stores like Costco, United Health, and other online hearing aid sales groups as competitors. 

Since it is increasingly difficult to keep patients loyal to your practice, it is more crucial than ever to have some sort of a patient retention or patient loyalty program within your practice. Some of the products that ESCO offers fill this bill very well.

Carolyn:  Tell me how ESCO’s products can help a practice increase revenue and increase patient loyalty, to address the challenges you mentioned.

Charlie:  We agree that the practitioner has to do everything they can to create that retention.  Traditionally, providing batteries for the life of the hearing aid has been one way to keep patients coming back, however, free batteries are not an incentive if the patient can buy a product cheaper somewhere elsewhere. 

One very effective solution is an extended hearing instrument warranty, combined with a limited service plan covering office visits.  This enables a practitioner to not only capture some of the lost revenue because of the longer sales cycle, but also to strengthen patient loyalty.

Such a warranty can be offered on an annual renewable basis, and used as a reason

for the annual office visit. With an ESCO policy, we will notify your patients two months before their warranty is about to expire and remind them to make an appointment to make sure everything is working properly.  The policy is tied to the practice, as it requires a certain level of service be provided as part of its provisions. In this situation the device is not tied to a specific manufacturer requiring that it be sent to only one place or that a patient has to be directly involved in the repair decision. The patient relies on you as the specialist, to decide where to send it for repair.

If the patient pays for additional coverage, it was my experience that they were motivated to keep their end of the warranty appointment.  That gives you opportunity to counsel them and determine whether they’re satisfied with their current products or whether newer technology may provide them with added benefit.

Carolyn: Charlie, what about patients who may want to purchase hearing aids in the middle of the warranty period?  I’m thinking if they have an extended warranty, they may delay the purchase until the warranty expires.

Charlie: That’s a great question and ESCO has already addressed this.  With ESCO, Your patient can cancel at any time during the year and receive a prorated refund. 

At ESCO, we offer a variety of products to suit the needs of the practice and how practitioners run their business. Our warranty-only product is very competitively priced compared to what the manufacturer offers. Unlike a manufacturers warranty, we’ll extend it out as long as you and /or your patients want.  Another nice feature is, we cover all instruments so you only need a single form to fill out.  And unlike a manufacturers warranty that excludes loss once a claim is made, we continue coverage.

Most manufacturers extended warranties become considerably more expensive after four or five years so you think about purchasing new instruments. That is understandable but what if your patient is not ready to change products? Our products let your patient have their repairs and office visits covered for a reasonable cost.   They now have a choice.

Carolyn:  Can you give me an example?  Why would a patient want an extended warranty rather than just take their chances and pay for a repair if needed?

Charlie :  If the price of an extended warranty is priced competitively below normal repair costs and includes value added office services like batteries, cleans and checks, electroacoustic analysis, Otoscopic exams etc. etc. it just makes good sense to have this coverage.  The patient can have peace of mind protection a year at a time.

In my office, as an added incentive, I would credit the patient up to $100 per year toward their next major purchase.   I would do this up to a total of 5 years or $500.  This applied credit combined with the ability of the patient to cancel anytime during the year could help to shorten that sales cycle of 5.7 years, and keep a patient loyal to your practice.

I know that some professionals may think that once the warranty runs out at the end of two or three years, it’s time to sell the patient another set of hearing aids. In my opinion, this is shortsighted because patients are not necessarily thinking the same thing.   They made a big investment in hearing instruments and they are not expecting to turn around in a few years and do it again.

Consider again MarkeTrak data.  After the initial two or three year warranty expires, that patient is still going to have another two to three years before they even think about buying another set of hearing aids.    What do you do during that timeframe to keep them loyal and to find additional revenue for your practice?  That’s where our products fit in.

Carolyn: Today’s products are so flexible in terms of programming, and with all the waterproofing and waxguards, I would think they would be more robust than older instruments. That said, would it be likely they would still be functioning and appropriate after five to six years in many cases.

Charlie: Yes, but the patient still needs coverage to keep the instruments working properly and to protect them against costly repairs.  By using an extended warranty you can capture some of the lost revenue from the increased sales cycle, plus it will keep your patients coming back to your for service and prevent them from going to your competitors.

Carolyn: When you talk about the service contracts, what would you include in that service contract?

Charlie:  You can include whatever you want.  Cleaning and checking the hearing aid, and possibly an annual hearing screening.  You can include electroacoustic analyses, video otoscopic exams, suctioning and curetting of the instruments.  For RIC instruments, you may cover replacement of the receiver guards and domes.

The idea is your ESCO contract locks the patient into your practice.  Using the hearing aid warranty as the insured portion and adding other benefits that will keep the patients coming back, you have created a hearing help supplemental plan that covers all the hearing aid needs which most third parties don’t cover. Due to state and federal regulations, it’s important to use an underwritten product by a reputable company, such as ESCO in order to protect yourself from insurance and warranty regulatory scrutiny.

Carolyn: What if you have a patient that has a set of instruments and they really like them or they’re doing very well with them?

Charlie: If they are happy or at least OK with the instruments they have, and all they want is to make sure that they’re covered, then they don’t want any surprises when it comes to repairs.  I’ve heard stories of patients being charged $450 to $550 for a single hearing aid repair.

For patients on a fixed income, this amount of money may not be available.   That hearing aid may end up in a drawer, unrepaired. If a policy that covers repair and accidental damage were available at a reasonable amount, they would consider it without question.   

Loss replacement is what makes policies more expensive and the replacement cost of devices continues to rise.  Due to the rising replacement costs, ESCO has recently introduced a repair and accidental damages only policy without loss coverage at a greatly reduce price.  The audiologist may want to mark it up from our cost. Our cost is about the same as what a manufacturer charges

No two patients are the same.  As a practitioner I always felt it was my obligation to give my patients all the available options so that they could make an informed decision. 

The ones that are happy or satisfied with their hearing aids may just want to be covered in case of an unexpected and expensive repair occurs.

Carolyn:  In these cases, you’re letting revenue walk out the door by not offering it. 

Charlie: That’s exactly my point. Your patient may have other health issues or they maybe on a tight fixed income and just want to keep their hearing aids for as long as they can, without major unexpected repair charges

Carolyn:  You mentioned ESCO policies can extend beyond the first few years. 

Charlie: That is right.  Most manufacturers’ policies will only extend to three years and possibly a couple will go out to four.  With ESCO our policies last as long as you and your patient choose.  We think it is the wrong strategy to force people to buy new instruments because they cannot receive coverage.  The professional is the best judge of when the patient is no longer served by what they are wearing.

Carolyn:  What are some misconceptions professionals have about extended warranties?

Charlie: Some professionals may think their patients who lost their devices and receive replacements from the manufacturer can’t be covered elsewhere, or wouldn’t qualify, since manufacturers won’t sell them another loss policy.  That is not true with ESCO.  Over a third of our new business right now is from people who have lost their hearing aid(s) and received a replacement from the original manufacturer.

Since ESCO has the ability to separate the coverage’s, patients can get just a Loss & Damage  policy if they have remaining coverage under a warranty from the original manufacturer. ESCO will even prorate the policy if the patient only needs 8 months worth of coverage to coincide with any remaining original warranty expiration date.  In that manner any future policies will have coinciding ending dates.

Carolyn:  And these are exactly the patients who may need loss coverage.

Charlie: Yes

Carolyn: Thanks for your time, Charlie.  I have a whole new appreciation for how hearing care practices can use warranty and service plans to increase revenue and keep patients loyal and happy. 

Charlie:  Thanks, Carolyn.  It’s been a pleasure.

For more information about ESCO, visit www.earserv.com or the ESCO Expo Page on AudiologyOnline.