Interview with Charles Stone Extended Hearing Aid Warranty, Financing, and Leasing Programs, ESCO
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AO/Beck: Good morning Charlie. Thanks for joining me today. I think many of the readers will recognize your name from your host of professional activities. Nonetheless, before we talk about ESCO and the wealth of services they provide, I'd like to get a little bit of your professional history if you don't mind?
Stone: I graduated with my master's degree in Audiology in 1971 from the University of Wisconsin at Steven's Point and I took a position at the University of North Dakota Rehab. Hospital. I was there for about a year and a half when I was appointed acting chief of the Department of Communication Disorders. I did that until 1974, when I was recruited by Telex Communication Corporation, a hearing aid company in Minneapolis. My title was Educational Audiologist, and I collaborated with engineering to help develop better technology. I also worked with sales and marketing to present at conferences and do educational seminars at the factory. In 1976 Telex decided they wanted to have an experimental office and they asked me if I wanted to run it. I was fortunate to get that dispensing experience. Later, I joined up with Ron Pearlt, a hearing aid dispenser from St. Paul, and we bought the Telex office and began to expand our practice in the Minneapolis / St. Paul area. At that time it was illegal for audiologists who worked in physicians offices to prescribe and fit hearing aids in Minnesota. It wasn't just unethical, it was illegal!
AO/Beck: That's just amazing. And this was in the mid to late 1970s?
Stone: Yes. I think it was 1977 or so. So, we set up our offices near every ear, nose, and throat clinic in town and had nine offices in the metropolitan area and were doing very large volumes of instruments, 500-600 instruments a month.
AO/Beck: Oh my goodness!
Stone: At a very low price. Unfortunately! But we were convenient, and we did very well professionally.
AO/Beck: So you were allowed to dispense outside of the doors of the ENT office?
Stone: As long as I didn't prescribe the product, I could sell the product, but I couldn't do both. When you think about it in retrospect, as a hearing aid dealer, I was allowed to test hearing and sell hearing aids -- but as an audiologist I couldn't.
AO/Beck: Aaaaah, the good old days! What an amazing history.
Stone: Good old days indeed. In 1982 the ear, nose and throat physicians successfully sponsored a bill to change the law. One by one they started dispensing hearing aids in their offices. I scaled down to 3 offices in the Twin Cities in the early 1990's, and then I added one additional office about 40 miles outside of Minneapolis.
AO/Beck: So how did you transition from a large clinical practice to service contracts, insurance and financing?
Stone: In 1990, I had a simple idea, a professional service contract. Basically, it always bothered me to give away services. I thought my many years of academic and clinical education were worth something.
So, at the time of the hearing aid fitting, I said to the patient, The hearing aid is covered by XYZ manufacturer. However, that manufacturer doesn't cover my professional services. So I gave them a service contract that covered professional services for the same period of time, usually one year. That set-up in the patient's mind the fact that there's a separation between the product and the services. At the end of the year, I sent them (under a separate company-ESCO) a notice to renew the service contract, and I found I had about a 90 to 95% renewal rate.
People would renew for the second year, then the third year and so on until they made their next purchase. I would again cover the 1st year service contract with the purchase price and start the cycle over again. It was a fairly good revenue builder and an excellent patient retention program. People that paid money to stay with me weren't going to go somewhere else! They basically prepaid their office visits for the next year with each renewal.
AO/Beck: That's a very interesting proposal. I can see the value for the patient and the professional.
Stone: It actually worked very well. A little while later, I thought it would be clever and useful to couple with loss and damage coverage. I approached a provider of loss and damage in the Minneapolis area to discuss my idea.
AO/Beck: Absolutely. That sounds like a winner to me.
Stone: Unfortunately, at the time the local company did not have an interest in incorporating my concept into their current loss and damage product. I was convinced this was a workable idea, and at that time decided to pursue it on my own.
I already owned a business downtown named Ear Service Corporation (ESCO). So, I had a corporation that was set-up, and I had let it go dormant. Eventually, I connected the dots and thought I'd start this service contract business and insurance business on my own.
Of course, sometimes your pride and ego stand in the way of good judgment! I knew nothing about the insurance business and I found out in a hurry that I was in deep water! So I started looking for individuals with a background in insurance and that's when I met my business partners, Paul Turner and John Ditzler.
AO/Beck: I know that insurance businesses are highly regulated and they exist under an entirely different set of business rules and regulations. It sounds like you were wise to seek people familiar with that business. I have said many times all businesses look easy from the outside, but the insurance industry seems to have more rules and regulations than congress itself!
Stone: Yes, you're right. Insurance is very different and I was thrilled to find Paul and John. John worked for a company in town that sold boat warranties. He was familiar with the service contract and material benefits riders attached to them. So our first product was exactly that. It was a service contract with a material benefits rider that covered replacement of the instrument. Actually we didn't start writing insurance policies until ReSound came to us in 1991. They told us they had new products on the market and they did not offer loss and damage coverage. They noted there was no other industry that insured a product for loss in the electronics business -- and at the time, were not interested in offering it. They agreed to enclose our brochure in their packaging, allowing the patient to decide whether they wanted loss and damage coverage.
AO/Beck: That must have been an incredible opportunity for you! As you had been taking care of patients, you knew what they were looking for, and your first-hand clinical experience must have made a big difference in how things were structured and presented.
Stone: Yes, I agree. Clinical experience made all the difference. I was able to relate the business proposal to my personal knowledge of the interactions. That was really what made ESCO happen. In 1990 or so ReSound started to expand rapidly, and that pulled our business along. Their product was new and a refreshing change to what was already in the marketplace. Then, 3M came along with a programmable device and they didn't have loss and damage on their instrument either. They asked us to underwrite their product, which was also helpful in our early stages. Eventually, they both decided to take loss and damage in-house. By that time we had established a name in the industry and had a tremendous patient base.
As the company began to expand, we started adding employees to keep up with the workload. Probably around 1995 or so, it was apparent to me that ESCO was headed in the right direction so I sold my practice to Helix in 1997. I continued to work with Helix for a few more years, but in 2000 I came to work full-time at ESCO.
AO/Beck: So that gets us pretty much up to speed. Can we talk specifically about ESCO today? What are the primary insurance products that you offer?
Stone: We have two main insurance products. Basic loss and damage coverage is called Protection Plus. We also have a Platinum Plan which covers loss, damage, and repairs, like an extended warranty.
AO/Beck: So most of the consumers and patients you're doing business with are in their second through fifth year of ownership?
Stone: Correct. Virtually all hearing aid manufacturers offer the first year as part of the original sales warranty.
AO/Beck: Can consumers buy hearing aid warrantee services directly from ESCO or must they go through professionals?
Stone: When a consumer applies to us directly we send them to their professional to verify the instrument is in good working order.
AO/Beck: Can you please explain the issues related to hearing aid loss and the homeowner's policy? I recall telling thousands of patients to check with their homeowner's policy to see if hearing aid loss was a covered item. Was that the right thing to do?
Stone: I used to tell my patients that too. Some homeowner's policies allow you to get a hearing aid rider on your policy. However, if they had several claims on that policy, they could potentially be jeopardizing the homeowner policy! Additionally, the homeowner rider was usually more expensive than our policy. So the bottom line is, the homeowner policy may not be cost effective and the purchaser might jeopardize their homeowner's policy. The homeowner might be dropped if they had too many claims, and then they'd have to go through the process of applying to some other homeowner insurance company and they always ask: Have you ever been dropped? So rather than going through those hassles, they're almost always better off going through an independent.
AO/Beck: So you have the two main products you mentioned a few moments ago, the basic plan is Protection Plus and the premium product is the Platinum Plan , any other options?
Stone: We have a warranty expiration notification program called Reminder Care.
AO/Beck: I really like this idea because it helps retain the warranty and the patient, but it doesn't come directly from the professional's office, which has it's advantages. Please explain the Reminder Care program.
Stone: Professionals can sign their customers up at our website, by filling out a postage paid postcard, or faxing us the contact information sheet at the time of the hearing aid delivery.
ESCO notifies the customer within 30 days of their warranty expiration, encouraging them to visit their hearing healthcare professional and offering them an opportunity to purchase extended coverage. Several major manufacturers endorse Reminder Care and include a postcard reminder with every aid they ship out.
AO/Beck: Charlie, I know you have some amazing new plans to help consumers buy hearing aids through revolving credit plans and leasing. Can you give me brief overview of those, and then we'll detail them later in the spring?
Stone: Absolutely. We're working with the HELPcard. HELPcard is a hearing healthcare credit card specifically designed for the financing of the private-pay portion of healthcare expenses. Virtually every patient who has the ability and willingness to pay for services on a monthly basis will have the opportunity to become a HELPcard cardholder. It's a credit card program that really makes sense for the hearing industry and allows for patients to purchase the best possible hearing care with an affordable monthly payment.
AO/Beck: And you also have a lease program?
Stone: Yes. It's called Lend-An-Ear, a hearing aid leasing company formed in 1999 by 2 audiologists and ESCO. We set out to put together a program that would offer patients a low monthly payment and give them the option to purchase or return the hearing aids at the end of the lease term. Ultimately, we wanted to find out whether there was a market for a hearing aid leasing program. What we found was that there is a significant segment of the population interested in leasing hearing instruments. The program provides a payment plan as well as the opportunity to upgrade to new hearing aids every 3 years.
From the professional's standpoint it's good because it sets a time limit on the acquisition of the next instruments. Right now, the industry resale rate is approximately every 5.7 years. I'm sure that most professionals talk about new technology with their patients as it happens, but, hearing aids are expensive and it takes almost six years before they think about buying new instruments.
With a lease there's a guaranteed endpoint, which is 36 months, and then the patient has to decide whether to purchase the product, re-lease it, or get a new model. Some of the manufacturers are participating in this program and that really helps the consumer and the professionals.
AO/Beck: So with the leasing program, if I'm a private practice audiologist and I want to offer this because I know the patient can spend $150 a month, but they can't spend $6000 tomorrow, I can call you guys, you fax me a form, the patient and I fill it in, we fax it back to you and we're done?
Stone: Yes, pretty much. We go the extra mile and verify the patient is pleased with how their instruments are working. We make every effort to make sure our staff has an understanding of what patients may be going through as they adjust to new hearing instruments.
AO/Beck: And then after it's all confirmed, I get paid directly from you guys, so I'm (thankfully) out of the payment loop?
Stone: Right. Of course there are details that we'll discuss with the professional regarding fees and costs of the program, but the program makes it affordable for everyone and it helps supply patients with instruments in an affordable and practical way.
AO/Beck: Charlie, you've been very generous with your time. Thanks a lot. Clearly warranty and financing issues are important for the consumer and the professionals. What's the best way to get in touch with your office to further investigate these options?
Stone: The best thing is to call our toll free number, 1-800-992-3726 and we'll be happy to provide information.
AO/Beck: Thanks Charlie, I appreciate the information.
Stone: Thank you too, Doug.
*****************************************************************************
For more information regarding hearing aid extended warranty and finance programs, CLICK HERE.
Stone: I graduated with my master's degree in Audiology in 1971 from the University of Wisconsin at Steven's Point and I took a position at the University of North Dakota Rehab. Hospital. I was there for about a year and a half when I was appointed acting chief of the Department of Communication Disorders. I did that until 1974, when I was recruited by Telex Communication Corporation, a hearing aid company in Minneapolis. My title was Educational Audiologist, and I collaborated with engineering to help develop better technology. I also worked with sales and marketing to present at conferences and do educational seminars at the factory. In 1976 Telex decided they wanted to have an experimental office and they asked me if I wanted to run it. I was fortunate to get that dispensing experience. Later, I joined up with Ron Pearlt, a hearing aid dispenser from St. Paul, and we bought the Telex office and began to expand our practice in the Minneapolis / St. Paul area. At that time it was illegal for audiologists who worked in physicians offices to prescribe and fit hearing aids in Minnesota. It wasn't just unethical, it was illegal!
AO/Beck: That's just amazing. And this was in the mid to late 1970s?
Stone: Yes. I think it was 1977 or so. So, we set up our offices near every ear, nose, and throat clinic in town and had nine offices in the metropolitan area and were doing very large volumes of instruments, 500-600 instruments a month.
AO/Beck: Oh my goodness!
Stone: At a very low price. Unfortunately! But we were convenient, and we did very well professionally.
AO/Beck: So you were allowed to dispense outside of the doors of the ENT office?
Stone: As long as I didn't prescribe the product, I could sell the product, but I couldn't do both. When you think about it in retrospect, as a hearing aid dealer, I was allowed to test hearing and sell hearing aids -- but as an audiologist I couldn't.
AO/Beck: Aaaaah, the good old days! What an amazing history.
Stone: Good old days indeed. In 1982 the ear, nose and throat physicians successfully sponsored a bill to change the law. One by one they started dispensing hearing aids in their offices. I scaled down to 3 offices in the Twin Cities in the early 1990's, and then I added one additional office about 40 miles outside of Minneapolis.
AO/Beck: So how did you transition from a large clinical practice to service contracts, insurance and financing?
Stone: In 1990, I had a simple idea, a professional service contract. Basically, it always bothered me to give away services. I thought my many years of academic and clinical education were worth something.
So, at the time of the hearing aid fitting, I said to the patient, The hearing aid is covered by XYZ manufacturer. However, that manufacturer doesn't cover my professional services. So I gave them a service contract that covered professional services for the same period of time, usually one year. That set-up in the patient's mind the fact that there's a separation between the product and the services. At the end of the year, I sent them (under a separate company-ESCO) a notice to renew the service contract, and I found I had about a 90 to 95% renewal rate.
People would renew for the second year, then the third year and so on until they made their next purchase. I would again cover the 1st year service contract with the purchase price and start the cycle over again. It was a fairly good revenue builder and an excellent patient retention program. People that paid money to stay with me weren't going to go somewhere else! They basically prepaid their office visits for the next year with each renewal.
AO/Beck: That's a very interesting proposal. I can see the value for the patient and the professional.
Stone: It actually worked very well. A little while later, I thought it would be clever and useful to couple with loss and damage coverage. I approached a provider of loss and damage in the Minneapolis area to discuss my idea.
AO/Beck: Absolutely. That sounds like a winner to me.
Stone: Unfortunately, at the time the local company did not have an interest in incorporating my concept into their current loss and damage product. I was convinced this was a workable idea, and at that time decided to pursue it on my own.
I already owned a business downtown named Ear Service Corporation (ESCO). So, I had a corporation that was set-up, and I had let it go dormant. Eventually, I connected the dots and thought I'd start this service contract business and insurance business on my own.
Of course, sometimes your pride and ego stand in the way of good judgment! I knew nothing about the insurance business and I found out in a hurry that I was in deep water! So I started looking for individuals with a background in insurance and that's when I met my business partners, Paul Turner and John Ditzler.
AO/Beck: I know that insurance businesses are highly regulated and they exist under an entirely different set of business rules and regulations. It sounds like you were wise to seek people familiar with that business. I have said many times all businesses look easy from the outside, but the insurance industry seems to have more rules and regulations than congress itself!
Stone: Yes, you're right. Insurance is very different and I was thrilled to find Paul and John. John worked for a company in town that sold boat warranties. He was familiar with the service contract and material benefits riders attached to them. So our first product was exactly that. It was a service contract with a material benefits rider that covered replacement of the instrument. Actually we didn't start writing insurance policies until ReSound came to us in 1991. They told us they had new products on the market and they did not offer loss and damage coverage. They noted there was no other industry that insured a product for loss in the electronics business -- and at the time, were not interested in offering it. They agreed to enclose our brochure in their packaging, allowing the patient to decide whether they wanted loss and damage coverage.
AO/Beck: That must have been an incredible opportunity for you! As you had been taking care of patients, you knew what they were looking for, and your first-hand clinical experience must have made a big difference in how things were structured and presented.
Stone: Yes, I agree. Clinical experience made all the difference. I was able to relate the business proposal to my personal knowledge of the interactions. That was really what made ESCO happen. In 1990 or so ReSound started to expand rapidly, and that pulled our business along. Their product was new and a refreshing change to what was already in the marketplace. Then, 3M came along with a programmable device and they didn't have loss and damage on their instrument either. They asked us to underwrite their product, which was also helpful in our early stages. Eventually, they both decided to take loss and damage in-house. By that time we had established a name in the industry and had a tremendous patient base.
As the company began to expand, we started adding employees to keep up with the workload. Probably around 1995 or so, it was apparent to me that ESCO was headed in the right direction so I sold my practice to Helix in 1997. I continued to work with Helix for a few more years, but in 2000 I came to work full-time at ESCO.
AO/Beck: So that gets us pretty much up to speed. Can we talk specifically about ESCO today? What are the primary insurance products that you offer?
Stone: We have two main insurance products. Basic loss and damage coverage is called Protection Plus. We also have a Platinum Plan which covers loss, damage, and repairs, like an extended warranty.
AO/Beck: So most of the consumers and patients you're doing business with are in their second through fifth year of ownership?
Stone: Correct. Virtually all hearing aid manufacturers offer the first year as part of the original sales warranty.
AO/Beck: Can consumers buy hearing aid warrantee services directly from ESCO or must they go through professionals?
Stone: When a consumer applies to us directly we send them to their professional to verify the instrument is in good working order.
AO/Beck: Can you please explain the issues related to hearing aid loss and the homeowner's policy? I recall telling thousands of patients to check with their homeowner's policy to see if hearing aid loss was a covered item. Was that the right thing to do?
Stone: I used to tell my patients that too. Some homeowner's policies allow you to get a hearing aid rider on your policy. However, if they had several claims on that policy, they could potentially be jeopardizing the homeowner policy! Additionally, the homeowner rider was usually more expensive than our policy. So the bottom line is, the homeowner policy may not be cost effective and the purchaser might jeopardize their homeowner's policy. The homeowner might be dropped if they had too many claims, and then they'd have to go through the process of applying to some other homeowner insurance company and they always ask: Have you ever been dropped? So rather than going through those hassles, they're almost always better off going through an independent.
AO/Beck: So you have the two main products you mentioned a few moments ago, the basic plan is Protection Plus and the premium product is the Platinum Plan , any other options?
Stone: We have a warranty expiration notification program called Reminder Care.
AO/Beck: I really like this idea because it helps retain the warranty and the patient, but it doesn't come directly from the professional's office, which has it's advantages. Please explain the Reminder Care program.
Stone: Professionals can sign their customers up at our website, by filling out a postage paid postcard, or faxing us the contact information sheet at the time of the hearing aid delivery.
ESCO notifies the customer within 30 days of their warranty expiration, encouraging them to visit their hearing healthcare professional and offering them an opportunity to purchase extended coverage. Several major manufacturers endorse Reminder Care and include a postcard reminder with every aid they ship out.
AO/Beck: Charlie, I know you have some amazing new plans to help consumers buy hearing aids through revolving credit plans and leasing. Can you give me brief overview of those, and then we'll detail them later in the spring?
Stone: Absolutely. We're working with the HELPcard. HELPcard is a hearing healthcare credit card specifically designed for the financing of the private-pay portion of healthcare expenses. Virtually every patient who has the ability and willingness to pay for services on a monthly basis will have the opportunity to become a HELPcard cardholder. It's a credit card program that really makes sense for the hearing industry and allows for patients to purchase the best possible hearing care with an affordable monthly payment.
AO/Beck: And you also have a lease program?
Stone: Yes. It's called Lend-An-Ear, a hearing aid leasing company formed in 1999 by 2 audiologists and ESCO. We set out to put together a program that would offer patients a low monthly payment and give them the option to purchase or return the hearing aids at the end of the lease term. Ultimately, we wanted to find out whether there was a market for a hearing aid leasing program. What we found was that there is a significant segment of the population interested in leasing hearing instruments. The program provides a payment plan as well as the opportunity to upgrade to new hearing aids every 3 years.
From the professional's standpoint it's good because it sets a time limit on the acquisition of the next instruments. Right now, the industry resale rate is approximately every 5.7 years. I'm sure that most professionals talk about new technology with their patients as it happens, but, hearing aids are expensive and it takes almost six years before they think about buying new instruments.
With a lease there's a guaranteed endpoint, which is 36 months, and then the patient has to decide whether to purchase the product, re-lease it, or get a new model. Some of the manufacturers are participating in this program and that really helps the consumer and the professionals.
AO/Beck: So with the leasing program, if I'm a private practice audiologist and I want to offer this because I know the patient can spend $150 a month, but they can't spend $6000 tomorrow, I can call you guys, you fax me a form, the patient and I fill it in, we fax it back to you and we're done?
Stone: Yes, pretty much. We go the extra mile and verify the patient is pleased with how their instruments are working. We make every effort to make sure our staff has an understanding of what patients may be going through as they adjust to new hearing instruments.
AO/Beck: And then after it's all confirmed, I get paid directly from you guys, so I'm (thankfully) out of the payment loop?
Stone: Right. Of course there are details that we'll discuss with the professional regarding fees and costs of the program, but the program makes it affordable for everyone and it helps supply patients with instruments in an affordable and practical way.
AO/Beck: Charlie, you've been very generous with your time. Thanks a lot. Clearly warranty and financing issues are important for the consumer and the professionals. What's the best way to get in touch with your office to further investigate these options?
Stone: The best thing is to call our toll free number, 1-800-992-3726 and we'll be happy to provide information.
AO/Beck: Thanks Charlie, I appreciate the information.
Stone: Thank you too, Doug.
*****************************************************************************
For more information regarding hearing aid extended warranty and finance programs, CLICK HERE.
Charles Stone, AuD
Founder and CEO of ESCO