There was a time when audiologists thought that they owned the hearing aid marketplace. Our growing private offices and our new AuD degrees would be the solution to the public’s malaise and lack of appreciation for better hearing. Bam! What happened? The traditional audiology scope of hearing aid dispensing finds itself the victim of a number of unforeseeable and uncontrollable changes that we did not anticipate, and in fact, we stood by blindly watching the tsunami wave arrive. Obviously, we didn’t see, or understand, the rampant growth of the converging forces chipping away at our position as the self-stated “owners of hearing health care.”
I deem the current unraveling hearing health-care delivery system as a serious problem for audiologists. I further believe the survival of the profession is at stake here.
…Academy Founder and Past President
Jerry Northern, PhD (2014).
Wayne Staab, PhD, cited four problems for independent practice.
- Because of their small scale (61 percent have one office), independent hearing aid dispensers have little bargaining power with manufacturers who supply them with product, and as a result, find it difficult to negotiate large discounts. Because of this, they may find that competing in market changes is more difficult.
- The growth of independent dispensers is on the decline, regardless of the discipline (audiologist or dispenser), and shows no evidence of reversing the trend.
- ASP (Average Sales Price) is highest with independents. This is because their operating costs are higher, and must be covered. This can put independents at a disadvantage because of no bargaining power to discount hearing aid purchase prices from manufacturers.
- Struggling offices will most likely not survive (2015).
In the same article, Dr. Staab (2015) reported statistics from Wall Street Analyst firm Sanford C. Bernstein, that independent practitioners who used to sell almost all hearing aids now only sell 39 percent of hearing aids. Bernstein research-analyst Lisa Bedell Clive sums up Wall Street’s view of the state of the independent practice of audiology by stating, “The market is moving away from independent retail, with growth in chain retail and manufacturer forward integration.” David Smriga, MA (2016) estimated that independent practitioners only sell 15 percent of all hearing aids now. No matter which estimate is more accurate, it is crystal clear that independent practice is on the decline and facing certain extinction.
A recent Letter-to-the-Editor by James Jerger, PhD (2016), offers our profession some thought-provoking suggestions. In reference to Dr. Barry Freeman’s opinion that, “Audiology has become too focused on product sales…products should not be the center of the audiology universe. We need to go back to our historical roots (Shaw 2016).”
Dr. Jerger states, “I am suggesting that for private practice to survive, there must be a conscious effort to broaden its base to include a full array of audiological services to the public, in order to become less dependent on hearing aid sales.”
Dr. Brian Taylor (Shaw, 2016) says that the level of interconnection between the clinical practice and the device industry is virtually unique to audiology. Dr. Jerger says, “Dr. Brian Taylor makes the point well,” when he states, “When you compare it with dentistry, vision care, and MD-driven specialties, I think hearing care is pretty unusual in how much it is driven by manufacturers and devices.”
However, if you look at dentistry, 80 percent of their income is driven by procedures utilizing products (ADA, 2014). Most dentists buy the majority of their products through one distributor, which is like of a group purchasing organization (GPO). In an ENT practice, 60–70 percent of their income is driven by procedures utilizing products primarily from one distributor. (Personal communication with many ENTs and AAO–HNS since AAO–HNS said they did not have this data.)
Optometry practices derive 61 percent of their revenue from product sales, 22 percent from eye exams and 17 percent from medical care (Management Business Academy, 2015), and Luxottica controls 80 percent of the major brands of eyeglasses in the industry. The takeaway message is that most medical professions are dependent on products for the majority of their income, and most medical professionals purchase their products primarily through one distributor to get the lowest cost.
Are We at Odds?
In addition, as a well-seasoned independent practitioner in California who is very interested in independent practice survival, I fear that the daily realities of independent practice and Dr. Jerger’s suggestion may in fact be at odds.
One reality I must face is my practice’s break-even figure. To cover our rent, payroll, overhead, etc., each of our audiologists must generate $161 of revenue for each hour of patient contact time (seven hours a day). With many of our patients, that income comes through reimbursement for audiological testing from Medicare and insurance companies. These reimbursements range from as low as $23.75 for OAEs (92587), $35.31 for immittance (92750), $41.34 for an audiological evaluation (92557), $77.16 for a tinnitus evaluation, to as high as $157.21 for a VNG (92540 and 92537), and $155.81 for an ABR (92585). Thus, there is a reasonable percentage of patient contact time that brings in less revenue (and often far less) than our break-even figure.
In fact, to meet our break-even revenue of $161 per hour, each audiologist would have to perform four 92557s per hour, or two and one-half 92557/92570s per hour. I believe few (if any) audiologists could do that many tests per hour, including history taking, charting, billing, and report writing every day, and I doubt that few (if any) offices are referred that many patients every day.
There is no question that providing a full array of audiological services to patients is important. But, unless we can average $161 an hour in revenue, we are no longer in a position to provide services to any patients. Can we get better reimbursements from our third-party payers? In Los Angeles, where the density of providers is fairly high, reimbursement negotiation is rarely an option. So, to stay in business and provide needed services to these patients, our practice must deliver services that generate sufficient income to not only pay for themselves, but to offset the gaps between our break-even figure and the shortfalls to that figure the above reimbursed contact hours create.
For us, and many independent practitioners, this needed offset comes through hearing aid sales. In fact, the majority of dispensing audiology practices generate 80–90 percent of their income from hearing aid sales, even though they may spend an equal amount of time doing diagnostic testing and hearing aid dispensing.
In addition, many of the audiological services that Dr. Jerger suggests audiologists focus on to “broaden its base” are either not reimbursed, or remain inadequately reimbursed by Medicare and/or most insurance companies. Medicare (and most insurance companies in California) don’t pay audiologists for a full array of audiological services, such as evaluation and management codes (office visits), VEMPs, APD testing/management, canalith repositioning for BPPV, vestibular therapy, and aural rehabilitation/auditory training.
And, I find that even though many of my offices are in wealthy areas, patients will rarely pay out-of-pocket for services that are not covered by Medicare and/or their insurance company. Yet we, and many of my private practice colleagues, do indeed provide these services. However, our ability to do so is underwritten by hearing aid sales.
Where Is the Disruption From?
Dr. Jerger suggests that, “Blaming the big-box stores is not the answer either.” Dr. Jerger references Dr. Amyn Amlani who states that, “The most disruptive competition to an audiology practitioner is the ENT practice within 10 miles. You’re not competing with Costco; you’re competing with the ENT down the road ….” (Shaw 2016). This statement, however, is at odds with hearing aid industry statistics reported by Sanford C. Bernstein, a leading Wall Street research firm (2015), in a report called, The Long View: The Future of the U.S. Hearing Aid Market. Who Gains, Who Loses, from THE Slow Death of Independents.
The report found that of the 2.65 million non-VA units sold in the United States, 39 percent were sold by independent practices, 26 percent by manufacturer-owned practices, 24 percent by retail chains, and 12 percent by others/small chains (Bernstein, 2015; Staab 2015). Costco alone accounted for approximately 11 percent (355,000 units) of non-VA sales, and is growing at 20-25 percent a year. Thus, Costco will be selling 20 percent of all non-VA aids sold in the United States by 2020.
Furthermore, ENT practices account for approximately 10 percent of the independent hearing aids sold in the United States, while manufacturer-owned/retail chains/others account for 61 percent. Thus, the most disruptive force to an audiology practitioner is the manufacturer-owned/ retail chains/other practices, not the ENT down the road.
This disruption occurs because the manufacturer-owned practices/retail chains buy each hearing aid for $500–$700 less than independent audiology and ENT practices, allowing the manufacturer-owned/retail chains to charge $1,000–$2,000 less per set of hearing aids, while making the same profit as the audiology and ENT practices who need to charge higher prices.
Despite what an independent practice professional may choose to emphasize in their characterization of what’s valuable in a professional hearing aid/health-care transaction, at the end of that transaction, the consumer must pay for both the services and the product. If that product costs the independent practitioner hundreds of dollars more than virtually the same technology costs the manufacturer-owned/retail chain down the street, that price difference now becomes a penalty the consumer must pay for choosing to do business with that independent practitioner—and is the reason that manufacturer-owned practices/retail chains own 61 percent of the U.S. hearing aid market.
If you think that patients will choose the professional who provides the best care and treatment, a recent health-care study in The Journal of Health Affairs has shown that when patients know the cost the health-care provider charges, even when their insurance covers any provider, patients choose the lowest cost provider (Hougaard and Ruff, 2011).
What Is the Reality?
This reality of independent practice does not appear to be reflected in either Dr. Jerger’s comments, or in the comments of several of the individuals Dr. Jerger referenced. In addition, Dr. Jerger seems to think that the corporate consolidators who are buying the majority of independent practices, as well as buying and/or managing the audiology department of ENT, medical group, hospital, and/or universities, will not affect audiologists who are not in independent practice.
However, independent practice owners make twice the income ($146,000) of staff audiologists ($77,000) (Academy, 2013). For employers to keep audiologists from owning/working in an independent practice to earn a higher salary, employers must remain competitive in their salary and compensation. If there are few or no independent practices, this will negatively affect the salary and compensation of audiologists working in all settings.
Audiologists and audiology professional organizations have been ignoring the elephant in the room for far too long. David Smriga, MA, president of AuDNet, has been writing articles and lecturing at AudiologyNOW! and with the Academy of Doctors of Audiology (ADA) conference for 12 years now chronicling how independent practices have been acquired by corporate consolidators. Smriga explains that this is happening at an alarming rate, so that what was once an industry made up of primarily independent practitioners, has now been reduced to an estimated 46 percent independent practitioners in 2004, 23 percent in 2011, and 15 percent in 2016 (Smriga 2004, 2011, 2016).
Clayton Christensen has written many books that explain the failure of successful professions that don’t respond to innovative competitors who disrupt the successful professions business model. Leaders in the established profession are often the staunchest defenders of the profession’s current definition of success, even when a new definition is needed. The profession’s leaders incorrectly recommend to basically do what you already know how to do, but to do it better than you have in the past. Clayton Christensen says that adherence to a past definition of success is exactly what allows the innovative competitors to take over the profession (2008).
What Should We Do?
Audiology needs a new business model to survive the disruptive innovation that is occurring. Ninety-six percent of all hospitals belong to group purchasing organizations (GPOs) who buy almost all their products through the GPO in order to get the products they need to run their business at the lowest possible price.
Audiologists need to join together into one group to get VA/Costco pricing on hearing aids. The group members would get the majority of the manufacturer-negotiated discount, and any additional discount would be used to run the group, lobby congress, educate the public and medical profession, fund conventions, fund scholarships, etc. Furthermore, the Academy needs to partner with ADA to pass HR 2519, The Audiology Patient Choice Act, which will allow Medicare beneficiaries direct access to audiologists without a physician referral. This would also allow audiologists to be reimbursed for many of the full array of audiological procedures we currently cannot be reimbursed for by Medicare and/or insurance companies.
Whether you believe it or not, if the practice setting you work in is not owned by a manufacturer/corporate consolidator/retail chain, you are an independent practitioner. If independent practitioners could get the same hearing aid technology at the same price as the manufacturer-owned/retail chains, independent practitioners could charge the same price as the manufacturer-owned/retail chains, and make the same margins they make now to keep their doors open. This would level the playing-field, and independent practitioners could then compete for patients with the manufacturer-owned/retail chains based on the “value of their service,” expertise, and customized care instead of price.
Audiologists cannot compete based on the value of their services alone when manufacturer-owned/retail chain pricing is 50 percent less than that of independent practitioners, because value is made up of price and benefit. If the cost of goods penalty independent practitioners now pay for hearing instruments was eliminated, and if insurance carriers reimbursed audiologists equitably for their services, then the dependency on hearing aid sales to sustain an independent practice could be reduced. But, until those things change, hearing aid sales are an essential tool that allows audiology practitioners to provide the full array of audiological services to the public most of us actually already provide.
As far as survival of the independent practitioner, Clayton Christensen’s model suggests that in our case, the disruptive innovation is not the “corporatization of audiology,” rather the disruptive force is the failure of audiologists to unite to help themselves when confronted with extinction. This disruption is not “fait accompli” unless audiologists continue down the path of divisiveness and inaction, and fail to join one group that gives them the same product pricing as their manufacturer-owned/retail chain competitors, and gives them the money needed to pass legislation allowing audiologist’s direct access to Medicare beneficiaries (HR 2519 The Audiology Patient Choice Act) and reimbursement for providing a full array of audiological services to the public.
The views and opinions expressed in this article are those of the author and do not necessarily represent the official policy, position, or opinion of the American Academy of Audiology; further, the Academy does not endorse any products or services mentioned in this article.