Life in the Fast Lane: Unraveling HearUSA, part 1

Hearing Health & Technology Matters
July 5, 2011

“The Company’s strategy includes immediate public differentiation from all existing hearing centers.”{{1}}[[1]]HEARx Marketing Plan, internal document, about 1986.[[1]]

Thus began one man’s corporate vision to revolutionize hearing care in the US and Canada, and also make a bunch of money. Based on current headlines, it seems the vision has been achieved.  The corporation–currently known as HearUSA  for a few more months at least–has very publicly differentiated itself from anything else ever seen in the field of hearing healthcare.  If one ascribes to the adage that there is no such thing as bad publicity, then HearUSA has hit it out of the park.  Adding to the lustre, the corporation in its various guises has managed to make  tons of money every year of its existence while never showing a positive profit.{{2}}[[2]]Yes, there is such a thing as negative profit and it seems likely that HearUSA posted negative profits on an annual basis.[[2]]

And so begins this post, the first in a series that may drag on for some time as we muddle through the beginnings, middle, and possible end of the HearUSA vision.  Had the corporation failed to distinguish itself so thoroughly, there would be minimal interest in its decline, restructuring, or likely demise.  Instead, the story of HearUSAis a fascinating cautionary  tale of money, intrigue, backroom dealing, international finance, cronyism, bad marriages, divorces, sugar daddies, contested settlements, and yeah, there’s probably sex too (but we’re not covering that angle unless we get a really interesting comment that’s printable).

Traditionally, the business of hearing healthcare has conducted itself in a fairly courtly and discrete manner.  It’s been a gentleman’s game for players who hold their cards close.   Not so these past months with HearUSA and Siemens.  You can almost see HearUSA swaggering into the saloon, throwing money around, raising a ruckus, and ending up in a mainstreet shootout with its main supplier and banker.  As one blogger commented:

The hardball tactics are unusual in the hearing-aid industry where conflicts are more often resolved out of the public eye.{{3}}[[3]][[3]]

In a nutshell, HearUSA couldn’t meet its debt payment to Siemens last December.  Siemens called the loan, which prompted a slew of legal petitions and counter-petitions between the companies throughout the spring.  HearUSA found a temporary safe haven in backrupcy, negotiated a big loan from a rival suitor (William Demant Holding), and sent out scarey notices to its employees and network affiliates.  At the moment, HearUSA is spending the summer grooming itself  to be auctioned off to the highest bidder, an effort that includes talking about its rosey future with AARP in “45 states and counting” {{4}}[[4]][[4]].

As previous writings in this section indicate, I am not a fan of poorly managed companies that fail in their fiduciary duty to their stockholders, or in their societal duty to other stakeholders, such as employees and customers {{5}}[[5]][[5]].  Having got that off my chest, I will make an effort to report in an unbiased manner on all that I’ve been able to unearth on the times and travails of Hear USA.  Most of it is in the public record, some is from inside sources that prefer anonymity.  This post wraps up the first in a series by introducing the future bride and groom in the doomed marriage that produced HearUSA:

1.  HEARx was founded by Paul Brown, MD in 1986 in Florida.  Dr Brown’s vision was to improve the hearing profession by achieving “professional” branding via hospital accreditation, with the financial goal of capturing large insurers to cover hearing services and products.  The model called for starting offices from scratch and using a central office to ensure quality control.

2.  Helix Hearing Care was founded in 1996 in Canada and quickly became the chief competitor to Sonus.  The MO for both was to acquire existing offices via a “sales liquidating debt” approach in which office acquisitions were assigned sales thresholds to recapture expenditures for the office purchases. The business model was to carry a lot of debt but offset it by showing a lot of equity on the books.

If opposites attract, Helix and HEARx appeared to be made for each other.  Stay tuned for future posts that go into these companies in more detail, then look at the HearUSA merger and bring us up to modern times.

Bankrupcy photo from soxfirst

  1. Great story on HearUSA. You can bet that no other publication will run anything nearly as insightful, in depth, or candid about this messy situation as your piece. I can’t wait to see the next part.

    Meanwhile, I notice that one of the trade journals ran a puff piece on HearUSA as its latest cover story. That’s a bit like promoting a trip on the Titanic in the August 1912 issue of Travel and Leisure.

    Keep up the good work.

  2. I realize responsible journalism requires validating sources however some of the best stories start with tips instead of verifiable evidence, that being said I would like to contribute to your story by telling you another.

    I am the owner of a hearing business in the east coast. The business is only a couple of years old however during those years we have continuously banged heads with hear/hearusa. We have nothing against them personally however it is their behavior that’s questionable. I hope that several investigations lead someone to their anti competitive behavior. It is this humble small business owners experience that hearusa does not play fair and works towers minimizing competion in the open market. I recall a conversation with a woman from hearusa that is still in charge of the east coast market, I called to discuss the possibility of becoming a hearx affiliated (not owned)office. She said that they own all their own stores not like miracle ear which is a franchise. I explained to the rep that we are a very unique practice that deals with assisted living facilities and retirement communities and that because of hearusa’s dealings with insurance companies such as Aetna their members can only be seen by hearusa/x personnel. However hearx/hearusa is not willing to go see these patients and the patients sometimes are bed ridden or unable to obtain transportation. I pleaded with the rep that if we could not service the patient to give me a name or number of some other practice that could that was hearx. She could not. This is not Untypical. Over the years we have come across many patients who are part of the “deals” that hearusa has created with endurance companies and etc. Who fall through the cracks, unless they can afford private care their benefits with hearusa affiliated insurances/programa are useless. So, they won’t let us become affiliated, they won’t service their own patients, the patient is ultimately the one that suffers. The bankruptcy has been a blessing. Many programs that were previously hearusa only have now opened up by dropping hearusa. I had one such program manager contact us to tell us hearusa had stopped providing services and they had no one to turn to. My company was awarded the contract that hearusa once had. Even though we are a smaller practice we can privide better more personlized care since we visit the patient who is unable to come to our office. We are also open to competition, we do not LOCK programs by shutting out other vendors. Lets compete openly and let the best PROVIDER win the heart of the patient through the delivery of the best care. There is a lot of anxiety out there, we are hearing it from hearx customers turning to us and like I said hearx associated programs. I hold less respect for AARP for putting their members at the mercy of a company does not play fair. The company you keep says a lot about you. Keep up the good work on the piece, It reminds me of the harvard case studies I enjoyed reading so much during my MBA years. I find the reverse engineering of a disaster quiet interesting and much can be learned from it.

    1. mjaudseo

      Thank you for your input. You are right about responsible journalism and attribution of sources. But, the really great thing about blogging is that the readers help “make” the news and embellish the story by their contributions. Your comments about restriction of free trade may or may not apply, as I do not know whether there are antitrust violations or not (I haven’t read of any so far). Your comments about the effects on your business model and the needs of patients with limited mobility/accessibility in your area stand on their own as individual reporting. We’ll see whether other readers/commenters expand on the story and support your impressions, or offer different views and data. Your comments about reverse-engineering a business and the Harvard case analysis approach are interesting and give me more of a feeling that this reporting is worthwhile. Thank you.

  3. Hard to believe any aquiring company would keep any of the Senior management.

  4. Its a shame what happened it was a great company to work for, However the people who managed the company were not the sharpest tools in the shed

    1. mjaudseo

      You know, it is so nice to hear from someone that worked for HEARx and liked it. That makes me think that patients liked it too? Would you say that’s right? What was great about working there from your perspective?

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