HearUSA + AARP = BFF: Unraveling of HearUSA Part 15

On August 11, 2009, the ink finally dried on an exclusive licensing agreement between HearUSA and AARP{{1}}[[1]]The agreement was first signed on 8/8/08 but it took a year to iron out the details through several amendments. Technically, the agreement was with AARP Services Inc., the vendor that handles the for-profit side of AARP[[1]]  giving them a reported 9% boost in the first quarter sales for 2010.  It’s a good thing that sales went up that first quarter because the deal wasn’t so great.  First and foremost, it was not a hearing aid purchase agreement.  Instead, it was all about value add for consumers and value loss for providers.

Audiologists who participate in any form of managed care will be familiar with the basic set-up, which in the AARP case went like this:  AARP members got hearing aids at deeply discounted prices (20%), with long and free trial periods (90 days for this deal), long warranties (3 years), free follow-up (one year), free batteries (3 years), directional mics, and 15% discount on accessories and other products purchased online.  In return, authorized providers got to pay HearUSA for the privilege of appearing on the AARP provider list, which did not guarantee them patients and probably prohibited them from using AARP’s name in private marketing materials.{{2}}[[2]]This is typical of managed care contracts, but perhaps AARP was more generous with use of their brand.  I don’t know because I didn’t take the contract. I’m happy to get input/correction from those who have the contracts.[[2]]  Such a deal.

Good or bad, the deal was inevitable. One insider says that hooking up with AARP was always the  Holy Grail in Dr. Brown’s vision. Also inevitable: HearUSA went into high PR mode and announced the deal on 8/23/2008.  In an audiologyonline interview CEO Steve Hansbrough  anticipated 6 million AARP members lining up for hearing tests, noting (apparently without irony) that “we are going to need to roll out 5000 providers across all 50 states and the U.S. territories as soon as possible.”

5000 providers and 6 million patients requires a lot of infrastructure and planning.  At the time of signing, HearUSA had 190 offices.  Let’s go back to that vision thing. Way back in 2004, the HearUSA PR machine was singing the same song in another audiologyonline interview with Dr. Brown :

 “… big insurance companies with hundreds of thousands of patients need to know their patients can be serviced. If you have only one office you’re just not likely to get the contract. To obtain a Medicare Managed Care contract, service points must be located every twenty minutes, or 20 miles, from the patients. We needed a lot of centers…”{{3}}[[3]]So, does that mean if you have 6 million patients, you need service points every minute or 1 mile?  Knowing this algorithm would be useful and I wish Dr Brown had revealed his source for that information.[[3]]

Lots of vision, not much progress.  But still, others jumped on the bandwagon because hey, 6 million is a LOT of patients!

It’s probably too soon to say that HearUSA and AARP have cracked the code on getting hearing aids into all the ears of the millions of Baby boomers who need them, as market penetration rates continue to be lower than one would expect given the need.  But it’s a good sign they are demonstrating that the right mix of incentives and awareness can at least start the ball rolling. hearing mojo

Too soon indeed. Right mix for whom? Those who have kept up with this series know what comes next.  Things didn’t go according to vision.  2009 got off to a bang–up start on Jan 12 when California issued a legal opinion{{4}}[[4]]The opinion came from Michael R. Santiago, Department of Consumer Affairs, Legal Office to Exec Dir of SLP/Aud Bureau of the State[[4]] telling AARP/HearUSA to get out of town:

QUESTION PRESENTED: Whether a licensee who pays an annual fee of $500 and a credentialing fee of $100 every three years may participate in a hearing aid discount program sponsored by …AARP and HearUSA wherein the licensee’s name is added to a national directory of providers who offer a discounted hearing test evaluation for $90 to AARP members, as well as certain products, with no obligation for the patient to pursue further testing or procedures.

II. SHORT ANSWER. No.{{5}}[[5]] In fact, the memo went on to say that “A licensee would be in violation of Business & Professions Code Section 650 if the licensee participated in the AARP/HearUSA Program since it would be considered an unlawful referral to be on this national list of providers.” Ouch![[5]]

Well, that WAS short. So much for sharing the vision.  Annual revenue figures tell the sad story: HearUSA fell back to 2006 production with the help of AARP.

HearUSA Annual Revenues, 2008-2010

But, 2009 was a horrible year for everybody, so those could be good numbers in a recession.  As the chart below shows, HearUSA stock prices rose throughout 2009 and into 2010, peaking at $1.74/share on March 23, 2010.  That showing impressed Russell  Microcap Index{{6}}[[6]]At the time, Russell was considered an industry leader with $3.9 trillion in assets.  Russell noted that it “selects members of its portfolio primarily by objective, market-capitalization rankings and style attributes.”  Must have been the style.[[6]], which added HearUSA’s stock to its portfolio, to remain  in place for one year.  On the other hand, if you’d invested in an S&P500 Index Fund at the end of 2008 and stayed through 2010, you would have beaten HearUSA by a significant percentage.

HearUSA Stock 2008 through 2010, compared to S&P500

 

Tune in next week, when we’ll finish off the AARP and return to Siemens as we enter the final few laps of this interminable story.



About Holly Hosford-Dunn

Holly Hosford-Dunn, PhD, graduated with a BA and MA in Communication Disorders from New Mexico State, completed a PhD in Hearing Sciences at Stanford, and did post-docs at Max Planck Institute (Germany) and Eaton-Peabody Auditory Physiology Lab (Boston). Post-education, she directed the Stanford University Audiology Clinic; developed multi-office private practices in Arizona; authored/edited numerous text books, chapters, journals, and articles; and taught Marketing, Practice Management, Hearing Science, Auditory Electrophysiology, and Amplification in a variety of academic settings.

2 Comments

  1. As a former employee, who was with the company for a long time, it is sad to see this happen. I loved working with the patients and treated them like family. Many times I would have patients come into the office just to say hi or talk. I do believe that management was getting paid very well with great bonuses while office staff were not paid that well and non-existant bonuses. Office staff are the ones that had to deal with the pressures of patient complaints, hitting revenue goals and managers with serious mental issues.

    1. Yes it is. Audiologists such as yourself “on the ground” undoubtedly had patients’ best interests at heart and worked hard to optimize patient care. You invested a lot of yourself in the company and it is not surprising if you feel let down by all that has transpired.

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