HearUSA anticipated targeted growth of 15-20% from the AARP agreement{{1}}[[1]] Morningstar Document. Form 10-K. Hearing USA Inc., filed 3/26/2010.[[1]] and offices mushrooming to 5000 “across all 50 states and the U.S. territories.”{{2}}[[2]]HearUSA Partnership with AARP. audiologyonline interview with Stephen Hansbrough, HearUSA CEO, 9/15/2008.[[2]] Wildly optimistic can not do justice to those projections. Revenues plunged in 2009, but that was a good year compared to 2010 revenues (although stock prices recovered a bit, as shown in the last post).
Amazingly, HearUSA attributed plummeting revenues to “reduced managed care benefits to members,” even as Mr. Hansbrough was reporting AARP sales in excess of 1 million aids in 2009. Something does not add up: A million aids should offset reduced benefits and prop up revenues. One way to make it add up is if people with reduced benefits were also AARP members–in which case they would self-select the most advantageous way to get hearing aids from their HearUSA plans. That scenario is not a revenue maker. Judging from the tired, old mantra emanating from HearUSA, it seems that everyone at Central Office was still drinking the Kool-Aid:{{3}}[[3]]From a 2011 Boston senior citizen’s media kit pamphlet.[[3]]
HearUSA has grown to over 180 Company owned and operated centers in ten states. In addition, the company oversees a network of audiology based and credentialed hearing care clinics that deliver quality care to the HearUSA insured members.
How does going from 200 to 180 offices constitute growth? What was happening on the ground in those offices and affiliates? Were they drinking the Kool-Aid too? Maybe not, but it was available:{{4}}[[4]] Q&A in a 2010 HearUSA newsletter.[[4]]:
Poor Little Office Out in the Sticks: I have been a network provider for the past several months so why haven’t I received any new business from HearUSA?
Big Fancy Central Office in Florida: Our goal is to bring new business to all of our network providers, but the truth is that some providers enjoy more activity than others. This usually has to do with the type of plan that is active in a particular area, or some type of promotional event that may have been available in one region but not others. … We anticipate further growth and increased activity, as we continue to promote the value of hearing care and qualified hearing providers.
Confusing and ominous. The AARP contract was the mother of all promotions, with largesse for all and no region left behind. Pondering the lives of HearUSA audiologists in 2010, two phrases are recurring: “cannon fodder” and “chopped liver.” Likewise, MIA springs to mind unbidden when trying to account for those 6,000,000 AARP members. A dread, creeping anxiety raises the possibility that maybe–just maybe– AARP saw HearUSA coming. Is it possible that HearUSA –our own ultimate Player–was Played by an even bigger Player—AARP? And could AARP have turned the tables by using HearUSA’s own “Too Big to Fail” ploy to seduce it? Oh the irony. Oh the shame. Quoting one AARP competitor, “HearUSA got ripped off.” Consider and reach your own conclusions:
- AARP has 40 million members and markets this roster to vendors for royalties exceeding $650 million/year.{{5}}[[5]]The first four bullets are from a newspaper article published on 7/24/11 in print and 7/25/11 online.[[5]]
- In the 3rd quarter of 2010, HearUSA spent $1.4 million on AARP-related “advertising, royalties and administrative costs.”
- In the 3rd quarter of 2010, HearUSA showed an operating loss of $1.6 million.
- AARP’s (secret) licensing agreement cost HearUSA over $660,000 by mid 2011, based on contractual requirements to pay a $55/aid “royalty fee,” spend $4.4 million/year advertising the program, and make donations of $250,000 to AARP (educational fund) and 1,000 hearing aids/year to “disadvantaged people.”{{5}}[[5]]I have not come across any needy folks who have gotten a free hearing aid from this program, nor has it appeared in the advertising copy. I would appreciate hearing from those out there who know how that program is administered, where it is administered, and to whom.[[5]]
- AARP demanded punitive punishment in the $millions if HearUSA didn’t toe the line, as shown in the fine print:
It looks like HearUSA was big, but no longer too big to fail. AARP looked like salvation because it really might be too big to fail. Big is in the eye of the beholder and the only perception of big that matters here is that of Mr Big himself — Siemens. Stay tuned next week when we find out what Siemens was thinking.
Photo courtesy of Single Shot Seattle
