Drilling Down into the DNA of Buying Groups

David J. Smriga, M.A.                  President, AuDNet, Inc.

Editor’s Note:  David Smriga is Hearing Economics’ guest contributor this week.  He brings new views and more data to the ongoing discussion of hearing aid buying groups.  

As noted, buying groups are not new but they’re getting renewed interest and scrutiny as hearing aid distribution channels continue to change rapidly. 

I read with interest the guest post by Dale Thorstad at Hearing Economics,  entitled Hearing Aid Buying Groups Differ in Their DNA.  In the editor’s introductory paragraph to that blog, Holly Hosford-Dunn raised some interesting questions which I thought it would be worthwhile to try and answer.  Five questions were posed, some of which can be answered simply; others require more in-depth response.  I’ll start with an in-depth one today and address the other four next week.

Q1:  Can buying groups save Audiology?

This, I think, is the core question of our time.  Independent Audiology practices buying on their own can pay significantly more for the same goods purchased by large group buyers such as big box stores, corporate chains and the government because their individual buying power doesn’t come close to being comparable to that of these multi-outlet conglomerates.

Wholesale Invoice Comparisons and Effects

For large volume buyers like the V.A., discounts near 70% off of manufacturer list price are provided. A Costco invoice that was temporarily disclosed in a recent professional association listserve posting suggests a similar pricing advantage for that large, multi-outlet corporation. A Google search of Costco retail hearing aid prices will quickly disclose amounts within $150 of the published wholesale list price of these same products as sold to audiology practitioners, suggesting that Costco enjoys a significantly lower acquisition cost.

As boomers continue to put pressure on hearing aid price points, those independent dispensing audiology practices who cannot lower their cost of goods similarly may no longer be able to compete with large scale retail outlets.

Leveling the Playing Field

One way to save independent Audiology practice is to level the cost of goods playing field.{{1}}[[1]] Other ways include marketing the value and importance of audiology care directly to the American consumers in a fashion rivaling the investments made in product marketing, re-structuring billing strategies to reflect the value of Audiology service, adopting distinctive best-practice procedures not found with non-Audiology providers, and documenting the long-term treatment success associated with these practice techniques, to name a few.[[1]] The pricing the V.A., corporations and group purchasers are able to secure continues to demonstrate that large volume purchasing is key to securing significant cost reductions.

Whether thousands of units a month of buying power is coming from hundreds of hospitals or big box locations, or hundreds of independent audiology practices, that volume of business should command the same attention, consideration and discount hearing aid pricing enjoyed by other large scale buyers.

Buying Groups Not Created Equal

The DNA post  suggested that existing buying groups are not equal in structure, purpose, or mission. Agreed.  However, to date they all share one significant commonality.  They all keep a portion of the discount they have negotiated for on behalf of their members with various hearing aid manufacturers and suppliers to operate their businesses, fund their business model value propositions, and make a profit.  How much discount is kept varies from one buying group to the next.

Through our proprietary market research, which includes focus group interviewing and surveys conducted with over 200 random members of the Audiology community, our organization has been collecting input to help us better define the issues important to the audiology community and the business model best suited to meet Audiology’s needs.  Ultimately, this data will equip us with important tools for subsequent discount contract negotiations.

At this point in our efforts, however, findings suggest that the practice of holding back an undisclosed portion of the discount to fund the buying group creates trust issues with audiologists, and is often perceived as supporting the “middle-man” more so than supporting the independent audiology practitioner or the profession. According to this data, audiologists prefer a group purchasing structure where 100% of the discount that can be negotiated with manufacturers based on the collective buying power of its members goes straight to the members, with the administrative and support services expenses of the organization funded through modest monthly premiums paid by the members.  Such a structure is now available to the Audiology community.

It is identified as an Audiology Provider Organization (APO) and it has  a fully disclosed and well known management team of audiologists comprising decades of management, private practice, group purchasing administration and audiology advocacy experience.

 More Questions to Come

The remaining questions are set for next week’s post.

1. Who owns the buying groups?
2. Who do the buying groups benefit?
3. Where does the money go?
4. What the heck is Unity?

David J. Smriga is both the president of David J. Smriga Consulting Services, as well as president of AuDNet, Inc.  Mr. Smriga received his master’s degree in audiology from Northern Illinois University in 1976.  He has held positions in both clinical and research audiology at the University of Manitoba Medical School in Winnipeg, as well as senior management positions in sales, marketing, product management and public relations for some of the industry’s leading hearing aid manufacturing firms.  Mr. Smriga has conducted over 500 lectures in North America and in Europe, and has authored over fifty publications ranging in topic from inter-operative brainstem monitoring to counselor selling.  In addition to directing AuDNet, Mr. Smriga is also the senior audiology consultant for Audioscan, and their chief lecturer on the use of real-ear measurement technology and audibility-based fitting strategies. 

feature image courtesy of SeaWorld Orlando