How many readers remember Tom J. Northey, The One That Got Away? Mr. Northey is a ghost guest contributor this week, not because he’s deceased but because he came to Audiology, he saw the future, and he left for greener pastures.
In 2000, he wrote a monumental forecast of our profession, published in audiologyonline. It probably informed his decision to leave our field in 2007. What he saw and wrote should have been burned into all our foreheads. It could have changed our lives.
Today’s post is the first of several that sort through observations and predictions from Mr. Northey’s seminal article, taking his words and holding them up to what’s going on in Audiology in 2014.
What Did He See?
Mr. Northey’s 2000 vision prophesized “new innovations … begin(ning) to enter and impact our profession and our industry,” a looming Armageddon in which only the strongest survive:
The survivors will adapt through preparation, strategy mapping and scenario planning. The losers, with vision limited only to hearing aid sales, will disappear.
That sounds about right, don’t you think? Here in 2014 hearing aids are almost lost in the shuffle, what with PSAPs, Costco, the Internet, iPhones, and confused regulatory policy taking center stage, to mention only a few disruptions in our profession. There are good reasons, explained below, for readers to stop reading this post for a few minutes and click the links to gain a refreshed perspective on where we are right now.
How Did He Know?
How did Mr. Northey know that 14 years hence we would be divided into camps of survivors and losers? More to the point, how did the rest of us NOT know?1 Perhaps most pressing, why do some in our field, maybe many, persist in not knowing even now? Jerry Northern posed questions 2 and 3 in several compelling posts recently and he, too, cast our lot in Darwinian terms. Answering questions 2 and 3 is problematic, but the answer to question 1 is given in Mr. Northey’s article. It can guide us in the future.
For starters, Mr. Northey’s clear vision came from his economic view. He coined the exotic term “Audiology Economics” back when it seemed like an oxymoron. Besides his economic bent, Mr. Northey read history and not just our history. He made the astonishing (to us) leap that Audiologists were not unique; that what happened to others could happen to us.
Finally, Mr. Northey used a comparative method to consider the case of audiology in 2000 vis-a-vis optometry 30 years earlier. Specifically, he considering existing effects of disruptive technologies in vision care that might come to haunt (or improve) hearing care. For disruptive innovations, he chose to compare disposable contact lenses (DCL) to disposable hearing aids (think Songbird). Then, he walked the reader through the economic effects and suggested a few remedies.
His comparative method works regardless of disruption, making it useful to apply the same historical template to PSAPs and Internet sales today. Both are larger disruptions to hearing healthcare than disposables at the moment.
The following heavily paraphrased excerpt takes liberties to hammer his points home to present-day readers:
- Dollar values are nominal, mainly because their only relevance to the discussion is relative differences between bundled and unbundled pricing.
- “PSAPs” are substituted throughout for “disposables.”
- Italics are used with abandon to ensure that readers don’t skip over the really good stuff.
Those Who Forget History are Destined to Repeat It
An interesting parallel to the emerging PSAP scene can be found in optometry. Until the late 1970’s, optometrists enjoyed a healthy revenue stream from the sale of contact lenses. Optometrists were initially able to charge for initial eye exams, the contact lenses themselves, and a multitude of solutions and follow-up appointments for one year. Their professional services were usually bundled into a single offering averaging around $400 per patient.
The late 1970’s and early 1980’s saw the introduction of the disposable contact lens (DCLs). Corporate giants flooded the market with the new products, based on low cost and low margin. The low cost fueled patients’ favorable reaction and high demand, and empowered patients to manage themselves ‘out-of-the office.’ Margins dropped off the chart.
Patient loyalty diminished due to the undifferentiated characteristic of the product. Patients called optometrists to obtain their prescriptions and began to make purchase decisions based upon location, convenience, price and ease of appointment. The service component became less of an issue as the patient re-defined his or her buying criteria. Optometrists soon found themselves in a rapidly declining profitability scenario.
In hindsight, a couple of key business practice issues came back to haunt the optometry industry: Optometrists had grown accustomed to ‘bundling services.’ Individual components such as the eye exam and follow-up visits were hidden in the overall contact lens package. When disposable contacts were introduced at roughly $30 per pair, the patient quickly discovered where and how the optometrists were making their profits.
Customers/patients appear to have reasoned that the $400 contact lens package, in terms of its perceived value, was unable to justify itself against the $30 package.
Hence, optometrists had to re-introduce charges for the eye exam and follow-up appointments. Patients showed significant resistance to paying for services which they perceived previously as ‘free.’ Additionally, optometrists had positioned the contact lens package as their leading source of revenue. When the leading revenue stream disappeared many optometrists were left scrambling.
Did it Go Down Like He Said it Would?
Today’s hearing healthcare looks a lot like optometry of the 70’s. Itemizing the similarities is a bit eerie, underscoring Mr. Northey’s prescience:
- We’ve got our own corporate giants, thanks to consolidation on all levels of manufacturing, distribution, and retailing.
- We fell into bundling professional services with product because it was easier, it was hard to unbundle in some third-party relationships, and– frankly, my dear–because we could.
- Our bundled product is undifferentiated in the marketplace.
- PSAPs flooded the market in the last few years, characterized by low Price, low margins, and high volume.
- Costco and Internet retailing opened new distribution channels characterized by low Price, low margins, easy access, and high volume.
- Favorable consumer responses to PSAPs and new distribution channels boosted Demand by carving out new market segments that elect “to manage themselves out-of-the office.”
- Patient loyalty diminished as patients figured out what our profit margins are and started making purchase decisions based on “location, convenience, price and ease of appointment” instead of professional expertise.
- We are losing patients.
- We have to start unbundling.
- Patients are resisting “paying for services which they perceived previously as free.”
- We are in a “rapidly declining profitability scenario.”
Time to start reading history or be condemned to repeat it, as famous survivors always advise. Right now, I’d say we’re in condemned mode. Time to click those links and start thinking hard about how to get into survivor mode. Tune in next week for more of Mr. Northey’s observations and counseling.
As for Mr. Northey, I was delighted to find him alive and well on Linkedin. The bio below is pieced together from that site. He sent a kind, if startled, response to my invitation to pick up the gauntlet and write a post: “Yes that is a blast from the past. I’ve been out of the market since 2007. I’d have to re-read it to remember what I wrote.” See? He knows the value of reading history, even when he wrote it himself.
As for me, I recall a long-ago post lament in which I dreamed of finding the Audiology Economics equivalent of Mr. Darby:
“a tall dark and handsome economist who delivers beautiful graphs in person. Hello? Are you out there?”
Yes! He was. He even said hello. It’s 7 years too late to get him to whisper sweet Demand Curves in my ear, but at least he left me some history to read.
Editor’s note: This is the first in a 4-part series. Click for Part 2.
Tom J. Northey founded the first Audiology IPA in Colorado (ACI Network) and negotiated its sale to Starkey in early 2008. Since then, he has held management positions in Health Information Exchange (HIE) and Accountable Care Organizations (ACOs). Currently, he is Executive Director of the California Rural eHealth Information Network (CAReHIN.org).
images courtesy of perfect memorials