audiology practice management

The Economic Realities of Tomorrow’s Independent Hearing Health Practice: Part 2

Editor Note: In April 2019, Dave Smirga and Greg Frazier enlightened readers about the economic realities that independent practices face with the changing dynamics of the consumer and managing hearing aid wholesale costs. This month’s blog, Part 2, is the continuation of their blog, with an emphasis on offering a diversity of services coupled with business solutions that lend to revenue opportunities.

 

Introduction

 

In an environment where entrepreneur/clinical practices are compelled to look at ways of making hearing aid purchases through them more affordable, lowering the associated cost-of-goods, especially while maintaining current buying habits, cannot be the only path to pursue.

 

Generating Revenue Is Not a One Trick Pony

 

If we stick with the initial premise of this blog that an independent practice is financially healthy when it consistently makes more than it spends, then it should be logical to state that it really doesn’t matter where that incoming revenue may be coming from.  For many independent practices that are built on, and may continue to maintain a model where the lion’s share of revenue is tied to hearing aid sales, some new thinking needs to be considered.

First, start with the fundamentals.  You need to know two things about your practice.  

  • What is the practice’s hourly break-even rate?
  • What is the practice’s minimum hourly billing rate?  

Both are relatively simple calculations to make as long as you have access to your practice’s financial statements.  

 

Break-Even Rate

On your business’s Profit & Loss (P&L) statement, you will find a total of all your operating expenses for the period of time you are analyzing.  Let’s say that that period is your last fiscal year. So, the P&L for your last fiscal year will tell you how much your practice spent during that year.  This includes everything. Salaries, rent, equipment purchases, hearing aid cost-of-goods, insurance, benefits, everything. This becomes the income you must generate annually to “break even.”  Let’s say the number is $500,000.

Now, determine your total annual patient contact hours.  Let’s say each audiologist sees patients 35 hours a week, works 48 weeks out of the year and there are two audiologists.  The annual patient contact hours would be calculated as:

  • 35 (hours)  X 48 (weeks)  X 2 (audiologists) = 3,360 annual patient contact hours.

If we divide $500,000 by 3360 hours, we get an hourly break-even rate of $148.80.  This simply means that the practice must generate an average of $148.80 in every patient contact hour in order to pay all of its bills, or “break-even”.  

 

Hourly Billing Rate

But, you want the practice to be profitable as well, not just simply break even.  So, what kind of profit would you like? Let’s say at the end of each year, you want to put an additional $50,000 into your practice’s checking account.  To do this, you must bring in $50,000 more revenue than you are spending. If we add this $50,000 to our total annual operating expense figure above ($500,000), we get $550,000.  

This is the revenue we need to generate to both pay all the bills and have $50,000 in the bank at the end of the year. Now divide this number by the annual patient contact hours to get your minimum hourly billing rate.

  • $550,000 divided by 3,360 hours = $163.69 minimum hourly billing rate.  

Through this exercise, you now know what you need to charge per hour in order to operate your practice and meet your profitability goals.  If you bundle your pricing, and you anticipate that you will be spending ten hours working with each patient that purchases hearing aids from you, then the price of those hearing aids can be calculated as follows:

        COG of hearing aids:        $1,100 X 2 =    $2,200

        Ten contact hours:    +    $163.69 X 10 =    $1,636.90

        Bundle Price:        =    $3,843.90

The additional valuable knowledge this exercise provides is that once you know your hourly billing rate requirements, you can calculate smaller increments of time as well.  

For example, if you know you must bill at a rate of $163.69 an hour, you also know that you have to bill $40.98 every fifteen minutes of contact time. Keep this in mind as we explore several of these other revenue generating options.

 

Expand Hearing Healthcare Beyond Hearing Loss Treatment

 

A key component in the hearing health care practice of the future needs to be hearing loss prevention services.  As hearing loss becomes a more recognized issue within the consciousness of the public, preventing or delaying its associated complications becomes more important to that public.  

Professional care and guidance become critical in fulfilling this need.

Hearing healthcare practices are in the perfect position to provide the testing, counseling and products associated with effective prevention.  Such services can not only include off-the-shelf and custom hearing protection, dynamic protection for hunters, swim plugs, musician molds, and the like, but could also include occupational earpieces for communication devices, musician monitors and sleep plugs.

In addition to the income associated with the hearing testing needed in this area of care,  if it takes 15 minutes or a half-hour of professional time to counsel, take impressions, etc., to provide such devices, then if the practice charges the cost-of-goods + 15 minutes or a half-hour of their billable rate, providing this service and product earns the practice no less income for the time invested than dispensing a hearing aid would earn.  

This same logic would apply to other clinical services including tinnitus evaluation and treatment, auditory processing disorder testing and treatment, and vestibular evaluations and treatment.  Simply said, there are several options to build revenue streams not associated with hearing loss treatment.

 

Become a Resource To Help Seniors Maintain Their Independence

 

It is becoming increasingly more important both for seniors as well as their adult children to keep seniors independent and in their homes for as long as possible.  Certainly, hearing loss treatment becomes a critical component in maintaining that independence.

Since the hearing care professional is in the position to offer treatment and support to these individuals, it only makes sense to expand the questions embodied in the case history to determine if there are other needs that could potentially affect independence that could be both recommended and sold.

Items like video doorbells, television listening devices, blue-tooth transmitters, remote microphones, loop systems, medical emergency alert devices and services could all be included in the arsenal of solutions an audiologist can make available to consumers when needs for which these solutions are identified.  

And, in the same fashion as indicated above, these products and their associated service time can be billed in such a way that providing these products and services generates the identical per hour income as hearing aid dispensing does.  

 

Combating Price Competition Without Lowering Your Price

 

When hearing health care practitioners reach the point where they are laying out the hearing loss treatment options available to a given patient, it is traditional to quote the hearing aid options from a “sticker price” perspective.  This may not only induce sticker shock, it may cause consumers to re-think their willingness to do business with you.

Jenny Shih, a Cornell graduate with a degree in civil and environmental engineering, spent nine years managing large-scale international projects for Hewlett-Packard. In her article, “The Psychology of Pricing” 4, Ms. Shih identifies several ways to arrange your pricing information to reduce sticker shock and help your patients get what they truly need.  Some recommendations are straight-forward, like leading with the highest priced option to increase the perceived value of the middle option. Or, using the well-recognized $99.00 price ending.  

However, one observation this author shared is rarely recognized in clinical practices.  It is based on something called the “total expenditure effect.” People tend to be more sensitive to price when the amount in question seems to take up a larger chunk of their income.  When someone hears a price of $4,000 for example, they may think, “That’s a month’s income. That’s a lot of money!” However, when they here “$150 a month, that is perceived as a much smaller percentage of their monthly income, even though at the end of the payments, the price is the same (or higher) than the $4,000.  

Presenting a monthly payment option, and perhaps even leading with a monthly payment option, may significantly reduce the perception that you are not competitive with other options, including corporate retail options.

There are several financing mechanisms available that offer payment plans to help finance hearing aid purchases.  In some cases, programs can be designed to pre-qualify consumers. Helpful buying groups can assist their members by researching and negotiating economical programs with various financing companies, and building exclusive financing resources for their membership.  

 

Insurance and Third-Party Administrators

 

Probably the most notable change in the hearing care distribution landscape of late is the rapid expansion of managed care insurance participation in hearing care delivery.  This has been facilitated by the advent of Medicare Advantage programs. Medicare Advantage plans are offered by private insurance companies. They are designed to shift consumers from direct Medicare coverage to private insurance coverage.  

Medicare pays a fixed amount to these companies each month for subscriber care, and these companies entice consumers to their plans by offering extra coverage not included in traditional Medicare. This extra coverage can include hearing.

The proliferation of managed care in the hearing industry has grown rapidly.  In 2017, the number of Medicare Advantage enrollees enrolled in a plan with a hearing aid benefit increased to 65% from only 47% in 2015. 5 The most common benefit is an allowance toward the purchase of hearing aids.

Unlike United Health Care, which offers a direct-to-consumer model, many of these insurance programs instead work through a network of participating providers.  And, in some cases, to control costs these insurance companies have hired a third-party administrator to administer the benefit, manage the provider network and negotiate pricing with the manufacturer.  

A potential advantage associated with this approach is market expansion.  Consumers are accustomed to reaching out to their health plan for their health care, and since consumers see hearing as a health issue, they may reach out in this fashion when in need of hearing care.  However, the disadvantage is that provider participation usually requires signing a contract that is structured to control costs, including the compensation paid to the participating provider for their services.

All of this complexity requires a careful analysis of the opportunities and risks associated with becoming a participating provider.  Expertise in this area is available to the independent practitioner through some buying group programs.

 

Leverage PSAP’s and Future OTC Products as Lead Generators

 

No one can say for sure how the future marketing of over-the-counter (OTC) hearing aids will impact the hearing health care landscape.  Traditionalists may view such a change in the status quo as a potential threat to their future business. Others may see it as an opportunity.  

Regardless of where you land on this issue, the reality is that in 2020, “hearing aids” will start to be marketed directly to the consumer for the self-treatment of perceived hearing loss.  Some percentage of consumers will buy these products. Some of those purchasers will be satisfied, and others will find their purchase inadequate.

We do not yet know how the FDA will define and regulate this new OTC category, but one thing seems certain.  Any regulation will likely include elements that are designed to insure consumer safety. These elements will likely include the setting of electro-acoustic measurement boundaries for such things as gain and output and may even include some performance criteria regarding frequency response shape and/or signal processing capabilities.  

This implies that for those hearing health care practices equipped with electro-acoustic measurement equipment, there is an opportunity to verify OTC performance compliance with the FDA regulation. This is not something consumers can do on their own. And, this capability may be a useful “service” that hearing health care professionals can make available, not just to define and categorize various OTC products, but to counsel consumers on the appropriateness of any given technology relative to their condition.

 Such counsel invites the consumer to have their hearing tested, which opens the opportunity to have a more enlightening discussion about their situation, the needs they are trying to meet, and the best strategy and/or product(s) for meeting those needs.

In addition, consider what it currently costs your practice to bring a new patient to your door.  For example, if you spent $5,000 on a marketing campaign and it results in 10 hearing aid purchases, each purchase cost you $500 in marketing costs.  Well, what if a consumer in your market purchased a pair of OTC products for $400, but is not satisfied? If they were informed that they could apply the cost of those OTC products toward the purchase of a more appropriate solution through your practice, would they make an appointment with your practice?  Would you consider making that offer?

Compared to more traditional marketing efforts, this may be a very viable marketing plan. Certain business support or buying groups have programs in this area where you can take advantage of the national promotional presence such programs are preparing.

 

Invest in an Effective Online Presence

 

Everybody seems to understand the need for a practice website.  What is less well understood, and much more difficult to effectively manage are all of the behind-the-scenes measures that need to be taken in order to ensure that that website is visited often and by the right people.  This is where search engine optimization (SEO) comes into play.

SEO is both an ever-changing and very complicated science.  It requires both time and expertise that the typical hearing health care practice doesn’t have.  That is why it is important to engage the service of experts in this area. Some key things to ask about when shopping for your electronic media marketing partner include:

  • Do you offer modern website design services (designs that increase positioning on search engines)?
  • Can I retain ownership of my domain name?
  • Can I have unrestricted access to website content to make changes or add additional content as needed in real time?
  • Do your design services include mobile friendly formats?
  • Where will you insert my practice listing?
    • Options include:
      • Major search engines like Google, Bing, Yelp, Yellow Pages etc.
      • Social media sites like Facebook, Linkedin
      • Consumer-pointed hearing information sites like Healthy Hearing, Hearing Tracker, Health Grades
  • Do you offer and manage online review services?
  • Do you offer and automatically insert fresh blog content?
  • Do you provide regular (monthly) aggregate data and analytics?
  • Do you monitor online reputation?
  • Do you offer and manage pay-per-click advertising?
  • Do you offer assistance with patient Yelp and Google reviews?

With these core elements discussed, you will be in a good position to make a solid decision regarding your ongoing online business partner.  Prior service package research and compelling template, blog and directory services values can be accessed through membership in certain buying/business support groups.  

 

Continually Examine Your Practice Infrastructure

 

Whether you are part of a storied practice with a solid history of success looking to prepare for the next round of competitive challenges, or you are a new practice looking for better ways to build your business, re-examining your overall operational health is always a good thing.  

As Vince Lombardi once said, “Hope is not a strategy”. And when it comes to your practice’s future, the foundation for success must be built on solid ground.

The first step in this process is to conduct an operational triage.  Get a lay-of-the-land in terms of what constitutes your practice now.  Once you have itemized your practice locations and have listed all your current support resources (i.e., accountant(s), attorney(s), IT specialists, consultants, etc.), you will want to inventory your current financial picture.  This includes collecting current P&L and balance sheet data, revenue sources, your practice budget, practice ownership and agreements, key performance indicators, performance goals, forecasts, growth plans, business plans and asset summary.  

Next, you will want to document your marketing position. List your current marketing tactics, referral generation strategy, budget, results-to date, performance to goal comparisons, and your competitor analysis, including a listing of key competitors and their marketing and pricing tactics.  Next, you will want to do a complete staff analysis, including professional and support staff, open positions, future positions targeted, performance reviews vs. performance goals, current staff training strategies and resources, your benefits packages and documentation including job descriptions, procedures manuals and employee handbooks.  Finally, you will want to collect operations data including current and future equipment needs, current patient flow process, billing and collections data, office hours, office space, and design needs.

A thorough analysis of the information obtained during this triage can help identify key performance improvement opportunities, from which a new growth strategy can be crafted.  This strategy can then be turned into a series of improvement projects, with timelines and revenue improvement targets defined. These targets will form the basis for periodic data analysis and review to determine if the new tactics have yielded the desired result, and what modifications may be needed to get errant projects back on track, or new projects that should be implemented.  

As was the case with the electronic media marketing exercise, practice triage and strategy development can often benefit from the counsel of an outside entity with expertise in hearing health care business operations.   For services like this, examine the options offered by buying/business support groups you may currently participate with, or are considering joining.

 

Final Thoughts:

 

In an uncertain environment, stubbornly sticking with status quo tactics and thinking may take you out of the game.  The traditional model of hearing-aid-heavy revenue dependency will need to give way to a more diversified palate of revenue sources.  And, with a carefully thought-out billing model, per hour revenue generation requirements can be effectively spread across a broader palate of product and service revenue generators without negatively impacting per-hour practice billing requirements.  

Recognize that the senior market is changing.  Not only is it growing at an unprecedented rate, but the needs of today’s seniors are different than those of even twenty years ago.  

Seniors are focused on maintaining their independence for as long as possible, which means that services and resources that facilitate that independence become service (and product) opportunities for the modern hearing health care professional.  More of your target market are getting their information through online resources than ever before. So, your online presence must be carefully crafted, and your SEO tactics must be solid. To make this happen requires investment in the expertise you don’t have.

There are opportunities to leverage PSAP and OTC purchases to your advantage, and to generate leads from this new market.  Pay attention to the regulations that the FDA lands on when implementing the new OTC law in 2020. There may be ways you can leverage your current electro-acoustic measurement capabilities to become a valuable resource to the OTC consumer.  And, you may be able to offer attractive financial incentives to move an OTC purchaser into what could be a better solution for the hearing issues their self-treatment was intended to address.

Finally, never stop analyzing what you are doing in relationship to what you want to accomplish.  Structured ongoing analysis and evaluation of your current operations can often identify holes, miscues or lost opportunities that can point you to new tactics.  And, implementing those tactics can become your key strategy to stay competitive regardless of where the industry may be headed.

An open mind and a willingness to embrace change are the keys to maintaining success in the new environment of hearing health care.  And, exploiting the business support services available through some buying/business support groups is highly recommended.

 

About the Authors

David J. Smriga, M.A., founded AuDNet, Inc. in 2001, a group purchasing company, prior to merging that company in 2018 with Marcon to form AUDNET Hearing Group. Mr. Smriga is both Vice-President of Corporate Communications for AUDNET Hearing Group, as well as Senior Audiology Consultant for Audioscan.

Gregory Frazer, PhD, AuD, entered private practice Audiology and Hearing Aid Dispensing in 1982. For 14 years he owned and operated Hearing Care Associates. In 1996, Dr. Frazer co-founded Sonus USA. Dr. Frazer is currently the CEO of a hearing aid group purchasing organization, AUDNET Hearing Group.



About Amyn Amlani

Amyn M. Amlani, PhD, is Director of New Practice Development at Audigy, a data-driven, management group for audiology and hearing care, ENT group, and allergy practices. Prior to this position, Dr. Amlani was an academician for 18 years, where he educated future Doctor of Audiology professionals and directed a research laboratory funded primarily from extramural grants and corporate sponsors.

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