A Partial History of Hearing Aid Distribution Systems – Part I

Over the years, different hearing aid distribution systems have been proposed – other than company franchises or distributor agreements.  Some made it off the ground and have expanded, whereas others just did not seem to have a fighting chance from their inception.

Many readers may not realize the extent of hearing aid distribution systems offered throughout the years.  Quite a few have been proposed, and I recall being involved in discussions related to many of them.  Some did not pass the phone call stage, others represented written communications and actual proposals, and a few were even successful.

In reviewing my files, it dawned on me that some of this information might be of interest to readers: audiologists, consumers, manufacturers, distributors, etc.  And, because I am ready to send these to the circular filing cabinet, I thought it might be good to harvest from some of them a little history before doing so.  For many of the proposals, the historical recollections are somewhat sketchy and/or incomplete.  There will be no attempt to report on every distribution system offered but only on those I can recall, those in which a company I represented was asked to participate, and then, only for those on whom I had some records.  Like everyone else in the hearing aid industry, being asked to participate in discussions relating to different hearing aid distribution systems, seldom translated into actual participation.

Master Plan Service (MPS)

Master Plan Service Co., headquartered in Minneapolis, MN, introduced a change in the hearing aid distribution system in two ways {{1}}[[1]] Fogel, H. A different concept, Hearing Aid Journal, April, 1974, pp 9, 35-36[[1]], {{2}}[[2]] Telex Inter-office Memo Re; Visit – David Nygren, November 26, 1973[[2]], both to be implemented on a national basis, and presented to ensure that there would be no cutting of the retail price.  These changes were to:

1. Introduce a wholesale concept, and
2. Introduce a dispensing concept

The difference between the two was described as: a wholesaler handles competitive brands of merchandise, whereas a distributor handles one brand on a non-competitive basis.  Although the hearing aid industry had already seen wholesalers relative to batteries and other accessories, no hearing aid national wholesaler had succeeded up to that time.  The goal was to bring into the hearing aid industry what was common in the optical field – that of abjuring (renouncing)  hearing and hearing aid evaluations to carve out an exclusive function of dispensing the hearing aid only.

The wholesaler portion of the concept would have an effect on manufacturers of hearing aids, and the dispensing concept would change the retailer.

This concept, founded by partners David Nygren and Jack Greening, emerged from their previous entry into mail order hearing aid repair and a suggestion from a speech pathologist that the concept of dispensing only could lead to a reduced price for consumers.  This meant that no associated dispenser would do any testing – audiometric or hearing aid evaluation.  Hearing aids would be sold by the dispenser only from professional referrals from an audiologist (Master’s degree or Ph.D.), otologist, or otolaryngologist.  Medical referrals and walk-in traffic were not acceptable.  This concept had its first activity in 1971 (Minneapolis), and then opened offices in Chicago (1972), Madison, Milwaukee, Wausau, Seattle, Washington D.C., Atlanta, and St. Louis (1973).  According to Nygren, MPS was a major factor in Minnesota only, with its offices in Minneapolis, St. Cloud, and Duluth.

The concept was of interest to many audiologists and clinics at the time because they were prohibited from selling hearing aids, and based on their philanthropical and educational training to be the caretakers of hearing-impaired consumers’ dollars, the idea was appealing.  Many had “no skin in the game” other than attempting to preserve their employment – and hearing testing and hearing aid evaluations provided this cover.  Additionally, audiologists felt that they were more objective in their hearing aid recommendations and would not suggest hearing aids based on price, but on the best performance.  Ironically, many of the recommendations ended up actually based on low price.  This was understandable because the referring audiologist had no stake in the profits and was “protecting” the consumer.  Master Plan offered hearing aids from three different manufacturers (Oticon, Fidelity, Norelco), covering about 80 different models, which provided some flexibility in recommendations by the audiologist.  Still, they had to refer based on this list.

Pricing Issue

It became obvious to the founders of Master Plan that such a program could work only in a large city where there were numerous audiologists practicing.  The reason was because the fairly low dispensing fee (cost of the hearing aid) required a significant number of hearing aids sold for an office to exist on dispensing hearing aids only.  Master Plan’s suggested price for a hearing aid ranged from a low of $99 to a maximum price of $199.00, with the average price around $180.00.  As such, unintended or not, Master Plan produced a reduced retail price of hearing aids, which was fine with many audiologists at the time (but probably not as acceptable with them today).

The dispensing office made its income based on the difference in purchase price (from Master Plan) to the consumer-selling price.  Providing that Master Plan could have a sufficient number of dispensing offices nationwide purchasing from them (they were the provider of product to dispensers per their contract), they could purchase on a 50-unit price with a resale to the dispenser at a 10-or 20-unit price, and make money.  However, the dispenser most often had a problem because this turned out to be a gross profit of about $100 per hearing aid.  Overhead, salary, etc. still had to be paid from this.  The result was that take-home income was far less than that of a traditional dealer, even after/if the business succeeded.

The Master Plan concept emerged in a limited number of cities only, with the largest being in Minneapolis, the home of Master Plan.  This concept was feasible only until such time that audiologists could find a way to circumvent the ASHA Code of Ethics prohibiting them from selling hearing aids for profit.  Regardless, MPS planted a seed that wholesaling could function successfully in the hearing aid distribution system.  The seed of dispensing only, never really germinated.

Pacesetter Auditory Instrument Distributors (PAID)

Pacesetter Hearing Aid Service of Chicago, IL introduced their hearing aid distributing division in 1973, called PAID {{3}}[[3]] Announcement, Pacesetter Hearing Aid Service, 1973[[3]].  The purpose was to distribute hearing aids on a national basis making it possible for those that work with the hearing impaired to do business with one company (PAID), rather than with many.  Hearing aids available under this wholesaler included: Electone, Danavox, Lehr, Oticon, Widex, Siemens, and Zenith.

To protect the hearing impaired, PAID would “…only distribute to recognized organizations and those who are qualified to fit hearing aids.  You need only fill out the necessary forms.  You or your patient can mail the forms to PAID.  PAID in turn will either mail the instrument directly to you or if you prefer, to your patient.  By passing the savings on to the patient, you will maintain your professional and non-profit status that is so necessary to build confidence with the hearing impaired patient.  Under these conditions, the fee charged for consulting and therapy work will not be an additional expense, but in some cases a savings.  The patient now is assured that he received the best professional help available today.”

Prices were provided by PAID that included the manufacturer’s suggested retail price and PAID’s distributor’s price.  PAID based its prices on the manufacturer’s cost rather than a percent off suggested retail price.  There is no evidence of success with this Plan.

Price Justification

During this time, the hearing aid industry was under fire by the Government and professional agencies, much related to the inability of hearing aid dealers to justify the pricing of the product and services.  Ben Walker of the Walker Hearing Aid Co., in Houston, TX attempted to solve this by providing a break-down (unbundling) of the prices charged {{4}}[[4]] Siemens Hearing News, July, 1973[[4]].  His breakdown included costs for:

• Case history, audiometry, hearing aid selection, discussion, etc.
• Earmolds.  Impressions, including remakes
• Delivery, fitting, instructions, counseling, etc.
• Re-check visits, post fitting service, adjustments & counseling.  1 Year.
• Warranty service, including loaner service.  1 Year.
• Hearing Aid(s)

The consumer receipt included a breakdown of services that a client would be likely to use, and with each service provided, checked on the list.  The receipt had two purposes: (1) it showed the person that services in the office can and should be charged for, and (2) it reminded the dispenser, as a hearing aid professional, that there are other things that might be done, or accessories that can be suggested, to enhance their client’s hearing pleasure and also, the office’s profit situation.

Interestingly, it was shortly after this that ASHA (American Speech and Hearing Association) considered the potential consequences of Audiologists dispensing hearing aids.  And, to be “seemingly consistent with ASHA Guidelines for nonprofit,” suggested a breakdown (unbundling) of costs as well, ala Walker {{5}}[[5]] Conditions under which audiologists may dispense hearing aids, Letter from Kenneth L. Moll, Ph.D., President, American Speech and Hearing Association, April 19, 1974[[5]].

Dictating Covered Services and Costs – The United Auto Workers (UAW) Union Contract Spawns Dispensing Options

United Auto Workers (UAW) negotiations with the auto industry in 1977 resulted in a major breakthrough in the health care field by providing a large-scale hearing aid benefit program.  This program covered UAW employees, their eligible dependents, and retirees.  Thus, an estimated six million individuals were to be eligible for these hearing aid benefits.

Because of these UAW negotiations and subsequent agreement, hearing aid benefits became an integral part of the employee benefit package.  Consequently, hearing aid benefit plans had to be made available to other union members and large employee groups.  The majority of plans were to be implemented within ninety (90) days of contract finalization.

The program negotiated was a service-delivery plan calling for third party administration.  For an enrollee to obtain this benefit, the eligible participant would have to do only three things: (1) present a pre-authorized claim form to the provider, (2) satisfy the co-payment, if any, and (3) sign the claim form, which also acted as an assignment so the provider could be paid by the administrator.

The following two Insurance Programs are examples of Plans that quickly came to pass.  Keep in mind that audiologists were still considered unethical and in violation of the ASHA Code of Ethics if they sold hearing aids.  As a result, both the audiologist and dealer were involved in the UAW Hearing Aid Benefit Program.

Blue Cross Blue Shield of Minnesota – Auto National Account Program

Effective October 1, 1977, Blue Cross Blue Shield of Minnesota (BCBSM) announced their decision to extend the advantage of Participation to the specialty of audiology {{6}}[[6]] Provider Relations Bulletin, No. 12-77, Blue Cross and Blue Shield of Minnesota, August 15, 1977[[6]].  Previously, this privilege was offered only to duly licensed doctors of medicine.

Audiology Specialty Codes related to the following (5-digit codes were assigned to each of the categories):

• Audiometric Exam – hearing examination, including the measuring of hearing acuity and tests relating to air-conduction, bone-conduction, SRT, and speech discrimination.
• Hearing Aid Evaluation Test – included a series of subjective and objective tests to determine a patient’s need, and if applicable, to recommend the make and model of hearing aid which will best compensate for the person’s loss of hearing acuity.
• Conformity Evaluation – Included one visit subsequent to obtaining the hearing aid for an evaluation of its performance and a determination of its conformity to the prescription.
• Supply Codes –
  • Monaural – one aid directing sound to one ear
  • Monaural Dispensing Fee
  • Bilateral  – one aid directing sound to both ears
  • Bilateral Dispensing Fee
  • Binaural  – two aids provided at the same time, one for each ear
  • Binaural Dispensing Fee

Audiologists wishing to participate had to meet obligatory requirements of (1) providing all information necessary to process a claim, (2) coding all claims properly, (3) submitting claims on proper form, (4) accepting BCBSM’s Usual, Customary, and Reasonable payment as payment in full, (5) complying with Minnesota Regulatory Act Statutes, (6) accepting patients referred only from a licensed doctor of medicine, (7) keeping on file records of referrals from doctors of medicine, and of course (7) signing an agreement.

The application for enrollment form had an area to fill in saying that the audiologist certified that he/she had obtained a Certificate of Clinical Competence from either: (1) American Speech and Hearing Association, (2) Minnesota Speech and Hearing Association, or (3) An Equivalency Statement from the American Speech and Hearing Association.  (These were interesting qualification statements, especially since Minnesota Speech and Hearing Association did not have a CCC, and the contract did not call for a CCC).

Enrolled audiologists would benefit in the following ways:

• Providing an audiometric examination that would be paid according to usual and customary guidelines.  The audiologist could not bill the Plan Subscriber (patient) for any balances on the exam code.
• Payment for a hearing aid evaluation test and conformity evaluation could also be billed.  The audiologist could also bill the Plan Subscriber for balances not covered by the contract (these were not specified).
• Received a dispensing fee of up to $190.00 each for a monaural, bilateral, and binaural hearing aid fitting.  The audiologist was prohibited from billing the Plan Subscriber for balances.  (Allowances for the acquisition costs of the hearing aid varied according to the hearing aid description).

Fees were set by BCBSM based on the usual charge data the audiologist provided, along with data of other audiologists within the State of Minnesota to determine customary range of fees.  Fees would be reviewed annually.

Pharmaceutical Card System, Inc. (1977)

Effective October 1, 1977, Pharmaceutical Card System, Inc. (PCS) introduced their “Hearing Aid Benefits” Plan {{7}}[[7]] Provider Administrative Manual, Pharmaceutical Card System, Inc., Hearing Aid Department, 1977[[7]].  Fifty plus major insurance carriers were already using PCS as their national prescription drug benefit administrator for the UAW prescription drug program.  Ford Motor Company named PCS as administrator of the hearing aid program outside of Michigan; Chrysler Corp. named them for various locations outside of Michigan; and added to these companies were Dana Corp., Rockwell International, and Mack Trucks.  Plans for additional companies would be forthcoming.

PCS was strictly a national Employee Benefit Administrator and did not operate as an insurance company.  Instead, PCS made its services available to insurance carriers and large employers who self-insured their employee benefits.

The Hearing Aid program functioned as a department within the Vision Benefit Division of Pharmaceutical Card System, Inc. (PCS), a wholly-owned subsidiary of Foremost-McKesson, Inc.  This department served as a fiscal intermediary specifically established to administer the Hearing Aid Benefit Program using a national network of Member Providers.  The actual benefits were provided by insurance carriers (underwriter, insurance company), self-insured employers, and other plan sponsors for the benefit of their policyholders, employees, and members.

Additionally, hearing aid manufacturers had to be approved by PCS, and hearing aids were to be purchased from those manufacturers.  Once the hearing aid was shipped to the appropriate hearing aid dispenser, PCS would pay for the hearing aid direct to the manufacturer.

A network of Otolaryngologists, Audiologists, and Hearing Aid Dispensers were to be developed on a national level to serve as participating providers.  These specialties were invited to participate with PCS to serve patients covered by a UAW hearing aid benefit plan.  Providers were not committed to participate in every plan administered by PCS, but would be given the opportunity to participate.  They would be informed in advance of the actual fees to be paid by a specific plan (Figure 1).  This would allow the specialties to decide whether they wished to participate in any given plan.

Figure 1. Chart of UAW contract company, insurance carrier, and program administrator. Numbers are multiplied by 3 to reflect the average number of people in a household.

Definitions

An “Audiologist,” for the PCS program, meant any participating person who (1) possesses a master’s or doctorate degree in audiology or speech pathology from an accredited university, (2) possesses a Certificate of Clinical Competence in Audiology from the American Speech and Hearing Association and (3) is qualified in the state in which the service is provided to conduct an audiometric examination and hearing aid evaluation test for the purposes of measuring hearing acuity and determining and prescribing the type of hearing aid that would best improve the covered person’s loss of hearing acuity.  Where a physician performs the foregoing services he was deemed an audiologist for purposes of this benefit.

A “Dealer,” described any participating person or organization that sells hearing aids prescribed by a physician or audiologist to improve hearing acuity in compliance with the laws or regulations governing such sales, if any, of the state in which the hearing aids were sold.

A “hearing aid” was defined as an electronic device worn on the person for the purpose of amplifying sound and assisting the physiologic process of hearing, and includes an earmold, if necessary.

A “hearing aid evaluation” was defined as a series of subjective and objective tests by which a physician or audiologist determines which make and model of hearing aid to best compensate for the covered person’s loss of hearing, and which make and model will therefore be prescribed, and shall include one visit by the covered person subsequent to obtaining the hearing aid for an evaluation of its performance and a determination of its conformity to the prescription.

Covered Services

Benefits were provided for the following hearing aid services no more than once each thirty-six (36) months.

• Audiometric examination to measure the extent of hearing loss when performed by a physician or audiologist but only when performed following or in conjunction with the most recent medical examination of the ear by a physician (but not including the medical examination of the ear).
• Hearing aid evaluation test to determine possible make and model of hearing aid when performed by a physician or audiologist but only when indicated by the most recent audiometric examination.
• Hearing aid including ear mold when prescribed by a physician or audiologist but only if (1) the hearing aid is prescribed based upon the most recent audiometric examination and hearing aid evaluation test and (2) the hearing aid provided by the dealer is the make and model prescribed by the physician or audiologist and is certified as such by the physician or audiologist.

Procedures to Obtain Covered Services

Covered hearing aid expense benefits could be obtained from a participating physician (otologist or otolaryngologist), audiologist, or hearing aid dealer.

For benefits to be payable, the patient had to first obtain a medical examination of the ear by a physician, and such examination, in conjunction with the audiometric examination had to result in a determination that a hearing aid would compensate for the loss of hearing.  (A prescription order from the physician or audiologist was required when a hearing aid is purchased from a hearing aid dealer.)

Reimbursement

Reimbursement to the provider was made on a reasonable and customary charge basis for covered examinations and on an acquisition cost plus dispensing fee basis for hearing aids.  The dispensing fee was predetermined by the Program carrier to be paid to a dealer for dispensing a hearing aid.  Payment examples:

• Audiometric examination – reasonable and customary charge
• Hearing aid evaluation tests were subject to a benefit maximum of $40.00
• Covered hearing aids – acquisition cost
• Hearing aids – the dispensing fee paid to the dealer (around $170.00 as noted in Figure 2), and which included the following:
  • Verification of the prescription, fitting of the hearing aid, and applicable accessories (earmold)
  • Subsequent servicing (consultation, adjustments, and cleaning) for a period of six (6) months,
  • Initial minimum supply of batteries
  • Registration of one-year warranty with manufacturer, and, and

Exclusions

• Replacement of lost or broken hearing aids.
• Replacement parts for and repairs of hearing aids.
• Eyeglass-type hearing aids, to the extent the charge for such hearing aids exceeds the standard covered hearing aid expense.
• Audiometric examinations, hearing aid evaluation tests and hearing aids provided under any other payment plan or governmental entity
• Hearing evaluation tests and hearing aids not necessary, according to professionally-accepted standards of practice; which are not recommended or approved by the physician; or which do not meet professionally-accepted standards of practice, including services or supplies that are experimental in nature, and
• Covered benefits could not be repeated until after 36 months.