Hearing Aid Dispensing – IX

Attempts to Control Hearing Aid Sales Costs at the Federal Level

Medicare Influence on Hearing Aid Dispensing System

In 1978, the House Ways and Means Committee approved a change in Medicare law to delete the requirement that a physician prescribe the plan of treatment for speech-impaired Medicare beneficiaries.  A subcommittee of this Committee proposed extending Medicare coverage to include the fitting, prescribing, and patient use of the hearing aid, and, in addition, consider coverage of hearing aids themselves.  At the time, Medicare reimbursed audiological services performed by a physician or by an audiologist at the request of a physician, but only for the purposes of obtaining information necessary to determine medical or surgical treatment for a hearing disorder.

The subcommittee, through Representative Abner Mikva (Illinois), was concerned that an estimated 13 million people suffering from hearing impairment were not being served in any of the three areas that were possible.  These areas were the audiologic evaluation of their hearing; the actual hearing aid device; and the audiologic rehabilitative measures such as speech reading, counseling, and use of residual hearing.  He asked that the Department of HEW (Health Education and Welfare) conduct a thorough, broad-based study of these three parts of the hearing aid delivery system, and come back to the Committee with a breakdown of the costs involved in those elements, particularly the costs as they relate to different providers, such as physicians, audiologists, and hearing aid dealers and the relative abilities of each of these groups to provide the best in terms of hearing care services.

HEW Looks to control hearing aid sales prices

The Department of Health, Education, and Welfare (HEW) through their Health Care Financing Administration (HCFA), sought suggestions on how it could cut in half the costs of hearing aids paid for by state Medicare programs.  They invited public comment on hearing aids (along with eyeglasses) in an August 31 Federal Register publication.

Both eyeglasses and hearing aids were required to be provided to eligible children under Medicaid’s Early and Periodic Screening Diagnosis and Treatment (EPSDT) program.  In addition, Medicaid programs in 27 states, Guam, and the Virgin Islands had been chosen to provide hearing aids to other Medicaid patients.  Noting that state Medicaid budgets had forced a few states to drop these optional services, HCFA hoped that effective cost containment regulations could help prevent further cutbacks.

HCFA actively considered changing its reimbursement formula for hearing aids and eyeglasses, which authorized states to pay “customary charges which are reasonable” – in other words, the going rate in an area.  “Many times these prices are unreasonably high,” according to HEW Secretary Joseph A. Califano, Jr., in announcing HCFA’s search for more cost-effective arrangements.  He stated further, “These high costs must and can be held down.  Some states and federal agencies have already proved that costs can be cut by as much as 50 percent or more through changes in purchasing and payment methods.”

HCFA, invited public comment on reimbursement alternatives as (1) volume purchasing, and (2) the use of maximum allowable cost schedules.  They directed thought by mentioning that several state Medicaid programs, consumer cooperatives, and federal agencies such as the Veterans Administration had achieved significant cost savings through alternative purchasing methods.  HCFA also commissioned and released a “Consultant’s Report” that studied how Medicaid could better control its hearing aid costs {{2}}[[2]] Asha, November 1977, p. 847[[2]].  The consultant’s findings were summarized as:

  1. Cost of hearing aids did not vary significantly among the states.
  2. Reimbursement policies did not differentiate cost of equipment from dealer services, which they felt hindered rational and prudent cost limits.
  3. The quality of hearing aids was open to serious question, and Medicaid had no effective means of assuring quality.
  4. Otological or audiological examinations were not always given.

The following recommendations were made based on the consultant’s report:

  1. Dealers’ fees should be separated from the cost of the device
  2. Dealers’ fees should be fixed and cover only services necessary in providing a hearing aid
  3. Specifically define hearing aids approved for reimbursement, using the results of the VA’s study of quality and cost effectiveness
  4. Set maximum reimbursement at the level of manufacturer’s selling price to dealers
  5. Establish policies and standards for the medical and audiological examination necessary before dispensing a hearing aid
  6. Implement specific procedures codes for professional service related to testing for hearing aids.

These recommendations reflected heavy audiology influence, and was consistent with ASHA’s intended direction to position the audiologist to control how hearing aids, related services, and costs should be managed.  ASHA endorsed and lobbied this HEW study.

1970s – A Landmark Decade That Changed How Hearing Aids Are Dispensed

Exclusive Dealerships

Since the early 1970s, the FTC (Federal Trade Commission) had been challenging and ruling concerning exclusive dealerships and exclusive territory arrangements in the hearing aid industry (along with other organizations such as the AMA, American Dental Association, Public Relations Society of America, Professional Engineers, and other areas where professionals were actually competing with competitive business enterprises).  By this time, all hearing aid companies, with the exception of Beltone (another story dating back to 1950 and coming to a head in 1978, and ending with a Beltone victory), had agreed to abide by the edict prohibiting these practices.  The FTC Bureau of Competition contended that professionalism become an important issue in the dispensing of hearing aids.

Good Manufacturing Practices

Concurrent with the FTC interest in the hearing aid industry, the FDA (Food and Drug Administration) was active in setting standards for Good Manufacturing Practices (GMP) for Medical Devices.  As was mentioned in the previous blog, the activity of the FTC to actually regulate the hearing aid industry never materialized.  This was due to the completion by the FDA to set standards for the hearing aid industry.

Magnuson-Moss Warranty Act (1975)

It is important to understand, however, that under the Federal Trade Commission Act, the FTC can take action against a company that misleads or deceives consumers.  The Magnuson-Moss Warranty Act enforced by the FTC, provided consumers with certain protections relating to warranties. The statute was remedial in nature and intended to protect consumers from deceptive warranty practices.  This act requires a company offering a warranty to fully disclose all its items and conditions.  Consumer products are not required to have warranties, but if one is given, it must comply with the Magnuson-Moss Act.  In addition, the FTC mandates a three-day period that offers consumers who purchase any products outside the seller’s place of business the right to cancel the sale within 72 hours and obtain a full refund.

State Hearing Aid Licensing Laws

In addition to federal regulations, all states have specific laws that apply to the sale of hearing aids.  All practitioners engaged in the fitting and dispensing of hearing aids must comply with all licensing requirements existing in the state of their individual practice.  The state Attorney General’s Office can provide consumers with particular information about state laws that apply to the sale of hearing aids and whether hearing aid dispensers must be licensed or registered by the state.

Audiologists Allowed to Sell Hearing Aids for Profit

May 27, 1978, the Executive Board of the American Speech and Hearing Association (ASHA) recommended a change in the Association’s Code of Ethics that would permit audiologists to engage in the retail sale of hearing aids for profit {{1}}[[1]] Health professionals would sell hearing aids under ASHA board recommendation; Supreme Court ruling seen as causing change, For Release, PM, Saturday, May 27, 1978, American Speech and Hearing Association[[1]].  The recommendation was a product of a Supreme Count case applying antitrust law to scientific and professional societies {{2}}[[2]] Supreme Court of the United States, No. 76-1767, National Society of Professional Engineers, Petitioner, v. Unites States, On Writ of Certiorari to the United States Court of Appeals for the District of Columbia Circuit, April 25, 1978[[2]].  In this case, the Court ruled that a professional Society’s code of ethics could not prohibit competition among Society members, even where the prohibition was designed to protect the public’s welfare and ensure ethical professional behavior.

In the Engineers case, Society members were forbidden by an ethical canon from engaging in competitive bidding for an engineering job.  The high Court said in a unanimous opinion that the canon’s proscription violated federal antitrust law.

The decision was the Court’s second major application of antitrust law to professional societies in recent years.  In a 1975 decision (Goldfarb v. Virginia State Bar), the Court said that the “learned” professions were not immune from antitrust law.  The Court ruled in Goldfarb that an agreement among Virginia attorneys to charge identical prices for property title searches was illegal under the Sherman Antitrust Act {{3}}[[3]] Goldfarb v. Virginia State Bar, 335 F Supp. 491, 495-496, ED VA, 1973[[3]].

ASHA’s compliance, in the form of a Resolution, was sent from ASHA’s Executive Secretary, Kenneth Johnson, to the Antitrust Division of the Department of Justice, which had announced recommendations for “significant changes in the restrictive association policies dealing with the dispending of products.”  The Resolution also announced that the ASHA Code of Ethics requiring “non-profit” dispensing would not be enforced, pending action by ASHA’s Legislative Council (which was given on the May 27th date).

About Wayne Staab

Dr. Wayne Staab is an internationally recognized authority on hearing aids. As President of Dr. Wayne J. Staab and Associates, he is engaged in consulting, research, development, manufacturing, education, and marketing projects related to hearing. Interests away from business include fishing, hunting, hiking, mountain biking, golf, travel, tennis, softball, lecturing, sporting clays, 4-wheeling, archery, swimming, guitar, computers, and photography. Among other pursuits.

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