Hearing Aid Distribution – II

HEARING AID DISTRIBUTION SYSTEMS  

Last week’s topic initiated the conversation on hearing aid distribution systems, explaining that many have been tried over the years.  This topic was brought on because of current discussions concerning hearing aid sales and how these instruments are/should be dispensed.  Hearing Aid Distribution – I produced commentary on manufacturer trends, franchises, insurance carriers, and low cost sales to consumers without direct audiologist dispensing (selling of the product).  This week is a continuation of the trends that the hearing aid industry has been exposed to.  Keep in mind that not all of these approaches were successful, not all that have been proposed will be discussed, and the “test of time” was fairly short for many.  The purpose of this series is to serve as a “refresher” to assist in conversations relating to the best approach to hearing aid distribution as we move forward, providing there is a “best” solution.  

CONTRACT SERVICES

National Rehabilitation Services (1985)

National Rehabilitation Services (NRS) of Bala Cynwyd, PA, sought contracts for a variety of rehabilitative services, of which audiology was one.  The objective was to obtain audiological services administered by qualified professionals for patients who could benefit from the services (primarily audiological evaluations and hearing aids), when directed by a physician.

The contractor duties were defined as:

• Provide licensed/certified personnel to perform audiological services.
• Provide audiograms, written evaluation, and other reports as required by NRS.
• Submit invoices to NRS on a bi-monthly basis.
• Obtain physician’s orders and recertifications on all audiology services.
• Copies of all transactions and visits with patients should be sent to NRS and kept in a patient file at NRS.
• All hearing aids were to be bought from NRS at the single unit price.  NRS would consult in the selection of the appropriate aid.
• There would be a 30-day return privilege on all hearing aids.

NRS would:

• Provide sufficient blank NCR forms to Contractors.
• Process and pay invoices submitted by contractor within 45 days from submission of bills.
• If NRS does not receive payment for services, then Contractor will not receive payment for services.
• A 5% retainer against possible denials will be withheld and placed in an interest-bearing account.  This will be reviewed every 6 months and monies dispersed upon results.
• Pay $40 per audiological evaluation.
• Pay Contractor on a 60/40 arrangement based on the amount received by NRS for Medicaid patients.

A separate program was involved with audiology programs in nursing homes they were involved with.  The irony of this program was that the speech pathologist or physician on notice at the nursing home would be the point of entry for patients in the audiology program.   

PURCHASING GROUPS    

Marcon (1977), Hopkins, MN    

Marcon initiated shareholder members, and the company provided a private-labeled product and exclusive territories.  A company brochure identified the goal as: “to increase their group but limit the number of shareholders to maximize the financial, as well as the non-tangible benefits, of the venture.”  The company continues today.  Marcon   provides marketing support in the form of private labeling of marketing materials, ads and patient newsletters, and provides financial reporting directly to its members monthly.  The company has provided dividends to its members every year.  Because its members own the company, Marcon controls operating costs very tightly by keeping administrative costs to a bare-bones minimum {{1}}[[1]] Bonta, R. Buying groups and networks…who’s out there, Advance for Hearing, Vol. 7, #6, p 47, 2005[[1]].  Most of the initial Marcon members were previous Maico dealers.

Audiology Co-Op (1980)

In 1980, a group of dispensing audiologists (Leo Doerfler, Paul Plucker, Michael Pollack, and John Balko) formed a buying Co-Op in the form of a partnership so that they could avail themselves of the various discounts that hearing aid manufacturers offered to groups that purchase a large number of hearing aids.  In November 1983, these dispensing audiologists founded Audiology CO-OP, Inc. to make these benefits available to a wider group of dispensing audiologists so that both the founders and newer members could purchase hearing aids at even lower prices.  Audiology CO-OP would pass on to its member-stockholder the benefits that accrue when large numbers of hearing aids were purchased.  These benefits included quantity discounts, cash discounts, and business development grants.

Membership in the CO-OP Corporation required a purchase of one share of stock (a security) for $10.00.

That single share had no other value, and could only be resold back to the corporation for the same amount.  The CO-OP was initially set up to have as many as 250 common stockholders.  As a stockholder, the member was allowed to vote on CO-OP business and to get the benefits of the CO-OP purchasing power.  And although audiologists founded the Co-OP, any person who purchased hearing aids to sell at retail was eligible, with final membership allowed to those who received unanimous approval of the management board.

No exclusive member-stockholder territory was allowed.  A $20 nonrefundable fee for applicants was used to pay for credit checks.  An annual fee of $50 reimbursed the management group for their time and money invested in managing the CO-OP.  An administrative group (Lesowitz & Baskin CPA) received a fee for administration of CO-OP affairs.  Members purchased hearing aids at the negotiated price with the manufacturers plus a 10% markup, about half of which was used to operate the CO-OP.  The remainder of the money was to remain in the CO-OP until the member qualified to draw it out.

Hearing aids were allowed to be purchased outside the CO-OP.  But, if no purchases of hearing aids occurred in a given month, a $5 account-maintenance service fee was billed to the account for that month.  Hearing aids were not to be purchased from the CO-OP, but directly from the manufacturer, thereby maintaining those important contacts.  Members would receive a security code to use as a purchase order number.  The CO-OP would bill the member monthly, based on that security code number purchases, with payment expected within five (5) days of receipt, and if not, a penalty of 2% per month on the unpaid balance.  Additionally, separate, single-unit price invoices would be supplied by the CO-OP when requested.  Members would also pay for the cost of Security Registration in their state at a rate of $1.00 per hearing aid purchased, which would be deducted from the member’s profit account until such time that the cost of compliance was recovered.  This was to be paid on a pro-rata basis, depending on the number of members in the state, until the registration fee was recovered.

Other Collective/Management/Professional Assistance Models

Other collective groups have emerged since then, including, but not limited to; some as part of a franchise (Sonus), some as part of a group benefits package that includes discounts for hearing aids (EarQ), others as a part of a purchasing network and marketing assistance group (Oracle Hearing Group, American Hearing Aid Associates – AHAA), some to provide for quality hearing care (Avada, AuDConnex), some to ensure the role of independent audiologists (AuDNet), and some to provide practice management systems (Sycle.net).

BIG BOX RETAIL STORES

Big Box stores such as Sears, Walmart, Sam’s Clubs, and Costco have been selling hearing aids for quite a number of years.  These followed the traditional hearing aid sales practices, with the exception that they were located in box stores and were owned by either the Big Box company itself, or by an independent company operating in the Big Box facility as a concession.

Miracle-Ear (1984)

Dahlberg, under its subsidiary brand name of Miracle-Ear®, began opening centers in Sears stores in 1984.  In the late 1980s, the name of the dispensing operation for Dahlberg in Sears stores was changed to “Retail Stores Division,” from the “Sears Division,” and the hearing aid operations within Sears stores became “concessions,” space leased and operated by Dahlberg, parent of Miracle Ear, as opposed to being owned and operated by Sears.

Walmart (1985)

An initial attempt to place hearing aids in Walmart stores on a limited scale took place in 1985, when Charles Bavuso of Pittsburgh, KS sought private label hearing aids for Walmart stores in a four-state area (Kansas, Missouri, Arkansas, and Oklahoma).  He had permission to work out of the Pharmacy Departments of Walmart stores, but could have no permanent installation within the stores.  The program was short-lived, but it kept resurrecting itself at different times with different players, until now, when Amplifon, which now owns Miracle-Ear, has in excess of 150 outlets in Walmart stores, most of them called Amplifon Hearing Aid Centers.

HearAtLast

HearAtLast Holdings, Inc., a publicly traded Nevada corporation headquarted in Mississauga, Canada, franchises hearing aid clinics under the name HearAtLast in selected Walmart, Sam’s Club, or independent location stores, primarily in Canada.  Their stated purpose is a commitment to providing their customers with straight-forward and affordable solutions for hearing protection, preservation, and enhancement, enhanced by an alliance with VitaSound.  Stores are staffed   primarily by hearing instrument specialists who are required by their Province to hold a college degree in their profession.  HearAtLast franchises are owned and operated by Pharmacy Hearing Centers (PHC).  Their mission is to expand and co-develop and/or license its HearAtLast brand throughout North America, within Walmart stores as well as in independent locations, using Walmart’s model as a template for expansion.

Costco (1989)

Costco opened its first location in 1976 under the Price Club name, but the warehouse concept that is now recognized was founded in 1983.  Costco started selling hearing aids in 1989, and now has hundreds of hearing aid centers in many of its warehouses across the nation.  Costco’s operating philosophy is simple: keep costs down and pass the savings on to their members.  Their large membership base and tremendous buying power, combined with their never-ending quest for efficiency, results in the best possible prices for their members.  Costco owns the hearing aid dispensing operations in its warehouses, and are staffed by audiologists and traditional dispensers employed by Costco.    

PHARMACIES

In the second half of 2008, a pilot program was launched in which Beltone began dispensing hearing aids and providing other services in about 30 CVS pharmacies, many of them in the Northeast and Florida.  The centers were to be staffed by Beltone dispensers, who in many cases also worked at regular Beltone offices in the area.  Because professional staff members were dividing their time between locations, some of the CVS centers’ stores were open only a few days a week.

HEALTH CARE COMPANIES

It should come as no surprise that Health Care Companies sought to find ways to capture part of the hearing aid market.

Travenol Laboratories, Inc.  

In 1985-86, when I was with Audiotone, we had extensive communications with Travenol Laboratories, Inc. (Baxter Travenol), expressing their interest in entering the hearing health care market.  They had recently formed an otologic products board, and Travenol sought to set up hearing and speech services in mall locations.  Four options for this arrangement included: (1) a straight contract for Audiotone to develop specific hearing aids, (2) Travenol investment, (3) Joint venture, and (4) Acquisition of Audiotone by Travenol.  Travenol’s intent was to develop a 1-stop location where all hearing and speech needs could be met, with the exception of cochlear implants.  This was to include: testing, fluid solutions, alternative devices, assistive devices, rehabilitation, hearing conservation, medical services, commercial products, all of the speech services, and hearing aids.  Two test facilities were to be set up in the Kansas City area.

Other Health Care Companies

Johnson and Johnson, Proctor and Gamble, and Philips Medical Division all have investigated placing hearing aids into wellness centers in pharmacies (and I suspect they still are).  However, complications when considering these as over-the-counter products and resolving this issue with state and federal regulations controlling the sales of hearing aids, has hindered progress.

Next week:  Hearing Aid Distribution – III, Network concept of hearing service centers, same session fit, Internet sales, do-it-yourself pathways, and PSAPs.