Jul 14 2013 | 11 comments
This is part one of a three part series discussing evidence for the inefficient traditional market for hearing aids.
I wanted to share a shocking personal story that I thought followers of our blog would find interesting. On a Wednesday afternoon a few months back, a friend traveling in San Francisco was having some issues with name brand RIC hearing aids. He was scheduled to leave the country on Sunday, and he was new to hearing aids, so he called me up and asked for help making an audiologist appointment on short notice.
I did a quick search on the manufacturer’s website and found 12 hearing aid dispensing practices in San Francisco that serviced my friend’s RIC hearing aids. I was expecting to place one or two calls and book an appointment for Thursday and Friday.
I ended up calling all 12 numbers, and I was shocked by the results. All nine of the calls were sent straight to voicemail. I left eight messages, but received only two follow-up calls – one on Friday afternoon, and one the following Monday; neither was much help.
On the three calls on which I was able to speak with a live receptionist, I was also disappointed. One receptionist promised to call back later that afternoon when she had a better idea of the audiologist’s availability; she never did.
The final two calls were the most surprising of all. I was informed that the hearing aid dispensers had unusual schedules – both took Fridays off, one was out of town that week, and the other worked Mondays and Wednesdays in San Francisco and Tuesdays and Thursdays at a location on the outskirts of the Bay Area.
This meant he maintained multiple office locations to better be able to service his far-flung customer base; however, it also meant that he was paying the rent on two seven-day-a-week leases that he used only twice a week – hardly a model of cost efficiency.
I could hardly believe the result, but in the end I had to call up my friend friend and apologize; I wasn't able to make him an appointment on two days’ notice.
At the very least, it’s safe to say that the business practices that I had stumbled into did not prioritize customer accessibility to hearing aids. The hearing aid practices did not seem to be operating efficiently, as almost all of my voicemails went unreturned. And most perhaps most crucially, these dispensers did not seem to be operating at anywhere near full capacity – I confirmed that two practitioners were working reduced workweeks and schedules that left offices vacant several days a week; and reaching nine answering machines suggested to us that a number of offices were likely sitting vacant that Wednesday as well.
That said, I knew I was dealing with a small sample set, and that my experience might not be representative. I also know that customer accessibility on the first phone call and the number of hours a week a dispenser works may have nothing to do with the excellent standard of hearing aid care provided at his practice.
But we at Embrace Hearing were interested in learning more.
One of the core arguments for online distribution is that it is more cost-efficient than selling through brick & mortar stores. This is especially true if stores are operating at less than 100% capacity. To the extent that a large number of independent hearing aid dispensers work shortened business hours or less than full workweeks, as discussed above, the rent paid on their offices during downtime is essentially wasted. This “extra rent” is a hidden cost embedded in an inefficient distribution system and ultimately is balanced out by higher hearing aid prices. In other words, customers would end up subsidizing their healthcare providers’ operational inefficiency.
Said another way – in a properly competitive industry, the solution to chronic under-capacity would be the least-profitable dispensers exiting the market. Eventually, the number of stores would fall, but those remaining would operate at closer to peak capacity and be able to turn a profit without increasing prices.
The hearing aid industry is characterized by the strong pricing power wielded by hearing aid dispensers. Because hearing aid dispensers raise prices in lockstep, hearing aid stores can continue to churn a modest profit, while still operating far below peak capacity. The winners are hearing aid dispensers, who stay in business, and the losers are people with hearing loss, who are forced to swallow ever-higher prices.
This is a strong claim – so to back it up, I wanted to see some hard numbers. But data on the subject is hard to find… This wasn’t a situation where I could Google “hearing aid dispenser under-capacity” and expect to find anything meaningful.
Still, we think it’s an important question to be asking, so we decided to do some digging. Because state-level information isn’t aggregated at the federal level, we thought we’d take a look at the state with the largest population in the country – California.
As it turns out, there is some very interesting data on hearing aid dispensers publicly available at the Hearing Aid Dispenser search portal at the California Department of Consumer Affairs. In our next post, we’ll explore this data, pose some tough questions and suggest some interesting conclusions about the market for hearing aids in California.
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