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COVER STORY

In troubled economic times, the hearing aid industry remains an island of stability

Kirkwood, David H.

doi: 10.1097/01.HJ.0000391531.98846.86
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In Brief

Figure
Figure

As the nation's economy heads into the fourth year of what is sometimes referred to as the Great Recession, many of the numbers used to measure economic health are distressing. Despite some job growth in 2010, the unemployment rate remains stuck around 9.5%, the highest since the early 1980s. Housing values have tumbled, leaving many owners owing more on their home than its market value; millions of families have already lost their homes or are facing the threat of foreclosure. While the gross domestic product (GDP) is no longer shrinking, it is growing very slowly—about 2% in each of the past two quarters. It is no wonder, then, that the Consumer Confidence Index reported by the Conference Board was only 50.2 at the end of October, less than half what it was when the recession began.

Now, contrast that with what's happening in the hearing aid market, as reported by the Hearing Industries Association (HIA) statistical reports. While during the financial crisis of 2008, unit sales did fall 2.4% in the second half compared to the same period of 2007, they quickly rebounded in 2009 to increase by 8.4% over 2008. That essentially offset the slump in the last 6 months of 2008. For 2008 and 2009 together, hearing aid sales rose by 7.7%, which is close to the 4% a year historical norm for the industry.

This year fits right into that pattern, as the 2,083,178 instruments sold in the first three quarters represent 3.9% growth from 2009. As shown in Figure 1, HJ projects that sales for all of 2010 will total 2,680,997, 3al 2,680,997, 3.8% more than last year.

Figure 1
Figure 1:
Slow but steady growth has generally characterized the U.S. hearing aid market since 2000. Each column shows net domestic sales by manufacturers for the year as reported to the Hearing Industries Association. The yellow top section of each column shows sales to the federal government (the great majority of them to the VA). The brown section below shows the portion of sales to all non-governmental entities that dispense hearing aids. The figure for 2010 includes projected sales for the fourth quarter in addition to actual sales for the first three quarters.

It should be noted that market growth is not evenly divided between the private sector and the government. As Figure 1 illustrates, sales by manufacturers to the Department of Veteran Affairs (VA) are increasing much faster than those to non-government purchasers. As of this September 30, the VA had purchased 403,595 hearing aids, 12.3% more than the 359,231 over the same period of 2009; private sector purchases increased by only 2.0%, from 1,597,590 to 1,629,714. Over the past decade, sales to the VA have increased by more than 150% and their share of the total market has grown from 10.4% in 2000 to 19.9% this year. Sales to the private sector have increased by a more modest 25% since 2000.

WHAT THE ANALYSTS SAY

To gain some expert insights into the current state of the hearing industry and the prospects for next year, we turned to three people who spend a good deal of time studying the hearing aid market.

Holding their own

One was Carole Rogin, who has been executive director of the Hearing Industries Association for more than 20 years. She stated, “Hearing aids have certainly held their own during an extremely challenging economic climate.” She added that their performance contrasts sharply even with other medical devices, such as dental implants and hip and knee replacements, which have suffered double-digit percentage declines in use and are still fighting to get back on track.

Why are hearing aids so recession resistant? Rogin thinks it's because they are less subject to the economic factors that control discretionary purchases. What drives people to buy hearing aids is that after 7 or 8 years of deteriorating hearing they finally reach the point of desperation and decide they have to address their loss. And, 90% of the time, hearing aids are the best or the only solution to their problem.

Being seen as a necessity rather than an optional purchase is “a double-edged sword,” said the HIA leader. On the one hand, when times are bad, the hearing industry doesn't deviate much or for long from its usual slow-growth pattern. However, when consumers are feeling flush and ready to spend, hearing aids are rarely what they choose to buy, so sales rarely spurt.

“What this underscores for us as an industry,” said Rogin, is the challenge of making hearing aids part of the overall health picture.” One of the goals of HIA and the Better Hearing Institute (BHI), she noted, is to integrate hearing into the broader topic of wellness. She said, “We have the potential to make hearing, like blood pressure or cholesterol count, a standard measure of wellness.”

“Almost completely normalized”

As head of equity research for the Swedish-based Handelsbanken, Klaus Madsen keeps close watch on the industry worldwide. His take on the U.S. market is that it is “in an almost completely normalized environment,” despite the far from normal overall economy. The private market, he noted, is still suffering a bit from the recession, but sharp growth in VA purchases balances that out from the manufacturers' perspective. Madsen believes “we're on track for fairly typical 4% growth in 2011.”

Less cyclical than most industries

A third analyst interviewed for this Cover Story was willing to comment on the industry, but on condition that his name and that of his employer, a major international investment bank, not be revealed. Like the others, he described the market as being reasonably healthy with growth of 3% to 4% globally. Echoing what Rogin said, he observed that the hearing aid market does not closely follow the overall business cycle. Sales, he said, are “driven by need” and also inhibited by stigma, which differentiates it from most other industries.

Potential seen for (modestly) higher growth

Given how little hearing aid sales usually fluctuate over time, it is not surprising that none of the experts we consulted anticipate dramatic changes in 2011. Madsen predicted that the unusually large number of “important high-end product releases” in 2010, including some at the EUHA (European Union of Hearing Aid Acousticians) Congress in Germany in October, will cause manufacturers to step up their marketing in 2011. More marketing typically leads to somewhat higher than normal growth. The Handelsbanken analyst also said that the maturing of wireless products and their growing effectiveness may enhance their appeal to consumers.

On the other hand, he expects growth in the VA market to slow to 5% in 2011. That is largely because the agency has completed its expansion of audiology facilities and because the recent loosening of eligibility criteria for VA audiology services has already had its effect.

The most optimistic of our analysts was undoubtedly HIA's Carole Rogin. While she does not expect double-digit expansion of the market next year, she sees advances in technology having a positive impact. She said, “As I talk to [practitioners] around the country, I run into more and more of them who tell me that patients are saying that they are delighted with their new hearing aids. I think that's a dramatic change from 10 or even 5 years ago.”

This development, said Rogin, affirms HIA and BHI's decision to make enhancing “the consumer's journey” a continuing top priority. The goal of that campaign, she said, is “to ensure that today's best technology and most advanced dispensing skills are being applied to every single consumer.”

Our anonymous analyst agreed that 2011 is likely to be much like 2010 when it comes to sales. Since 1990, he said, market penetration has risen by only 1%-2%, meaning that nearly all the increase in sales is a result of expansion of the hearing-impaired population.

He did suggest that cochlear implants may be an area of growth going forward as the technology becomes more mainstream and as manufacturers market it to audiologists, since they are positioned to refer patients for assessment as implant candidates and to provide post-surgical rehabilitation.

INSIDE THE DATA

An examination of the HIA statistics shows an interesting development regarding behind-the-ear hearing aids. The huge swing toward the BTE seems to be nearing its limit. While BTEs are firmly entrenched as the dominant hearing aid style in the U.S., the percentage of all sales that were BTEs increased only slightly this year, from 65.7% in 2009 to 67.3% in 2010, as of September 30. The BTE share of the market grew from 51.4% to 57.3% in 2008 and then up to 65.7% last year (see Table 1). A mere decade ago, in 2000, only one in five hearing aids sold were BTEs.

Table 1
Table 1:
Breakdown of domestic sales by style of product, for January-September 2010 and for all of 2008 and 2009. Information is derived from the Hearing Industries Association Statistical Reports for 2008–2010.

HIA's third-quarter statistical report revealed little change in the percentage of BTEs with the receiver in the canal (RIC) as opposed to the receiver's traditional position in the aid (RITA). In 2009, 42.9% of BTEs were RICs while this year to date 40.4% were.

Geographic differences

While nationally the hearing aid market performs very steadily, there are wide fluctuations in sales from state to state, as seen in Table 2. Several states had double-digit growth from 2009, including Vermont and Utah (both +14%), Arkansas (+16%), Washington (+18%), Montana (+30%), and North Dakota, where 86% more hearing aids were purchased from manufacturers this year to date. It should be noted that, except for Washington, these states have small populations, and sales of an extra 500 or 1000 hearing aids in a year represent a boom. For the most part, the states that record unusually large increases or declines one year do not do so the next.

Table 2
Table 2:
Unit sales by state, with percentage of increase (or decrease) from previous equivalent time period. (Δ = difference). Information is derived from the Hearing Industries Association Statistical Reports for 2009 and 2010. Note, sales by state do not include hearing aids purchased by the VA.

However, North Dakota is the great exception. Over the past 4 years, sales there have fluctuated wildly: +42% in 2007, −38% in 2008, −47% in 2009, and this year's +86%. Among the economic factors that North Dakota practitioners cite are sharp swings in the price of wheat, a crucial part of the economy, and the discovery of natural gas in large swaths of the state. Also, North Dakota's population is unusually old and contains a high percentage of farmers, who are likely to suffer from work-related noise-induced hearing loss.

The states where sales slid the most this year were North Carolina (−10%), South Dakota (−9%), and Idaho, Oregon, and Missouri (all −7%).

© 2010 Lippincott Williams & Wilkins, Inc.