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As Dust Settles After Phonak–Costco News, a Path to Innovation

Lindsey, Heather

doi: 10.1097/01.HJ.0000449903.56936.6a
Cover Story
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When Phonak confirmed in March that it would sell a line of hearing aids though Costco, independent hearing healthcare providers became worried that their model of care and revenue would be undermined by the availability of a less expensive Phonak product through the big-box retailer.

And beyond that concern, the company's move was met with expressions of anger and feelings of betrayal on the part of the hearing healthcare community.

Many practitioners think Phonak's decision was driven by greed, said Amyn M. Amlani, PhD, associate professor in the Department of Speech and Hearing Sciences at the University of North Texas in Denton, TX.

However, the community doesn't universally condemn the manufacturer, said Ian M. Windmill, PhD, professor and chief of the Division of Communicative Sciences at the University of Mississippi Medical Center in Jackson, MS. Many providers recognize that this is the way hearing aid companies increasingly operate, he said.

“As audiologists, we need to adapt, change, and evolve.”

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The decision to offer Phonak-branded hearing aids at Costco was partly based on the desire to help all people with hearing loss, including those consumers who are motivated by price, wrote Kimberly Rawn, senior manager of communications & public relations at Phonak, in an e-mail.

The Phonak Brio became available April 1 in about 400 Costco Hearing Aid Centers in the United States. The top-of-the-line model of the device sells for $1,399 per hearing aid with a Costco membership.

The name Brio was created for Costco so that consumers could not conduct easy price comparisons across different channels of retail or independent practices, providing a level of brand-name protection to independent providers, Ms. Rawn said.

The Brio doesn't differ much from Phonak's Q90 products, which are the company's flagship, top-of-the-line hearing aids, said Scot Frink, MS, of Salem Audiology Clinic in Oregon. However, the device available at Costco does not include tinnitus management components, he said.

Costco, which declined to comment for this article, also sells hearing aids from its store brand, Kirkland Signature, as well as brand-name models from Rexton, ReSound, and Bernafon.

Free services provided at Costco Hearing Aid Centers include a product demonstration, hearing tests, follow-up appointments, hearing aid cleanings, 10 hearing aid batteries per hearing aid purchased, loss and damage coverage, and a 90-day trial period, according to Costco's website.

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The general model for hearing aid distribution historically has been that an individual purchases a set of hearing aids at a practice for $3,000 to $5,000 and has some period of time to receive adjustments and other services at no extra cost, Dr. Windmill said, adding that earnings are generated from hearing aid sales.

The audiology community's objections to the sale of Phonak hearing aids at Costco are largely based on the perception that the big-box retailer is able to purchase hearing aids from manufacturers at a lower cost, Dr. Windmill said.

Citing industry figures of comparative models, Dennis A. Colucci, AuD, MA, noted that while Phonak's Q90 products are “basically the same” as the Brio, the wholesale cost to his practice is about three times what Costco pays.

This difference makes the markup to consumers about $1,000 higher, added Dr. Colucci, a columnist for The Hearing Journal, as well as a clinical and forensic audiologist and certified tinnitus practitioner at the Taj Mahal Medical Center in Laguna Hills, CA.

Mr. Frink has sold Phonak hearing aids for almost 20 years and has actively built brand-name recognition in the local community, he said. “We have patients coming in asking for Phonak.”

Now that these customers are likely to see the Phonak name at Costco, Mr. Frink is concerned about hearing aid returns, he said.

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The hearing healthcare community has been discussing solutions to the high cost of hearing aids, Mr. Frink said.

One idea is for providers to form a nonprofit buying group so they can purchase products at significantly lower prices than are currently being offered, he said.

Another approach is for providers to consider how they are differentiating themselves from Costco in the marketplace, Dr. Windmill said.

Some providers label themselves as offering dispensing services, which probably does not do them justice or describe what they really do, he added.

These professionals need to remember that they also provide evaluation and testing of hearing, as well as diagnosis and appropriate management of hearing loss, which may or may not involve hearing aids, Dr. Windmill said.

Moreover, practices can address two areas of care that are often overlooked—the prevention of hearing loss and the enhancement of hearing, he said.

Hearing healthcare professionals may also want to consider providing fittings to patients who have purchased their hearing aids elsewhere.

And if a practice offers pediatric services, that's another area to promote.

Mr. Frink focuses on establishing long-term patient satisfaction at his practice.



Toward that end, he preschedules at least two follow-up appointments so he can ensure patients are properly fitted with hearing aids, conducts aural rehabilitation classes, and maintains frequent contact to remind patients of needed follow-up care and maintenance.

Dr. Colucci aims to set his practice apart by providing a range of services to maximize hearing ability and quality of life while reducing the incidence of comorbid memory loss and dementia. He assesses memory deficits along with hearing loss and other disease processes.

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In addition, Dr. Colucci counsels patients on the potential for a cochlear implant or other ENT services, and provides hearing and sound therapy.

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Providers may benefit from following and embracing new technologies, Dr. Amlani said.

This approach could mean counseling individuals on how to use mobile phone apps that function as hearing aids and over-the-counter personal sound amplification products (PSAPs), though these devices are controversial. [For more information on why you should or should not sell PSAPs in your practice, read HJ’s March cover story, found on page 40 of that issue.]



“If we want to grow the market and make it more elastic, we're going to have to play with these other opportunities,” Dr. Amlani said.

Hearing healthcare providers may want to think about unbundling their services, he added. Baby boomers are especially concerned about the transparency of costs for hearing aids and associated care.

“If you're up front about costs, there is perceived value to the purchase of the device,” he said.

One of the most important strategies to setting a practice apart, though, is a fundamental one—building and maintaining a positive provider–patient relationship.

“This has a huge influence on consumer behavior and helps to establish repeat business,” Dr. Amlani said.

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Case Study: One Practice Puts a Price on Decision Making

By Michelle Hogan

ORLANDO, FL—Not surprisingly, differentiating an audiology practice was a hot topic at AudiologyNOW! 2014, the American Academy of Audiology's annual meeting, held March 26-29 in Orlando, FL. Session topics included how to beat out the competition in audiology private practice and whether devices really have to be the center of audiologists’ universe.

Between 2004 and 2011, the percentage of practices that were corporately owned/affiliated or branded increased from 54 percent to 77 percent, said Barry A. Freeman, PhD, president and CEO of Audiology Consultants in Fort Lauderdale, FL, during a presentation at the convention.

“If all you do is sell a product, it really becomes difficult to differentiate yourself,” Dr. Freeman said, sharing a quote from the veterinary field, which heavily depends on product sales.

“We need to think about the fact that we can diagnose, manage, and treat hearing and balance problems, not just focus on selling a product.”

Ian M. Windmill, PhD, professor and chief of the Division of Communicative Sciences at the University of Mississippi Medical Center in Jackson, MS, and his colleagues spent the last year examining how to transform their practice, he said during a presentation at AudiologyNOW!

“Could we lower the cost of hearing aids, and, if we could, what would the economic impact be?.”

Dr. Windmill and colleagues began by unbundling prices but found that approach problematic.

They then tried itemization and came up with an hourly rate, setting a price for services based on the length of time allocated to provide them. But that method was imperfect, as it didn't take into account how complicated or straightforward a particular case was.

“You make a ton of decisions on these cases—that's the value,” Dr. Windmill said. “It's the time, expertise, and thoughts that are going on in your brain.”

He and colleagues looked to physician evaluation and management codes for a model of how to charge for knowledge and skill.

They came up with three categories specific to hearing healthcare—assessment of hearing and hearing handicap, audiologic decision making, and treatment and counseling—and two levels—straightforward and complex.

“We tried to make it simple at this point; we're willing to become more complex later,” Dr. Windmill said. For each of the three categories, either the “straightforward” or “complex” box can be checked.

The new approach lowered product prices by 25 percent. The higher charges for more involved cases make up the difference, Dr. Windmill said.

“The more complex the patient, the more that patient's going to get charged. That's our value.”

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