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Business Strategies

The Managed Care Manifesto

Diles, Will HIS

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doi: 10.1097/01.HJ.0000771000.39838.c9
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The current third-party market disruption is one of the most important issues to face private practices today. Third-party administrators (TPAs) are more dangerous than other threats because they have the built-in credibility of being associated with a patient's health insurance plan (Medicare Advantage or Supplement Plan). Private practices could be viewed as the ultimate underdog in this challenge, where the federal government is working arm in arm with giant health insurance companies who are responding to patient demands and market incentives: a MarkeTrak survey asked consumers what would most motivate them to purchase hearing aids sooner, and the number one factor was “having insurance that will cover some/more of the cost” (MarkeTrak 10, 2019–U.S. market data). Given this, it is reasonable to assume that the hearing aid market will increasingly move from private pay to a more insurance-oriented model.

Figure 1
Figure 1:
Consumer Health Insurance Coverage Approach Continuum. Audiology, insurance, private practice.
Figure 2
Figure 2:
Private Practice Third Party Referral Source Continuum. Audiology, insurance, private practice.


The obvious benefit to practices participating in managed care networks is that they can provide a source of new patients with essentially zero cost. The negatives include compromised relationships with patients, reduced margins, loss of control over patient care and experience, and lower practice valuations.

Despite the intimidating growth in managed care, there is reason for private practices to be hopeful, given the established position they have with their infrastructure, expertise, relationships, existing patients, organic sources of new patients, and human resources.


Although 72% of Medicare beneficiaries have some hearing aid coverage through their Advantage or Supplement plans, a much smaller number of hearing devices sold in the United States are through the managed care channel. Many beneficiaries do not regularly review their coverage (Kaiser Family Foundation analysis of CMS Medicare Current Beneficiary Survey, 2018 Survey File), which indicates that there is the possibility of reaching these patients with a high-value alternative before they make their decisions.

Consumers exist on a continuum regarding their approach to health insurance coverage (Fig. 1), and private practices must focus on attracting patients in attainable parts of the continuum.

Consumers who exist in the middle and on the right side of the continuum are less price sensitive and are motivated by a superior level of care and experience. The key for private practices is to fight this battle in the patient care domain, where they have the advantage.


Private practices also exist on a continuum related to the percentage of their business that is driven by the third-party channel (Fig. 2). Some private practices have robust organic sources of new patients and can profitably run their business without participating in third-party referral networks. Others have virtually zero organic sources of new patients and nearly all revenue is attributed to TPA fitting fees. Most, of course, are somewhere in between.


Private practices have several different strategic responses they can employ regarding TPAs.

BUSINESS AS USUAL. One option is to ignore these market trends and choose not to participate in TPA networks. A practice that exists on the far-right side of the Continuum is likely to maintain existing new patient intakes and revenue in the near term. However, as the number of patients with insurance coverage increases, there is the risk that the current volume of sales at higher retail prices may not be sustainable.

GO ALL IN ON THIRD PARTIES. On the opposite end of the Continuum is where the majority or all of a practice's patients and revenue come from TPAs. The risks with this include undiversified patient referral sources and no control over fitting fees and required service levels.

PRICING STRATEGIES. Another option is to adjust retail pricing to better compete with the options available to patients through managed care plans. One way to do this is to offer basic or entry-level technology with similar retail pricing to TPA offerings to maintain reasonable margins. The problem with this approach is that most consumers are not going to find that compelling when managed care and big box store offerings are “advanced-” and “premium-” level technology at those same retail prices. Another way to adjust pricing to better compete with TPA offerings is to adopt an unbundled model. In this approach, hearing aid retail prices are set comparably to those of the TPA offerings, and practices attempt to recoup the lost margin by selling their professional service over time. Dan Ariely, a professor of psychology and behavioral economics at Duke University, speaks about “the pain of paying,” where each time a consumer is forced to pay, pain is inflicted (The Pain of Paying, 2013). We know that when asked to pay for each visit or service, some patients will forego certain services, which is the worst possible outcome for both the patient and the practice. A patient who fails to come in for assistance will likely experience worsened hearing and a more negative experience with the product and the practice itself.

BAND TOGETHER. The idea of collective divestment from the third-party administrator plans is probably not practical. Even if the majority of practices agreed to this, there will always be other practices who are willing to see these patients for fitting fees.

LEGAL/REGULATORY PURSUITS. There's an increasing number of movements that aim to disrupt the TPA channel by soliciting legal and regulatory action. However, it is important to remember that private practices are the ultimate underdog in this battle, and it may not be well-advised to pursue combat on the turf of these much more well-funded entities, and there is reason to be skeptical that these efforts will be successful due to the structural nature of the battle. That said, divestment can be an effective strategy for individual practices, markets, and the national movement when coupled with strong practice fundamentals and a compelling alternative for patients.


Unfortunately, each of these strategic approaches has shortcomings for private practices desiring to thrive in the future competitive landscape. However, private practices—whether or not they decide to participate in TPA referral networks—can stay in control of their practices by focusing on strengthening practice fundamentals and developing or adopting a compelling alternative to the managed care offerings.

STRONG PRACTICE FUNDAMENTALS. While it may not be quick, easy, or revolutionary, focusing on strong performance in the key areas that reinforce practice health is paramount. These include:

  • Delivering premier patient care
  • Developing diverse, organic sources of new patients
  • Continued engagement of the practice database

These practice fundamentals provide fortification against all kinds of disruptive threats.

COMPELLING ALTERNATIVE TO MANAGED CARE OFFERINGS. Because so many patients have some sort of hearing aid coverage through a TPA, practices must offer a compelling alternative. This compelling alternative is designed to reach patients who are in the middle section of the Continuum and who might purchase through the TPA if the practice does not offer something of higher overall value.

From a patient perspective, this alternative must offer:

  • Premier hearing health care at a competitive price
  • Premium or advanced technology
  • Bundled care and service
  • Easy-to-understand options

From the practice perspective, this alternative needs to:

  • Offer reasonable margins
  • Be differentiated from standard private pay offerings

DIVESTMENT. While collective action in the form of all hearing care providers across the United States refusing to participate in the TPAs is not a viable solution to the managed care problem, when a high-quality individual practice in a given market stops participating, that does deliver a real blow to the TPAs. When patients have suboptimal experiences in the managed care channel, they will be far less likely to choose this route in the future. When practices cease participation in the managed care plans, it also makes their compelling alternative that much more compelling, as they no longer have to compare their offerings directly to any others.


Managed care is here to stay in our industry and only going to grow. Focusing on business fundamentals and adapting to these market forces with a compelling alternative are the keys to success for private practices. That compelling alternative must deliver the attractive elements of TPA offerings to patients in a way that works for private practices’ bottom lines and patient care standards. When private practices put the care and experience of their patients at the center and build fortified business models around that, they will succeed, no matter the competitive disruptions that arise. Start with patient care, and business results will follow.

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