Editor’s Note: This text course is an edited transcript of a live webinar. Download supplemental course materials. This course was part of a series of courses on the topic of unbundling/itemization, presented in partnership with the Academy of Doctors of Audiology. More information about the course series as well as registration links can be found here.
Dr. Kim Cavitt: How do more than 65% of the hearing aid dispensing practices in this country price their hearing aids? The answer is in a bundled manner. Why is this?
Today, I want you to be open to a new way of thinking about a hearing aid delivery model and pricing. At the end of this presentation, it does not matter what decide to do in your practice as long as you make an informed business decision and not one based upon the status quo or on fear.
What is Bundling?
When we use the terminology bundling and unbundling today, we are talking about hearing aids, not diagnostic procedures. With hearing aids, the terms unbundling and itemization can be used interchangeably.
Bundling on the hearing aid side means billing all items, services and good associated with the evaluation, fitting, management, and life of the hearing aid under one code on the date of fitting. For example, code V5261, hearing aid digital, binaural BTE, would be billed on the date of the fitting and would encompass every item and service surrounding that hearing aid from the evaluation through the end of the warranty.
Why do the majority of practices bundle their hearing aids and use this as their pricing model? Honestly, it is because this is how it has always been done. Long before audiologists started dispensing hearing aids in 1978, this is how hearing aid dispensers priced hearing aids. We just adopted that model when we became dispensing audiologists. Why do we keep doing it?
There have been huge changes in medical and retail sales. There has been a huge influx of audiologists into the dispensing world and the delivery paradigm. There are massive changes in technology of how we purchase things in this country. There have been substantial changes in the retail sales model. Despite these changes, more audiologists, and advances in sales technology, hearing aids are delivered in the essentially the same manner as they were 50 years ago. That is why things are bundled. We have never changed.
Do you buy commodities? A hearing aid is a commodity. When people market it in newspapers, send direct mail and talk about price and product, you have taken a medical device and made it a retail device. A retail device is a commodity. This means it can be purchased in a variety of ways.
Do you buy your shoes, glasses, contact lenses, a refrigerator, or a car the same way today as you did in 1970? For most of us, the answer has to be no. We do not shop in the same way. We research. We try to find the lowest price. We may buy it directly from an online retailer. It may be a car that you design yourself and go to the dealer to pick up. It can be much more interactive and informational. Even though we purchase things differently, we are continuing to force our patients into the same delivery and pricing model that existed long before these technologies existed. We have not allowed them the same consumer transparency and control that has been afforded in purchasing other items and services.
On what is a bundled pricing strategy based? Typically, nothing tangible. In my consulting work, I ask a question in the needs assessment. “Do you have hearing aid service pricing? If so, how did you come up with it?” When we get to the hearing aid, half of my clients talk about some multiplication of their invoice cost. Their hearing aid pricing was merely a multiplication problem. It was not based upon their own needs or expenses. It was not based upon anything other than multiplication.
When asked how they come up with services prices, such as that for hearing aid fittings or adjustment appointments, often times, they do not know. It is randomly determined.
The New Norm
Why we might need to change? Let’s be honest. The status quo may no longer suffice. We have to start to differentiate ourselves and our services from the disruptive forces that now exist in the marketplace, whether that is Internet retailers, mail-order retailers with an Internet presence, big-box retailers, other healthcare providers getting into the hearing aid business, or manufacturers and their ownership of clinical entities. There are many factors disrupting this model, yet we have not changed the way the model works. We may be forced to change, but I want you to think about this proactively rather than reactively.
How do we price the product and value the service? This should be based on a calculation, not a question mark. How do we provide care and services not offered or available through disruptive entities? Audiology existed prior to the advent of hearing aids. How and what are those services? Are we providing them? Are we offering patients a standard of hearing care? What is available to differentiate ourselves from someone online? How do we embrace patients into our practices that have procured their devices by disruptive means? Do we turn them away? Do we engage these price shoppers? My personal answer is yes.
These patients are coming to you because there was something missing from procuring the product from that disruptive entity. If you can fill that need, expand upon their experience, and either prove that product to be ineffective by evidence-based means or maximize the benefits of that product for that patient, you will most likely bring them into a more traditional purchase model. We need to see this as being more than selling a widget, because there is value in what we offer. There is much that we can provide the hearing impaired through technologies, rehabilitation, and evaluation, but are we doing it?
Your competition, first, are the hearing aid manufacturers whose products you dispense. They all own clinics and direct-to-consumer enterprises like EPIC, AHAA, HearUSA, and Hearing Planet. These entities procure these products at a low cost. I think we can compete with these entities, but we have to think beyond that widget. These entities are focused on the widget.
Second, third-party payers, with which you voluntarily participate, are your competition. HiHealth Innovations and Medicaid allow their members access to product that may or may not be part of our delivery paradigm. HiHealth cuts out the provider middleman so you can go directly from your insurer to the patient to procure product.
Third, the medical community is our competition. This includes otolaryngologists, internists, and optometrists, who are all getting into the hearing aid delivery game.
Fourth is third-party administrators. HearPO, EPIC, TruHearing and HearUSA now get in the middle of the patient delivery process with a fixed, finite, discounted product that you have to use as a specific product at a specific price point. This is a disruption.
Fifth is the big-box retailers, such as Sears and those who have Miracle Ear centers embedded in their stores. Many Sam’s Club locations now offer hearing aids. Costco is now the second-largest dispenser of hearing aids in the United States, second only to the Veterans Administration (VA).
Consider that apps are competition. Ear Machine was created by Andy Sabin and Dianne Van Tasell, and it is virtually an iPhone hearing aid. You can get it for free. Other apps include iHear or Sound Focus. These give hearing science in an iPhone/Android application at little to no cost to the consumer, and they get the opportunity to try amplification.
Next is the government. The expansion of VA and Medicaid benefits has given us new competition. Ten years ago, many of these patients would have been private pay. Now that the private pay window has shrunk, because more of these individuals are eligible for government benefits.
Lastly, online retailers are a growing source of competition. You can buy a hearing aid on eBay. Audicus is another site that has received press coverage as of late. Audicus and Embrace are like HiHealth Innovations. They are online hearing aid stores where you enter an audiogram and then they ship you a hearing aid. These are hearing aids. You cannot legally market something as a hearing aid unless it meets certain Food & Drug Administration (FDA) criteria. I strongly encourage people to go look at these website before you judge them. Read about their product.
MD Hearing Aid is another, but it does not involve entering in an audiogram. These are products that thousands of patients are purchasing every week. These products are probably not all bad. We might not like the way they are delivered, but we need to educate ourselves on the options as this will become more common as time goes on.
There is Hearing Planet, Lloyd’s, Hearing Help Express, and Advanced Affordable Hearing. I am doing a project with a student at Northwestern, and I ordered a hearing aid online from Lloyd’s. If you go to Lloyd’s site, there are many traditional products available direct-to-consumer from traditional manufacturers. Lloyd’s has existed for nearly 40 years.
There are so many ways now for a patient to procure amplification that is more accessible and more affordable than the means we are currently providing. How are you going to differentiate yourself in the marketplace and compete?
You can do it through products by expanding your product offering. Maybe it is time to go back to audiology’s foundations and have less of a product-based practice and more of a service-based practice. I am not saying you do not need to dispense product, nor am I suggesting that 90% of your revenue comes from hearing aids and 10% comes from services. You need to have a balance.
Research has shown that the most successful patient incorporates more than the hearing aid, whether it is rehabilitation, counseling, strategies, assistive listening devices or accessories. We need to start to think beyond what we can give our patients to not only to balance and diversify our practice, but to offer more to our patient and hopefully improve their individual performance.
Expertise and Service
It is our background and ability to offer this care that differentiates us from new competitors and the disruptions. That is what makes us able to offer things they cannot get from a computer or a big-box retailer, because those are not staffed every day. We need to think about how we can expand the patient experience.
It is through expertise and services that we raise the standard of care. One thing that equal across most unbundled models is that their standard of care is superior to the norm. People are willing to pay for a higher standard of care, because a higher standard of care typically leads to better performance. One of our series presenters’ return for credit rate is less than 1%. She has an extremely high retention rate. Why? She is completely unbundled and has been for 10 years. Why do patients keep coming to her? It is about care.
Promotion and Pricing
Our marketing strategies need to change. When I did marketing, I never marketed product. I marketed and branded the people in the practice and highlighted what made us special in the community. If you market product, patients can price-shop. However, they cannot price-shop care. They cannot price-shop evidence-based practice, quality, professionalism, or transparency. Let’s change how the world sees audiology. Let’s move away from them seeing us and the product as one.
The reality is that most consumers in America tie us solely to the product and not to the care. Maybe that is why we have not seen the awareness of us in the services we provide as much as we would like. Let’s talk about the care and the way we promote ourselves to consumers. We can differentiate ourselves through pricing, unbundling and itemization.
Assistive Listening Devices
There are no audiology practices in my Chicago neighborhood of 75,000 people. I am active in the community, and people always ask me questions about audiology. I volunteer at the Senior Center and hear people say, “I can’t hear in this situation. I need more help in this situation.” Yet, no one ever mentioned assistive technologies to them. That is underutilized technology that we can give that cannot be adequately counseled in an online purchase.
We have failed in so many ways to not think beyond the hearing aids. There are so many things we can offer people to increase the quality of life and satisfaction with hearing aids. I think Dri Aid kits are valuable for everyone, but are they routinely offered to patients? Does everyone explain the value of that?
Tinnitus is another example. One thing I teach to my Au.D. students is to never discount when a patient says that tinnitus affects their life. If a patient reports tinnitus, do a quick tinnitus questionnaire to determine how debilitating it is. If it is at all debilitating, we need to evaluate and treat it. Those are things they cannot get from disruptive forces. This is something unique to us.
What about over-the-counter supplements? We are going to start to see more of that into the equation. If you want to learn about things that are available from a pharmaceutical or from a supplement, I encourage you to look up articles by Cathy Campbell or Dr. DiSogra.
Expertise and Services
We can differentiate ourselves by the expertise and services we offer. Most of these services are cash businesses.
Offer patient education and training programs for nontraditional purchases. What if you put an ad in the paper and said, “If you have a hearing aid and are unhappy, come meet with us.” You can attach any price to that, but you do not have to do a price to be able to market that some people may need help if they got their hearing aid by nontraditional means and need help.
Audiology was built on aural rehabilitation. We think people will not come in for that, but I know many entities that offer aural rehabilitation and have waiting lists for that service. There is a contingent of patients that need and are willing to pay for rehabilitative and counseling services.
Tinnitus/Vestibular Evaluation and Management
The need exists for assistance to someone who is struggling with tinnitus. The same goes for vestibular issues. My friend was diagnosed by a physician with benign paroxysmal positional vertigo (BPPV). The physician referred her to a physical therapist, who could not see her for six weeks. Luckily, I had an audiology colleague in the area who was able to see her that day. Even if you do not provide vestibular testing, you can provide vestibular rehabilitation if you are skilled and trained in the procedures and therapies.
Auditory Processing Screening
My Master's thesis was on auditory processing in the elderly. There is a vast majority of people who are over the age of 60 who have some degree of processing difficulty. Do we ever screen for that, or do we always think that a more advanced hearing aid is the answer? Sometimes the answer is finding out what other conditions underlie the hearing loss.
We need different technologies. We need assistive devices, counseling, and other mechanisms to solve the problems for the patient, not just an adjustment in the widget. These expertise and services can influence patient performance, their satisfaction, and their ability to communicate.
Let’s say you have ten hearing-impaired patients who each paid $100 for a one-hour aural rehabilitation group class. Two patients undergo a two-hour comprehensive tinnitus evaluation and treatment session. Two patients undergo auditory processing evaluation and counseling. Twelve patients have an Epley maneuver for vertigo. Fifteen hearing-impaired patients pay $75 each for an Ear Machine training class.
In each of these situations, you would have made $1,000 in revenue with no charge for follow up, and there is no product cost. Remember we think we are making all this money in the bundled premise of a hearing aid, but you have to provide unlimited care for a finite amount of time for that same $1,000. Are you really making what you think you are making?
I always ask people to run data from their clinic. How many days did you solely perform follow-up without making any additional revenue? That is the question that everyone should examine.
Do we continue to market price when consumers can obtain amplification for sometimes a fraction of the price we are touting? Do we market a commodity when that commodity can be price-shopped and purchased less expensively elsewhere? Do the strategies of old (e.g. direct-mail, newspaper, and yellow pages) hold up in a digital, social-media driven marketplace? I do not read a paper newspaper. If you send me direct-mail, it goes from mailbox to recycle bin. You may spend a significant amount of money for newspaper ads and direct mail that never reach their target.
Are you getting a return on your investment when you can market via computer-based entities that have a much higher success rate at a much lesser cost? Are your current strategies appropriate in a search-engine-optimization (SEO) driven world? Can you open your website from a phone? Can you open your website from a tablet? The way you promote yourselves to patients that see you in a digital world is important.
Does your marketing tell consumers anything about what makes your practice different? How will they walk away from that marketing and pick you? What on your website and in your marketing shows something unique that differentiates you from your competitors and those disruptive forces?
Bundling is when you package all your hearing aid products and service costs, as well as your professional fees, under one pricing code. You do not charge separately for the hearing aid evaluation or consultation. As a result, you receive no payment if a patient does not proceed with amplification. You lose the time you spent.
Why do people keep doing it? It is easy. It is what everyone else does. It can be good for cash flow, especially if you do not have patients that you are seeing all the time for follow-up.
What are the cons? Often, bundling is not priced on anything meaningful. It is some multiplication of invoice. It is not how insurance pays for items or services. We get aggravated that insurance is only going to pay us $900 for a hearing aid. In their defense, they are paying for the hearing aid. They are not paying for three years of something that may or may not happen. I do not defend them very often, but that is not how they work. They are buying the product, not the service or the fitting.
The reality is that you cannot treat your insurance patients differently than you treat your general population. That is a violation of your third-party contracts. You cannot discriminate against their members on price. You cannot make them pay for a service and not make your private-pay people pay for the same service. That is the difference. Insurance is about charging and paying for things as they happen.
Another con of bundling is that you give your patient no choice. There is no transparency. They are going to do what you tell them to do in the manner that you see fit. You have given them no control, no matter their history or loyalty. We know that the more ownership, input, and control the patient has over the hearing aid delivery process, the more they own their hearing loss. Let them be part of this process. As far as transparency, they have no idea what they are paying for. They think they are buying a product. They know nothing about the services because you never explained the services and their accompanying value.
For many, bundling increases their cost. Your best patient that follows instructions, cleans their hearing aid meticulously, does not have repair problems and only comes in once a year for a tube change has paid more for their hearing aids than the person that sees you every week. They have overpaid for your time. Is that fair to that consumer? How would you feel if you were the consumer?
Additionally, there is no reflection of your professional time or the value of your services in a bundled model. You may be collecting less than you need to cover the average patient. If you are seeing a patient every four to eight weeks, are you really making what you need to break even and make a profit? You do not have to be seeing patients all the time to retain them. If they are in front of you all the time, there is a connotation that, “I need help.” Think about what that connotation means to this paradigm.
In a bundled practice, you are including all of the following under a singular code:
- Hearing aid evaluation
- Earmold impression, if required
- Electroacoustic evaluation
- Hearing aid
- Fitting and orientation
- Dispensing fee
- Dome or custom earmold, if required
- Accessories, if provided
- Manufacturer warranty
- Loss and damage coverage
- One year to lifetime of follow-up hearing aid office visits, checks, in-house repairs, and cleanings
Unbundling or itemization is charging separately for each item or service as it occurs in time. It is breaking that bundled cost into an individual piece or aspect of service. It is charging people for what happens when it happens.
Pros. The pros of unbundling are that you are going to set your prices based upon your break- even-plus-profit needs. You are going to collect the amount you need to cover your costs and make a profit for that time spent. The price will better reflect your actual needs, rather than a random multiplication.
It has the potential for increased revenues long-term. Unfortunately, there is not enough data available on the long-term cost benefits of itemization, but the research we do have shows that revenues are increased over where they were prior. That could be from growth or that could be from pricing. However, there is not a long-term decrease in revenues, because you have unbundled. It allows for increased reimbursement in most managed-care situations.
Now that insured patient, just like a private pay patient, can be charged for services or purchase a service plan at acceptance. They will have exhausted their hearing aid benefit through evaluation and fitting. Then they will not have any hearing coverage and will be paying privately for other services. It will make you very price competitive. You will be able to get people into amplification at a much lower cost. It allows for patient choice in how their hearing aids are delivered. They can determine if they want the extended warranty. They can determine if they want the service plan. We do not force them into paying for services they may or may not need. People are willing to pay for their itemized service.
Another benefit to unbundling is that it forces a higher standard of care. The service provided goes beyond the norm, because audiologists are following evidence-based practice to the letter. They are providing a level of care that is unique and that people are willing to pay for. They are truly evaluating the patient and their communicative needs. They are doing comprehensive fittings, verifications, speech-in-noise testing, orientations, counseling and more.
Unbundling allows for potential marketing advantages. It will allow for pricing for online and eBay purchases. You will care less about where the hearing aid comes from and more about the services you provide around that hearing aid; if you can get it unlocked, you can reprogram it. If you cannot get it unlocked, you can evaluate the patient and test their hearing in an ongoing manner. You can do verification. You can counsel them. You can show them how to change a battery. You can clean it. You can replace the dome or ear mold. There are a lot of things you can do to make the patient's experience with a product they procured elsewhere better. You then charge them for that privilege.
Cons. There is the potential for short-term reduction revenue. Some people that I have talked with about itemization recently said that they have not seen the reduction, but I would be remiss to say that it is not possible to see a reduction while you make the transition.
Unbundling does not work with managed-care plans where you have to take a large provider discount of billed charges (up to 50%) or plans with defined warranty, coverage, or number of visits with which you have to comply. Are these types of plans good for your practice anyway? Every insurance plan should be looked at as a unique entity with a cost-versus-benefits list. Sometimes it is in your best interest to be an out-of-network provider and not participate.
Not only will you need to change office policies and procedures, you will need to change yourself. One way for you to fail with itemization is to not believe in it. Do not do it if you do not believe in the premise, because you will be unsuccessful. The decision to proceed should not be reactionary or based on fear. When you make a pros and cons list where your pros outweigh the cons, it is time to proceed down this path, but you will have to make a substantive change in the way you do things from the time the patient calls through payment. Your process and all operations pertaining to hearing aids will have to change. You will have to be comfortable with valuing your service by asking patients for money. If you are not, this is not for you.
Hardest Parts of Unbundling
Analyzing Financial Needs
There is some work that goes into unbundling. The first is you need a strong analysis of your own practice finances, even when you work in an otolaryngology practice or hospital. You can figure your expenses. It will require more work and investigation if you work outside of a private practice, but it is possible.
Go through your QuickBooks or accounting data, print out your expense report, take a black sharpie and mark through everything that you can sell separately; follow the guidelines in the American Academy of Audiology’s guide to itemization (available from the Academy).
Add up everything that is left and divide by 12. This is what you need every month to break even. Then divide that by the number of full-time equivalent audiologists or revenue-generating providers you have. You can break that down to the average number of hours you are available to see patients. You need to know what your financial needs are. From there, you can determine the risks versus rewards of itemization. The first hardest step is having a grasp on your financial needs and on your contractual obligations with third-party payers.
Fear of the Unknown
You can diminish the fear of the unknown if you have a strong knowledge of your financial and third-party commitments. Make a business decision, not an emotional one, regardless of where you work and the current situation.
Fear of Change
My mentor always taught me to learn the rules of the game and play offense instead of defense. Try to think ahead and start pondering these decisions in your mind. You do not have to itemize or unbundle tomorrow, but start to think about it. When you evaluate how the needs of your community are changing, try to overcome that fear of change. Start to imagine what you would like your practice to be. You will be profitable when you put the pieces and place and make it happen.
You have to feel comfortable valuing yourself, your skills, and your time. You have to appreciate what you are giving that patients cannot get elsewhere. Ask yourself, “Am I giving the patients the best I can?” If you are, there is a value to that skill.
Be honest with yourself, and do not gloss over your imperfections. My greatest strength in life is that I am extraordinarily honest about myself and my foibles. You have to be able look in the mirror, see your imperfections and be willing to do better.
Charging in a World of “Free”
You have to charge for testing and hearing aid evaluations in the world of “free.” Let’s be honest; “free” really is not free. It has just been bundled into a markedly elevated cost or it is not that spectacular. If it is spectacular, it is being bundled into a greater commodity cost, or they are providing something so meaningless that they can do it quick for nothing. Be comfortable in what you are providing to your patient.
I invite you think about an optometry model and how they sit down with you, evaluate you, and give your prescription. Think in terms of a doctoring profession rather than the sale of a device. Our profession is the whole patient, and the device is just part of a delivery model. In my visits with the eye doctor, I have always ended up with a prescription, but they have always given me the prescription and told me that I could elsewhere to get the product. That is something we would never think to do.
Be comfortable letting your patients make decisions. Raise the bar in the standard of care you provide. Patients are not willing to pay for the privilege for you to sell them something. They are willing to pay for care, service, your knowledge and expertise, and your recommendations.
We have so many opportunities and ways to differentiate ourselves in the marketplace from hearing dispensers, online retailers and big-box retailers. We have an expanding marketplace opening up, which is to our advantage when we get creative. It is our opportunity to reach potential patients in unique and novel ways. It is time to re-evaluate our business practices to see what makes sense for the current generation of patients, keeping in mind that change can sometimes be for our benefit.
Cite this Content as:
Cavitt, K. (2015, February). An audiologic care delivery model for the 21st century. AudiologyOnline, Article 13377. Retrieved from http://www.audiologyonline.com.