Reactions to the BIG Hearing Cartel Expose: "Quite the sh** storm"
Finally, there's open discussion about the hearing aid cartel.
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When I write about market power in specific industries, it often generates massive discussion within the industry. The cheer world, for instance, exploded in dialogue when I exposed how Varsity controls cheerleading, because I offered the moral framework of monopoly to show that their frustration wasn’t just whiny complaints but was situated in exploitative use of market power.
Similarly, my piece on the hearing aid cartel ricocheted inside the audiology world. A bunch of hearing aid users and audiologists contacted me privately with both praise and anger. As usual, several of the people saying ‘you got this right’ also said ‘don’t mention my name publicly I’m afraid of retaliation,’ which is, sadly, too common in American business. Here’s Johns Hopkins professor and hearing loss expert.
Clearly the analysis resonated, with leading hearing aid expert Dr. Abram Bailey saying on LinkedIn that it will “create quite the sh** storm.” In fact, the whole thread of comments from practitioners in the industry is interesting.
Manufacturing Costs Are $40 to $80
Frede Jensen, an engineer in the UK, noted the manufacturing costs are between $40 to $80 for hearing aids, though it’s important to note that production costs are only one part of the process of selling a hearing aid, and the actual device cost doesn’t include the critical services of a trained audiologist. Still, that amount is far lower than what people in the U.S., and other nations with similar setups like Australia, pay:
Regarding the NHS. Public data shows they, with their approved agents, buy 1 million+ mid-range hearing aids p.a. at an average price of USD78 each (to which they must add their own fitting overheads). This reflects the unit manufacturing costs of USD40 for basic to USD80 for advanced wireless models, including direct and R&D overheads.
The NHS contract hundreds of thousand basic hearing fittings (to the gold standard protocol, with REM, follow-up and 3 years patient management) to the private sector, including to Specsavers, at around USD450 for a single or USD600 for a binaural referral - although this can vary slightly between different local health authorities. This includes the cost of the hearing aid(s).
Jensen’s observations are confirmed by this market analysis by the Global Partnership for Assistive Technologies on the worldwide market for hearing aids. Some remarkable stats:
The five largest manufacturers control 90% of the market.
These hearing aid firms have “earnings (before interest and taxes) margins of around 25% and gross margins of around 70-80%.”
Acquisitions of smaller promising companies by the Big 5 keeps the market consolidated.
These firms use “strong bargaining power with audiologists and can leverage exclusive contracts with them in exchange for discounted pricing.”
These firms use lock-in strategies. “Each supplier has its own proprietary fitting software, complicating the learning process for audiologists when they to shift to another supplier.”
At $4800 for two hearing aids, buying hearing aids is “the third largest purchase for many after a house and a car.” These firms bundle the device and the fitting/medical service, making it impossible for consumers to understand what they are paying for.
The UK government buys hearing aids at $68/apiece, versus the wholesale price to retailers and audiologists in the U.S., which is between $300-600. That is eight times the price.
The Big Five focus almost entirely on wealthy countries, leaving hearing loss in the developing world largely untreated.
There’s more. Independent audiologist D’Anne Rudden discusses the cartel and price discrimination.
As a truly independent audiologist and a small private practice owner, I feel like this is spot on and it is frankly refreshing to get support instead of condemnation in the equation. My cost of goods is ridiculously inflated probably because I will never be able to do the volume of big box or the VA. And because I refuse to agree to purchasing quotas or limit to one particular manufacturer, the only way I can get any kind of discount is to be in a group…but now many of those groups are also owned by manufacturers. I finally joined a cooperative where the providers own the group (like Ace Hardware independents did to compete) which has helped. Just want to be paid fairly for my expertise and not be price gouged by product manufacturers. The squeeze on independents is real and deserves attention before the consumer looks around and wonders why they no longer have trusted professional care to lean on.
And then there’s the patent pool, with Austrian medical device executive Tarik Zukic discussing the Hearing Instrument Manufacturers Patent Partnership.
Concerning HIMPP, it was founded when the industry switched from analog to digital and faced a minefield of digital patents - including one from 1978 that claimed use of an ADC in a hearing aid. (Maybe someone here can share more details about that story?) Having had that experience, manufacturers chipped in to form HIMPP and buy any outstanding "non practicing" patent that might become a future threat.
In the meanwhile this defensive character of HIMPP has lost its initial meaning.
Today, most of the vital patents from HIMPP have expired and the remaining patents are not necessary for building a hearing aid. A significant part of the collection consists of diverse "bankruptcy assets". That explains the relatively modest royalty price of 1% of the device sales.
But being a part of HIMPP has a reason outside of patent law: it is a membership in a club of traditional hearing aid makers, a "non aggression pact", a declaration of tolerance.
Patent litigations in the hearing aid industry are not frequent, but there have been a few that reveal the common practices. Telling examples are the David vs. Goliath story behind the "receiver in the ear" and the non practicing entity winning in "feedback cancellation" process.
Someone also pointed to this piece on the role of patents, which shows that it’s a clear barrier to entry.
"Anyone outside the industry who is trying to bring a hearing aid to market today will be prevented by patents. Of course, Samsung can buy Sonova or William Demant Holding tomorrow if it wants to, and get on the market that way. But otherwise it is not possible due to patents," said Martin Blecker, head of the European Trade Union Confederation.
Finally, someone else pointed me to this interview with the President and CEO of Starkey, Brandon Sawalich. Starkey has been spending millions of dollars since 2016 on lobbying and political contributions.
The whole interview is an excellent overview of how executives organize their businesses around political leverage. Clearly Sawalich is passionate about hearing loss, and sells his firm well. Here’s part of the transcript on the new political part of his job.
It’s about educating and having the conversations with the members of Congress, Senate, I’ve had several calls with the White House, some staff at the White House, and you’ve got to just be repetitive because when you’re tired of hearing yourself talk and having these conversations, it’s just now maybe sinking in on the reality. There’s so many things going on in DC that this is, you know, one of a lot. But it’s also explaining to not just the member of Congress, or the US Senator, it’s also talking to the staff, because it’s the DC staff that you want to build that relationship for the long run for all the right reasons, and educating them on hearing healthcare, because some may be around a lot longer than members of Congress. So you have to think, big picture. And that was my biggest one of my biggest learning lessons in the OTC discussions in ’16. And ’17 is the audience and you have different members in the audience that you must build relationships and talk with talk to.
Finally, I got this very cool chart of the hearing aid oligopoly from Hearing Tracker.
This has been going on for a long time. I was training to be an audiologist in 1977. The teacher explained the cartel setup, and admitted that the prices were 10x what they could be. I decided not to go into that part of the field, and ended up doing software and courseware.
"the manufacturing costs are between $40 to $80 for hearing aids, though it’s important to note that production costs are only one part of the process of selling a hearing aid"
There are probably hidden costs we don't know about like buying a new fleet of yachts every few months. Every smartphone has a microphone (which can be used in speakerphone mode to pick up sounds in a room) and can have ear buds connected to it. I'd like to see a phone app that takes microphone sounds and processes them if necessary (attenuates and amplifies certain frequencies if necessary like a stereo equalizer) and then routs them into the earbuds - a poor quality but cheap substitute for a hearing aid. A hearing aid hack might be one way to solve the problem (of old people remaining deaf because of monopolies) until effective anti-trust actions kick in. disclaimer: I don't know if it would be legal or possible .... it would be important to check first or suffer the wrath of the corporatized "justice" system.