Is the high price of hearing aids due to production costs? The actual cost to produce a hearing aid is difficult to determine from the hearing aid manufacturers. Lucille Beck, Director, Audiology and Speech Pathology Service, Veterans Affairs, reported in 2011 that the VA dispensed 561,212 hearing aids in 2010 (about 20% of all hearing aids dispensed in the U.S. that year). The average manufacturer cost of a hearing aid to the VA was $348.15.
How much does a typical practice pay for hearing aids that they dispense? A typical practice’s average wholesale cost of a hearing aid is currently approximately $1,200 each ($2,400 per pair) and the average retail selling price is about $4,200 per pair. This equates to over a 600 percent markup from the estimated manufacturer production cost ($700 or less per pair) to retail ($4,200 per pair) for a pair of hearing aids. The high cost of hearing aids is therefore not due to production costs. The high cost of hearing aids is due to the combination of an average $750 markup from the manufacturer/buying group and a $1,200 - $2,000 retail markup by the hearing professional.
Is the high retail markup of hearing aids due to the time spent in fitting/dispensing them? The average number of patient visits to properly test hearing and fit hearing aids is 3 office visits of approximately one hour duration each. The audiologist/dispenser typically spends an additional 1 hour for the hearing exam (audiogram) and initial consultation, resulting in total of about 4 hours per hearing aid fitting per patient. Many audiologists/hearing aid dispensers typically include unlimited free office visits for adjustment, repair and routine hearing aid service during the trial period (usually 30-45 days) and sometimes for the lifetime of the hearing aid (5-6 years). All of these office visits and personnel costs are typically bundled into the initial price of the hearing aid(s) resulting in higher retail prices.
It’s a frustrating dilemma. Why have digital improvements that have given us get cheaper smartphones, flat screen TVs, laptop computers, and tablets only caused the price of hearing aids to increase---and typically for a retired population on fixed incomes? In my research, I came across an interesting comparison which looked at the production costs/profit margins for an Apple iPad versus a hearing aid called, “Why Does a Hearing Aid Cost Six Times more than an iPad?” Below is that cost breakdown comparison. It was written by Ed Belcher and Patrick Freuler. The authors performed a detailed cost structure analysis of both an Apple iPad and a premium hearing aid. In their comparison, they found that although the actual production costs for each device is similar, this accounts for only 8% of a hearing aids retail cost (production + R&D + marketing + overhead + retail markup) versus 55% of an Apple iPad’s retail cost. The huge difference in retail price (approximately $500 for an Apple iPad versus $3000 for a premium hearing aid) is mainly due to the retail markup of 15% versus 67% respectively.
So, the answer to the question “Why are Hearing Aids so Expensive?” is mainly due to markup at both the wholesale and retail levels. The U.S. market penetration for hearing aids is only 25-30% in those who need them; therefore, each retailer only sells a fraction of the potential number of hearing aids which could be sold. If most of the people who needed hearing aids actually bought them, I believe that the cost structure would be vastly different. The 25-30% of people who do purchase hearing aids (despite the high prices), cannot function without them and would have to live with a severe hearing disability if they did not purchase – this means that, frankly, they could not function well without them and are forced to buy—regardless of price. So what does that mean for those individuals with mild or moderate hearing loss? Well, they can often "get by" without them, so they put off the purchase an average of 7-8 years from when they first notice a hearing problem until the degree of hearing loss worsens.
I believe that the solution to the problem of high hearing aid prices lies in "Fee-for-Service" pricing of hearing aids at the retail level. This pricing structure allows for a reasonable retail mark-up of hearing aid prices from wholesale ($200-$300 per aid) and a small co-pay ($40-45) for each hearing aid office visit after the initial trial period (30-45 days) has expired. A handful of hearing professionals have adopted this reasonable cost structure nationwide. I have seen some amazing results with this new pricing structure in my office and many patients have benefited. The results are published in my new book. Look for more information regarding hearing aid pricing in future posts.