Can you hear me now? A “Seeing Around Corners” early warning materializes

When a sector has hostages, not customers, big problems go un-addressed, people are desperate for help and don’t get it, and a near-monopoly provider community fails to listen, the stage is set for a major inflection point. This is the story of the hearing aid business….until now.

In my book, Seeing Around Corners: How To Spot Inflection Points in Business Before They Happen, I anticipated that the business of hearing aids was in for a major disruption, an inflection point if you will. Here’s what I said in 2019:

“Imagine a sector that effectively serves only 1 in 5 potential customers. Now, imagine a massive change that would allow competitors to capture all that unmet demand, in a highly profitable way, and without taking on a lot of risk. Imagine that the sector, as it is, generates about $8 Billion in revenue annually. The post-inflection point sector could be 5 times that size, meaning that some $45 billion or so in revenue could potentially be unlocked for those competitors adroit enough and far-sighted enough to be at the right place when the inflection point does its work.

Though they are often depicted as disruptive destroyers of existing businesses, inflection points create vast new venues even as they destroy outdated technologies and models. Famed economist Josef Schumpeter said it decades ago – incumbents in a sector are always vulnerable to “waves of creative destruction” that sweep away the old and outdated, and introduce the new and more desirable.”

Hostages, not customers

For decades now, the hard-of-hearing have been hostages to a business model that suited audiologists and manufacturers of the devices, but just about nobody else.  According to researchers, eighty percent of adults between the ages of 55 and 74 who might benefit from a hearing aid don’t have them, and many who do have them don’t use them.

Anyone who has ever tried to persuade an older person who they care about to get help with their hearing (and who hasn’t?) is all too familiar with the negatives of how this corner of the healthcare market is organized.

For starters, hearing aids are expensive. The New York Times reported prices ranging from $1,500 to $2,000 or more per ear. Medicare (and most private insurance) does not cover hearing aids. Barbara Kelley, the executive director of the Hearing Loss Association of America, reports that “The number one complaint we get in phone calls, emails and messages every day is, ‘I need help, I can’t afford hearing aids,’” Ms. Kelley said.

Near-monopoly conditions preserved by restrictive regulations

The traditional hearing aid business has been regulated by the U. S. Food and Drug Administration. Access to the technology is tightly controlled by incumbents. Audiologists, their lobbying associations, and the few (five) companies that manufacture hearing aids have strictly limited the options available to patients.

The incumbents insist that what all patients should get is the “gold standard.” As one observer described it, this involves buying a hearing aid only after a thorough diagnostic evaluation that includes otoscopy and bone conduction testing, speech-in-noise testing, real-ear measurement/speech mapping, aural rehabilitation, and hands-on hearing aid fitting.

Even if you have the means, for many people this seems like overkill.

This is serious stuff. A study by Frank Lin of Johns Hopkins found that hearing loss is associated with an increased risk of developing dementia, of social isolation and even of an increased risk of falling. Uncorrected hearing loss makes eventual treatment even harder, and increases the cognitive load of the brains of people struggling to make out what others are saying.

Clearly, this is a social and health problem of epidemic proportions.

An inflection point begins… but as always, it happens two ways: gradually, then suddenly

Nonetheless, the hearing aid business model has remained more or less the same since the FDA classified hearing aids as medical devices in 1977. Before then, hearing aids were treated as a consumer product, with some hilariously bad and misleading advertising and celebrity endorsements to go along with that positioning. The FDA eventually classified hearing aids as medical devices, with extremely strict protocols for their manufacture and dispensing.

The current inflection point for the highly regulated (and profitable) hearing aid business had its roots in two Citizen’s petitions filed with the FDA in 2003. An FDA citizen’s petition is a process provided by the United States Food and Drug Administration originally intended to allow individuals and community organizations to make requests for changes to health policy. While the petitions themselves had no immediate impact on the way hearing aids were regulated, they were early markers of a shift in sentiment that would move hearing aids toward the same over-the-counter (OTC) access currently used for reading glasses, e.g. corrective lenses that could be sold without a prescription.

The incumbents haven’t been eager to back down. No less than the American Academy of Audiology basically suggests that any device that amplifies sound should be subject to FDA regulation. Taken literally, their position could be seen as requiring such regulation for everything from earbuds to headsets.

The Academy aside, the cost to consumers and the intransigence of incumbents has led to an odd coalition of bedfellows determined to change the system. Republicans like the deregulation and greater personal choice aspect of the change, indeed, legislation requiring the FDA to create an OTC option was signed by President Trump. Democrats like the social good aspect of the legislation, introduced by liberal senator Elizabeth Warren. Advocates for the hard of hearing have been pleading for such an option for years.

Physicians support anything that will potentially create greater access for people who are older, poorer or who live in rural areas that tend not to have easy access to trained audiologists. As Vinay Rathi, a physician at Massachusetts Eye and Eer puts it, “More than 30 million people suffer from some sort of hearing loss, and hearing is so vital to what we do, your ability to communicate with others is a huge part of your quality of life. We’re really denying people that sort of basic right, which is the ability to communicate with others, because of issues related to cost and access to audiologists.”

The FDA hasn’t exactly been in a rush to create the new rules, despite pressure from Presidents Obama, Trump and now Biden. As the Washington Post reports, “Reducing health care costs for everyone in America is a top priority,” said Health and Human Services Secretary Xavier Becerra said in a statement on Tuesday. “Today’s move by FDA takes us one step closer to the goal of making hearing aids more accessible and affordable for the tens of millions of people who experience mild to moderate hearing loss.”

The highly protected incumbent manufacturers are, of course, grumbling.  Deregulation could destroy the “reputation” of hearing aids if bad actors sold people sub-par devices, they say. Hearing aids are much too complicated for ordinary people to wear.  Hearing is not like eyesight – there is much more going on between people’s ears and their brains than simply turning up the volume will fix. Customers can’t diagnose their own hearing losses effectively or program the devices themselves.

In other words, like so many incumbents staring down a looming inflection point, they are basically in denial

The soon-booming market for over the counter hearing assistance devices

Meanwhile, a bevy of new entrants into the sector are salivating at the prospect of billions in new revenue as people who were shut out of the hearing aid market become active consumers. Apple, Bose, Eargo and many others are moving, quickly, to prepare to enter the soon to be expanding market. 

Although a long time in coming, it looks as though this inflection point in how regular people who need assistance with their hearing is finally arriving. So, what can we anticipate will happen next? Prices for most devices will drop. Many consumers with mild to moderate hearing loss will become customers. The stigma of having devices stuck in your ears will disappear (I mean, AirPods are cool!). There will likely still be a market for those who have serious problems to see trained audiologists and get more advanced care. But we can anticipate that the incumbents are going to find this transition to be painful. 

I’ll let Emily Stewart over at Vox have the last word:

Congress passed legislation greenlighting that four years ago; it just hasn’t happened yet. If and when it does, the hope is that it lets more competitors get into the space with lower-cost offers that people will more easily be able to access. It seems small, but it has the potential to meaningfully improve millions of people’s lives. The hearing aid makers in control now still get to exist, just on a more level playing field.

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