WHY ARE COSTS SO HIGH?

In fall 2015, the President’s Council of Advisors on Science and Technology (Digital hearing aids manufacturer)—a panel of 19 academic scientists and industry leaders who act as an advisor to President Obama—reviewed issues of hearing aids and ARHL as part of a wider study of how technology might improve and enhance life for older people. Noting the high prevalence and low ownership rates, PCAST identified cost as the key barrier to ownership and linked high cost to two interrelated institutional factors: (1) the noncompetitive hearing aid market and (2) inefficient hearing aid distribution channels.

The past two decades brought dramatic price reductions in consumer electronics, along with the development of ever-better digital devices. But this hasn’t happened in the hearing aid market. PCAST attributed this failure to market concentration: innovative entrants are unlikely in a market in which six companies produce 98% of devices worldwide. Although the information is tightly held about costs and margins within the supply chain, the components of a hearing aid cost about $100.

Audiologists and hearing instrument specialists are the primary distributors, often selling through private offices (although increasingly they compete with big box stores and online vendors). But private audiologists face manufacturers’ pricing protocols, and dominant manufacturers often hold exclusive or close relationships with practitioners. This makes it hard for new firms to enter the market. It also means that consumers are often unable to compare a full range of products before making a purchase. Consumer choice is further blocked by opaque pricing practices: under the prevalent bundled service model, patients pay a lump sum that covers the initial evaluation, fitting, and purchase of the device as well as follow-up visits for adjustments and oftentimes batteries. Many consumers do not use follow-up services, and those services comprise the bulk of the bundled fee. In sum, the cost of hearing aids is out of reach for many, and current arrangements do not support competition, innovation, or consumer choice.

PROPOSALS FOR REGULATORY CHANGE

In PCAST’s estimation, a small set of regulatory changes could help overcome much of this inefficiency and undertreatment and bring prices down (see the box on the next page). Foremost is a proposed change in the Food and Drug Administration (FDA) regulation to create a new class of over-the-counter (OTC) “basic” hearing aids to be targeted at people with early (mild to moderate) ARHL. These would be sold in much the same way as OTC reading glasses. Creating an OTC market would foster competition, broaden consumer choice, and drive down prices. It could also normalize hearing loss and wearing in-ear devices by bringing device purchases into the consumer mainstream. Finally, vigorous competition might spur the development of more appealing, less prosthetic-looking devices—an innovation that has largely eluded the hearing aid industry to date.