Hear USA

Source: Healthcare Digital

Date :5/25/2007 4:11:47 AM

Hear USA: Preserving the World of Sound

Written and produced by James Buchanan & Patrick Harlow

Through acquisitions and a broad net approach, HearUSA is seeking to serve the hearing care needs of an aging demographic

With all of the changes brought on by the aging of the Baby Boom generation have come multiple opportunities. Perhaps none is more on people’s minds than the increased need for health care resources.

For HearUSA Inc., based in West Palm Beach, Fla., providing hearing care and devices for this generation means future growth for the company and increasing awareness of the fundamental necessity for good audiological care.

“There are 31 million people in the U.S. with hearing loss of some kind, but only 20 percent actually utilize a hearing device who should,” says Ken Schofield, COO of HearUSA. “This means a huge market is being underserved.”

One challenge of bringing its services and products to this underserved community, however, is the negative image associated with the wearing of hearing aids.

“There isn’t good public awareness, and there is a perceived stigma to wearing a hearing aid. It’s seen as a disability,” says Schofield. “Most people deny they have a loss, and most times it is complaints from members of their own family – wives, husbands, sons, daughters – that gets them out to do something about it.”

To overcome this stigma, HearUSA participates in a number of outreach efforts with managed care partners in the markets it serves to make people aware of the benefits of addressing hearing health issues.

The latest, and perhaps largest, of these efforts was the announcement on May 7 that the company has signed on former Miami Dolphins head coach Don Shula to be its spokesman for the company’s “Just Find Out” advertising effort.

According to the company’s press release, the campaign is designed to target adults 45 years and older, and will be conducted through television, print, and direct mail, all featuring Coach Shula. All of the advertising components are designed to convey the reasons for this targeted population to learn more about their personal hearing health.

“The objective of the campaign is to inform consumers about the importance of hearing and to promote the professional medical services offered at HEARx [a subsidiary of HearUSA] hearing care centers,” says Paige Brough, senior VP of corporate communications. “The ads will focus on an enhanced quality of life that comes with better hearing, like being more engaged in conversations with family members.”

As such, HearUSA has worked diligently to place itself in position to provide hearing care throughout North America. According to Schofield, one of the primary tools the company has relied upon is acquisitions.

In 1987 HEARx was founded in West Palm Beach and began growing in a number of markets primarily through partnerships with managed care companies.

“We grew, and then in the late 1990s we were approached by California-based Kaiser-Permanente, a health care organization with approximately 2.5 to 3 million members, to provide hearing care for them in a 50/50 approach,” says Schofield. “With that agreement we created HEARx West to promote that venture.”

In 2002, the company acquired Canada-based Helix Hearing Care, which also held a U.S. based company called HearUSA, Schofield explains. This subsidiary of the larger Canadian company held a network of affiliated mom & pop hearing care providers in a number of regions in the U.S.

To organize all of these distinct entities the parent company (HEARx) changed its name to HearUSA. Under this title, the company operates a number of hearing care clinics in Mass., Mich., Mo., and Ohio.

Subsidiaries to HearUSA are HEARx, (which operates in markets in N.Y., Fla., and N.J.); HEARx West, (which operates in Calif. in its original capacity); and HELIX, (which operates clinics in Canada).

According to Schofield, all of these organizations provide essentially the same functions – prescribing and dispending hearing devices – but have so far retained their names in order to leverage existing brand recognition in their relative markets.

“The policies, procedures, and processes are the same for all of the brands. The only difference is the store front and signage and what gets printed on the invoice. Other than that, from an operations perspective it is all the same,” Schofield says.

All told, the company manages approximately 165 clinics in the U.S. and Canada, with about 25 of those located in Canada.

The clinics primarily provide routine hearing aid tests, and if the hearing loss is significant enough the clinic will prescribe a hearing device, Schofield says.

The company does not manufacture the devices. Instead, HearUSAhas agreements with a number of manufacturers to provide these devices for it’s customers. Of these four or five manufacturers, Schofield says the largest by far is Siemens Hearing, which handles 90 percent of the company’s business.

In turn, Siemens has helped HearUSA fund its acquisitions. “As we grow, they grow,” says Schofield. Siemens does not hold any equity in HearUSA says Schofield, but after recent negotiations of their contract, in three years Siemens will be able to purchase up to 20 percent of the company’s equity.

“They may or may not elect to do that, though,” adds Schofield.

How the partnership works, he says, is, “The majority of hearing aids sold are custom made products. We make an impression of the ear and send that to the manufacturer who makes the hearing device to order and sends it to us. We fit it to the customer’s ear and program it with a computer to match the hearing loss of the specific patient.”

While Siemens is the company’s primary manufacturer, it does have relationships with a few others. One of these is Phonak.

“Some of our customers may say no, they don’t want their device from Siemens,” says Schofield, “or the customer doesn’t like the product for some reason, so we will try another manufacturer. Phonak also seems to do a bit better with pediatric devices, which gives us more flexibility to meet our customer’s needs.”

Schofield adds, “In that sense, we can order from anybody we want, but it costs us a bit more, since we get a better cost of goods with Siemens.”

While the supply lines run smoothly, HearUSA is challenged by a shortage of professional audiologists to work in its clinics and serve its patients’ needs.

“Back in the day there was a lot of hearing device dispensers that just bought and sold these devices,” says Schofield. “As managed care and Medicare came to predominate, the market started to shift to audiologists, which are accredited medical professionals. Now, there aren’t enough of these audiologists going through the education system to meet the need.”

Consolidation of the market has also exacerbated the need.

According to Schofield, 10 to 20 years ago there were hundreds of manufacturers operating throughout the U.S. Today there are maybe six or seven that control 80 percent of the market, and they have been growing through acquisition as growth in the market has remained relatively static.

“Over the last five years we have seen the distribution side consolidate as companies like us are growing through acquisition,” says Schofield. “In the last year, manufacturers have been looking to acquire distributors in order to vertically integrate their businesses; manufacture as well as own clinics.”

Schofield goes on to say that most of the six or seven largest manufacturers are doing this, with the notable exception of Siemens. The result is, consolidation has driven some audiologists out of business, and one of the reasons some choose to leave the business is they have trouble adapting to their new parent company.

“When we acquire companies and their professionals elect to stay on, there is generally a difficult transition for them from a mindset of being their own boss and an entrepreneur owning their own clinic, to being part of a larger, more structured organization. The structure is what really gets them,” says Schofield. “It is, however, very important to us that we are able to retain these people as they have relationships with doctors that refer patients to them and their patients are loyal to these people.”

HearUSA has a good record of being able to keep these networks of patients within the company fold after an acquisition, adds Schofield. He says the company shoots for a 90 percent retention rate, and so far the company has been largely successful in that.

The last reason he cites for a shortage of audiologists is the recent move by the audiology community to move from a master’s program to a doctoral program, which adds another year or two to the education these professionals require and increases their salary range.

Despite these challenges, says Schofield, the company is continuing with its rather aggressive acquisitions program. In this year, the company estimates it will conduct $12 to $15 million in acquisitions, which is down slightly from last year’s $16 million. Revenues for 2007 should hit about $100 million, Schofield says.