Third Party Payers…the Silver Bullet?
The delivery of hearing aids has seen many changes over the past 60+ years. The business of hearing aids has always been one from a relationship standpoint between the provider and the patient until recently when third party administrators (3PA) got involved in the process and became an intermediary between insurance companies and the provider and/or simply offered discounted products to the public. We will dive into a little history, how 3PAs work, as well as discuss where we are headed, and I will do this as objectively as possible. Note, although audiology has many different sub-specialties, I will focus solely on the hearing aid relationship with 3PAs.
Although audiology has been around since the 1940s, when Raymond Carhart coined the term, it wasn’t until the 1970s when the profession started growing significantly. At the time, audiologists were forbidden to dispense hearing aids due to regulations by the American Speech-Language-Hearing Association (ASHA), our sole national organization at the time. Most audiologists were employed in otolaryngology offices, testing and making hearing aid recommendations, then sending the patient to a hearing aid dealer. ASHA at the time felt it was a conflict of interest for an audiologist to fit a hearing aid.
The relationship between the patient and the provider was essential, as hearing aid fittings were not a transactional relationship; Patients did not purchase hearing aids, never to be seen again. It was obvious to most providers, that continual follow up was key in a successful hearing aid fitting. The issue was how to capitalize on all the time it took for all of this follow up, as time is money. Seeing a patient for a routine clean and check on their hearing aids takes 15-30 minutes. The business still must pay overhead to keep itself afloat.
The bundled hearing aid model was born. The basic formula was: Hearing aid(s) + Services + Batteries + (insert additional items here) = Total cost to patient. For many, this made sense, provide the product, service, your time, and the businesses were profitable. The businesses stayed profitable due to a direct patient to business financial arrangement. Many insurance companies did not cover hearing aids at the time. Cash or check, no middle-man.
Fast forward to the 21st century. With the influx of the baby-boomer generation hitting 55+ years of age, the number of hearing impaired increased and the demands for coverage also increased. Some insurance companies fully covered or partially covered hearing aids. However, the sheer number of claims along with costs became a financial and logistical problem for many of these companies. Using a single source for payments along with consistent pricing seemed like a good idea. Thus, 3PAs were born.
Some 3PAs started with workman’s compensation claims, but, wiggled their way into insurance contracts. The fundamental idea was a patient would call their insurance company, who would direct them to the 3PA. The 3PA would refer the patient to a network provider (someone who has agreed to the terms of their contract) for the 3PA. The provider would test the patient (sometimes at no cost) and make a hearing aid recommendation from a list of models. After the hearing aid fitting, verification and follow-ups were completed, usually 45 days, a fitting fee would be issued to the provider. The provider would agree to see that patient a number of times during the year, however, after the year was up, the provider could charge a set fee (dictated by the 3PA) to the patient for services. Sounds great…right?
Many providers who were contracted with certain insurance companies felt obligated to sign up for these 3PAs, since they were contracted with the originating insurance company. Some decided it reduced on the marketing costs of trying to acquire a new patient. Others signed up in fear that if they did not participate, they would go out of business. Are these providers correct to fear 3PAs? Let’s break down the financial scenario from 2 options. To avoid any price-fixing issues, we will use a hypothetical example of dental work. This patient needs two veneers.
In this scenario, we will use the payment amounts from a specific 3PA (real example) We will add the fitting fee, diagnostic, and an assumption of 2 visits a year for routine appointments or emergencies, for a total of 5 years.
Cost to patient: $3600 (no insurance reimbursement)
Veneer fitting fee: $1300 ($650/tooth)
Cost of goods: $0
Follow ups after 12 months: $20 per visit (no matter what was performed) =$40 per year
Acquisition cost = $0.00
$0 + $1350 - $0 + $160 ($40/year x 4 years (first year included in fitting fee)) + 0= $1510*
An alternative option, the bundled approach for the same set of veneers that were offered through the 3PA.
Cost to patient: $5000
Evaluation: $80 (billed $300 to insurance)
Veneer fitting fee: $5000
Cost of goods: $1400
Follow ups after 12 months: $0 (included)
Acquisition cost = $300 (for example purposes)
$80 + $5000 - $1400 + $0 - $300= $3380*
*Overhead such as rent, utilities, staff, etc, must still be paid.
The elephant in the room is the difference in revenue. In this example, by going the 3PA route, this clinic would lose ~50% of their revenue, with every patient that ordered veneers. Essentially, they would need to see almost twice as many patients to make up the revenue loss, and remember, overhead would still need to be paid.
There is a great deal of discussion about not participating in 3PAs due to the lack of audiology diagnostics. A free hearing test may not reveal medical contraindications that could be missed from a free ‘test to determine if the patient needs hearing aids’.
The idea that 3PAs are the future of hearing aid delivery is arguable. Can 3PAs continue to offer a sustainable delivery model when audiologists and hearing aid dispensers continue to see a decline in reimbursement? Will the idea not to participate kill private practice audiology in the end? How will clinics compete with the low prices, or even full coverage, that 3PAs offer? Regardless of the outcome, one thing is for sure, with the increasing number of 3PAs in a competitive market, the delivery of hearing aids will never be the same.