Why Does a Hearing Aid Cost Six Times More Than an iPad?

Posted on May 17, 2012 by Patrick Freuler | 45 Comments

hearing-aid-costs-audicusThis guest post on hearing aid costs was contributed by Ed Belcher*, who put together this eye-opening, neat piece of analysis.

Did you ever wonder why a hearing aid costs up to 6x more than an iPad? Peeling the onion on the cost structure of both devices reveals an eye-opening comparison into the dynamics of either industry. It can provide us with pointers on where the future price and cost tags could shift and should.

Hearing Aid Costs vs iPad Costs

Let’s assume a high-end hearing aid costs $1000 to the audiologist when he/she buys it from the manufacturer and consequently gets sold for $3000 to the consumer. Now if you dissect the $1000, based on a study by the German Competition Regulator, the following total cost breakdown emerges:

audicus-hearing-aids-costs

Now, let’s take a closer look at the iPad: a recent study at the University of California, Irvine took a closer look at the cost structure of a regular iPad and came up with the following segmentation:

hearing-aid-costs-audicus 

Bear with us, as we plot these numbers on a chart:
hearing-aid-costs-audicus

The manufacturing and distribution costs of a hearing aid are upside-down in comparison to the manufacturing and distribution costs of an iPad.

The iPad is subject to hard, unfettered competition. Its manufacturer profit, marketing, R&D and dispensing costs combined take up 45% of the retail price.  The production cost takes the balance (55%) of the retail price.

Most hearing aids are made by the Big-6 consortium which shares patents and does business in a mutually beneficial way.  The prices of hearing aids sold by dispensing businesses are around 3x their wholesale cost.  In that case, the production cost of a hearing aid comprises only 8% of its bundled price.  The remaining 92% is made up mostly of dispensing fees, administration salaries, and profits.

Granted, the market structure is different for both products. For instance, the sheer sales volumes of iPads far surpass those of hearing aids: Apple sold 3Mn iPads in the first 72 hours of its recent launch. By contrast, 3Mn units are what the entire hearing aids industry sells in one year. This sales volume allows for different economies of scale, especially when it comes to retail.

Furthermore there is a more involved service component attached to hearing aid dispensing (however not as much as what is traditionally claimed). Hearing aid dispensing, based on personal experiences when shopping in varied businesses for hearing aids, took 1 hour for the exam and discussion of HA options; 1 hour for fitting and training; and up to 2 hours for up to four 30-minute adjustments/training, a total of 4 hours of contact time. Assuming $100 per hour, consultation should yield a total of $400 in dispensing service fees.

In any case, the comparison is still startling and should raise questions on whether the industry and hearing aid costs are really operating at its most favorable level for the consumer. Let’s look at the next piece of analysis.

Hearing Aid Costs With an iPad Cost Structure

The aforementioned hearing aid that a dispenser buys for $1000 costs about $250 to make, as we saw with the previous example. So we start with the $250 production cost.

If the iPad-structure were followed based on the $250 production cost (i.e. 55% of the total) then:

-       the final retail price for one hearing aid would be $250 / 0.55 = $455

-       If the specialist sells two aids for $455 each and adds $400 for four hours of service, a pair of high-end hearing aids would have a price of $1,310

Let’s pause here and put this figure into perspective: $1,310 is equivalent to 22% of the traditional $6000 for the same pair!

What does this calculation imply on the audiologist revenues per customer? The $455 retail price includes a 15% markup (same as the iPad) of $68.25/aid. The total proceeds to the dispenser is 2*$68.25 + $400 = $537 for each customer served.

The questions that remain are thus:

  1. Can industry prosper and sell aids for $387 (0.85*$455)?  After all, they have sold millions of aids to the VA with prices decreasing from $375 to $333/aid from 2004 to 2011 respectively, according to Lucille Beck, Director of Audiology, VA, and The Hill
  1. Can a specialist prosper with a 15% commission for aids sold and with a $100/hour rate for services (normally 4 hours) during and after the sale of the aids (i.e. $537 of proceeds per customer)?

Tell us what you think; we would love to hear your opinion!

Read more about the hearing aid costs.
______________________________________________
* Ph.D. EE, Career researcher (retired) in underwater acoustics at the University of Washington

Sources: German Competition Regulator, The Economist, MSN Money, Lucille Beck, Director of Audiology, VA, The Hill

Posted in Affordable Hearing Aids, Audicus, Hearing Aid Cost, Hearing Aid Costs, Hearing Industry


25 Responses

Robert
Robert

July 22, 2014

Interesting to read how we compare similar high-tech products in different user markets. In which I believe is not fair to the consumer. The basic principals of business are positively correlated in each industry, even cost structure. The basic principal/benefit to supply and demand is to build quantity to lower your cost, even is you are building an ipad. Whenever you mass produce anything, ipad, hearing instruments or widgets you are going to have your cost to scale in your production. Therefore I believe the philosophy in comparing an ipad and hearing aids is somewhat flawed. Remember, Apple avoided producing a self funded dividend so it would not have to move capital to US from Europe and incur a 38% corporate tax hike on that capital. So, Apple borrowed the money at a 1.5% rate and paid their investors. My point is Apple has a larger margin on its product then what is being assessed.

Therefore correcting the model stated above with the difference in cost the two products are financially similar in nature. If you were to put in front of a person with hearing loss an ipad and a set of hearing aids which would the individual choose? My guess would be the ipad, because you can always turn the volume up on the ipad and compensate for the hearing loss. And, the ipad is cooler then hearing aids.

Justin
Justin

July 09, 2014

What so many people have failed to mention is how the technology has changed with each generation of products. 20 years ago, the number of people who found success with hearing aids of the time period was staggeringly small. In the neighborhood of 20-30%. Customers properly fit with current model, premium technology are experiencing success rates upwards of 80-90%. Why do you think that is? It is because the technology has improved immensely, even within the last 3-5 years. Those improvements aren’t just the size of the devices, but the level of clarity and speech understanding. Devices are also more durable than ever thanks to hydrophobic coatings that prevent corrosion and degradation. Comparing a hearing aid to an ipad is ludicrous. An ipad is not typically used constantly for 10+ hours per day, as hearing aids are. An ipad is not used in a 98.6 degree, humid environment that is constantly shaking and moving, as hearing aids are. And ipads do not require any real training to learn how to customize. My 3 year old figured it out in a few hours. But a 3 year old cannot begin to understand how to program a hearing aid. In addition, size DOES matter. Lets see how well all of those electronics inside the ipad work if we miniaturize them down to fit inside a hearing aid. Imagine paper-thin ipads…. Don’t you think the price might go up a little bit? In addition, as pointed out above, the article doesn’t take into account how many customers each day walk into my office needing hearing aids and refusing to buy them, AT ANY PRICE. Just for my own personal information, I have offered customers $6000+ hearing aids for $500, and the customer will still insist they cannot afford them. If that is truly the case, then why did they even come into my office and take up my time? They must have known they could not afford anything before they walked in the door. But never the less, I still have to pay my receptionist, my office manager, my marketing coordinator, my IT support, etc….

Henry
Henry

May 23, 2014

I agree the hearing aid companies are making the money but the audiologist make good money too, not as high a % as the companies that manufacture the HA. The cost to manufacture is low maybe $100.00 The companies are ripping us off. Something should be done about this. That is why medicare doesn’t cover these items.

Sam
Sam

May 14, 2014

Yep, the iPad to hearing aid comparison is pretty terrible. Now if I had thousands of other products and hundreds of customers a day like a Best Buy, I would take that 15% retail profit. The only product sold in my office are hearing aids. That is what I focus on solely is hearing. In your chart you shows costs for the manufacturers but represent everything as straight up profit for the retail side.

Am I working out of my car here with no employees, no customer acquisition costs, no equipment costs, no utilities, and on and on?

If the percentages were comparable to the iPad and we had a 15% markup, that would mean we make $6,000 over the cost to purchase the instruments in an average month. My monthly expenses are roughly $50,000 to keep the doors open. When it is all said and done……I make about 10%-15% in reality. If $4,000 per set of aids went straight into my pocket with none of it taken out, I would be retired by now and I have only been an owner for 6 months.

Johnb300
Johnb300

April 28, 2014

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Johnb333
Johnb333

April 28, 2014

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AudioDr
AudioDr

April 05, 2014

I have been practicing audiology for 27 years. I have 9 years invested in my college education, 7 of which were devoted to audiology. Audiology is the lowest paid doctoring profession. Believe me you can make just as much money coming out of school with a 2 year technical degree as you can in audiology with a lot less debt than our new grads are incurring today. That said you can be " fit" by a hearing aid dispenser with a high school diploma, 3 month apprenticeship program and passage of a correspondence course type test. For all of you that want to buy your hearing aids by mail that is available (run risk of under amplication or damaging over amplification). For all of you bargain hunters you can go to your big box store where you buy your bulk toilet paper and be “fitted” most likely by a dispenser (non professional).They may even be a former stocker, baker, cashier who the store put on a fast track to becoming a hearing aid dispenser by their big box employee. They aren’t exactly going into the field to help people hear but will be lured into the field by the 50 to 60 K they can make vs. the 15 to 20 they are making previously. For the rest of you who may care that they are getting a professional hearing evaluation, a hearing aid that is prescriptive based, a referral to a medical professional for potentially life altering/threatening conditions, and professionally trained counseling skills to get you through the transition of wearing hearing aids…….see an audiologist. (American Academy of Audiology and American Speech Language Hearing Association are good resources for the consumer). Ask your audiologist if you are getting a bundled vs. unbundled price. It is a fair question. I know most people feel my professional time is valuable. I gladly pay my physician, chiropractor, dentist, optometrist for their time and they have contributed immensely to my life. I hope you will feel the same when you see an audiologist.

James A
James A

March 15, 2014

I have been practicing for more than 19 years. Mostly private practice. I can assure you the profits are not what many people think they are. I wish we could sell them for less. I survive on referrals and some advertising but cost are high. If we sell them for less I might as well close the doors. Our average ASP is $1,800 per unit. That is as low as I can go. I’m trying to fit people with high end technology but can not sell it for less.

Rick O'Neill
Rick O'Neill

March 06, 2014

Brian, If your offices are paying $2200 a pair (at your cost) for devices then I would have to say the manufacturers are sticking it to the Audiologists. Thank you for doing your best to keep costs down for your patients.

KJ
KJ

January 22, 2014

i feel like a sucker and probably is….. i purchased a top of the line pair of hearing aids at Beltone at a whopping $6,200. anyone interesting in buying ?

Brian
Brian

January 15, 2014

I own two hearing clinics. We started in April of 2012 and through personal sacrifice and continued investment, we opened our second clinic in August of 2013. Our price to consumers are on the lower side of the industry average, but are not far off from the example that you mentioned in your article. What does seem to be severely off is acquisitioncost of “premium” Iinstrumentation. Our volume is considered high at 60 units per month between the two clinics, and our cost of acquisition for top of the line equipment is still about $2200 for a pair. Our first year in business, my take home pay was $23,000. In year two, I have improved that to almost $50,000. I am very proud of the way that we do business and the help that we provide to people in need. The only people on this board who should be ashamed of themselves are the ones voicing such a strong opinion on a matter that they are not qualified to chime in on.

Rick O'Neill
Rick O'Neill

December 07, 2013

@ Caitlin Rock, Au.D… Thank you for the reply. I am familiar with what you are describing as the powerful computer chips within the hearing devices. Their RAM capabilities for external programming from a computer to customize their EQ, Compression ratio and other parameters. Still in this day and age the total production cost per aid can’t (in reality) exceed $200.

If the Audiologist were to NOT bundle aid cost with their in office fees and return checkup fees I believe people with hearing loss might not be as gun shy of getting help. Also maybe health insurance providers may also look at this differently and cover the office visits.

If you were to see the advertised price of a VW Jetta as $42,000. including all service and repair for X years as opposed to $21,500 and a choice of where to take it for service what would you choose? I know what I would choose.

Believe me, I have choked down the cost of wearing hearing aids and I admire my audiologist for the care I get in their office. Fortunately I am able to afford the service and devices. I also know many who can’t. It is time to draw a line in the sand and call a spade a spade.

Kyle
Kyle

November 06, 2013

As this is my profession let me break down some number for those in disbelief at the cost of hearing aids. My cost on a top of the line hearing aid is $1,400. I sell that hearing aid for $3,400. With our brand you will receive free service for the lifetime of the hearing aid at any dealer throughout the United States. For my patients I see them once every three months at min. to clean their ears, clean the aids, reprogram the aids ect. Out of the mark up we have we run right at $300 Gross Profit. That number fluctuates depending on the number of units dispensed that month. More often than not it is much lower than that due to high advertising costs these days. To say that anyone is getting rich from dispensing hearing aids is not the case. The manufactures are the ones making the big money in this industry. Those in private practice dispensing do not make the money people think we do. I’m in no way defending the price of a hearing aid but simple facts are that we have to sell them for these prices to keep our doors open. For those who can’t afford there are programs in place by these local practices that can get you the help you need for little to no cost at all. You will never know about these programs if you never go and talk to them.

Ann Conway
Ann Conway

September 14, 2013

I have worn hearing aids for 20 years and am also a sociologist trained in research. I have specialized in the medical arena and also have worked in public health prevention and education for years. I have NEVER heard the issue of hearing loss come up in public health and obviously this impairment can affect the health care encounter and many other issues. Part of this is federal and state health policy, which siloes issues of aging and disability and public health into different sectors and funding streams.

Has anyone done qualitative and quantitative research on why people don’t wear hearing aids or even if they care if they’re invisible? I don’t really get the latter issue, as it does not seem to apply to vision loss. Is it somehow the “deaf and dumb” label?

I don’t buy that there’s some inherent flaw or willfulness in people not wearing hearing aids. I went to four different ENTs(affiliated with elite teaching hospitals) in the years after I was diagnosed. Not one of them nor their affiliated audiologists gave me any education at all on wearing aids, what to expect, how to cope, etc. The first audiologist sighed and said,“Oh, you’re so young.” Big help.

As far I’m concerned, the biggest psychosocial issue around hearing loss is powerlessness because of ignorance, lack of education and stigma. Virtually everything I have earned I have learned on my own. You can’t even find info on coping at the bookstore! I firmly believe if people don’t wear them that is because they have not been given sufficient education about the brain, adjustment, options, etc. I wore mine because I had to in order to work and I was told that the brain would forget to hear if I didn’t wear them.

If people had sufficient understanding of hearing aids, were given them at a reasonable price and had “buddies” to coach them thru as we have for so many chronic diseases, we would be in great shape. I think it’s an absolute disgrace how much they cost and how little education there is.
Ramon
Ramon

September 12, 2013

Patrick thank you for a eye opener article exposing the ripoff and monopoly of the hearing Aids industry. If you google H.A. you wil hear countless sites where people are sharing the same frustrations that are found in this blog. I’m 63 and served in artillery during the Vietnam era conflict, later in the 80’s I served in the reserves for many years. I do not qualify for VA hearing aids because I’m over their income guidelines, but still, I’m too poor to afford hearing aids. I’m on medical disabilty and have medicare plus my empoyer Insurance and neither cover H.A. or even the exam. If they are medical devices, why the insurance or medicare does not pay for them is frustrating.
I’m on my third pair, first one from miracle ear, another from Costco and the third a gift from my niece who used to work for a hearing aids manufacturer, she bought them at dispenser cost of around $250. each. They are now beyond repairs and I need a new pair but can’t afford them.
I call on dispensers that are visionaries and willing to take a risk and do things outside the box. I read dozens of books of such people, including the founder of wallmart, and others. Sell the aids from a vending truck if you have to, offer excellent service, start with 0 staff and by word of mouth you will have so many customers that you would not need advertizement.
I read an article from the NY times and it listed a hearind aids dispenser who also repairs hearing aids, working in the back room of a shoe store. Several people have asked for his information so they could go to him, so far the author has not responded, the point is, word of mouth is the best advertizement.
I also would like to ask, what can we, as people who have a disability but cannot afford a device that can help us do to resolve this preventable tragedy?

Gary
Gary

August 03, 2013

I would suggest that the X factor that is not understood is that the amplified sound produced by hearing aids is in the first instance not very pleasant, so unless an immediate benefit is realised by the wearer they are very likely to reject them.

So what can be done? focus on methods to achieve an immediate benefit upon the first fitting.

Gary

>Scott wrote:

>August 21, 2012

>I am an audiologist (wearing body armour so the inevitable rock throwing won’t cause >permanent damage) and would like to make one comment related to barriers to hearing >aid use. We still don’t understand why people will not accept hearing aids. Price, stigma, >appearance are relevant but there are other unknowns. The Better Hearing Institute did a >survey several years ago and asked hearing impaired people who were not hearing aid >users this one question: If you could have hearing aids for free that were invisible and that >would solve your hearing problems, would you wear them? 62% said yes but a full 38% >said No!! With this scenario we address cost (free), we address cosmetic concerns >(hidden), and we assure benefit – and yet 35% still didn’t want hearing aids. Why? What >is the X factor that we still don’t understand? I don’t know but it points to the problem >being more complex than we currently understand. That said, 62% penetration is much >better than the 20% we’re at right now.

Caitlin Rock, Au.D.
Caitlin Rock, Au.D.

July 30, 2013

@ Rick O’Neill “the basic electronic components might cost to the manufacturer of the device $5 – $15. The molded earpiece is probably most expensive because of the plastic extrusion machine used. Even at that a pair of molded ear plugs are $40 retail. Pretty simple electronics folks.”

Rick you may be familiar with a standard amplifier but hearing aids these days contain powerful computer chips. The computer chip is what increases the prices of the unit – not the microphones or the receiver, those costs you are correct about. These computer chips that the hearing instruments contain are literally capable of performing up to a million calculations per second to analyze the environment and increase the signal to noise ratio (SNR) in order to give the hearing impaired individual a better chance at hearing conversation – they use a non-linear system to apply gain. The chip looks at soft, average, and loud speech and applies the prescribed gain or volume at the individual frequencies based on the hearing impaired person’s hearing loss.

As for professionals feeling ashamed of what we charge – most audiologist bundle their costs. So your follow up visits and any in house maintenance for the device are “free” as are the extra supplies needed to keep the devices running. We have a front office staff to pay, equipment that needs calibrating once a year (quite expensive to keep up), rent, utilities, ect… All of this is rolled into the example of 2000.00 markup. It’s not dishonest – nothing is free. As for myself, to be more transparent about the costs involved with the device I have unbundled the pricing so that you can see what you are paying for. I can’t necessarily speak for all professionals but I think that most Audiologists are in this career because we realize hearing is a vital part of communication and we want to help individuals and hearing aids are the way that we can do that.

Hope it all works out for the best!

Caitlin Rock, Au.D.
Doctor of Audiology

Rick O'Neill
Rick O'Neill

July 21, 2013

Great Blog! Thank you! It has blow me away for years how hearing aids can be so costly. Like Mike, I am also a musician and also dabble in Electronics. Let me sum up the components.. A molded ear piece, 1 or 2 microphones, a speaker (audio driver), a level control (volume), and an OP Amp pc Chip. Also some are fitted with a pushbutton switch for changing settings and now some with Bluetooth capabilities. The basic electronic components might cost to the manufacturer of the device $5 – $15. The molded earpiece is probably most expensive because of the plastic extrusion machine used. Even at that a pair of molded ear plugs are $40 retail. Pretty simple electronics folks. Maybe 20 years ago these items might have cost a few hundred bucks but in the day of pocket pen digital camera and flash drives that hold more information than a $3000 computer did 20 years ago only costs a mere $10-$15 for 16 Gb. So where do they get off charging so much for the device.. I can see the audiologist charging what a doctor would for their in office time like and other doctor would but if you went to your GP with a broken finger and needed a $5 splint you sure as heck would not have to pay $500 for it.. That is my example of the markup we are paying for hearing devices.
And for the professionals here trying to justify what you charge for the hearing device…. well you should be ashamed. Your services are appreciated and you deserve to make a living from your services… Not rip off people in need so they can hear again.. Ashamed.. It will only be a matter of time that someone will step in and put a stop to this smoke and mirrors snake oil business.

John Clark
John Clark

July 12, 2013

This works for some who try it. Of course not for wearing ALL the time, but still useful: there is an iPhone app called iHear. Turns your iPhone into a hearing aid with your ear buds or any headphones on your ears. Cost???? 3 bucks! Works for my father in law. A few people wearing these and the price will start going down. Probably a programmable app in the future.

Everett
Everett

July 05, 2013

The Number one reason for these ridiculous prices can be laid at the feet of our fine, best, money can buy politicians, that have declared these are medical devices. Now WHO did these corrupt politicians do this for, US their Constituents or for the Oligarchy they work for? CORRUPT Government intrusion is OUR number one problem in this country. I despise all of them, they care for only one thing from us little people, that is a VOTE.

mike thornton
mike thornton

June 12, 2013

Okay, I live in Germany. I bought a pair of aids 8 years ago for 3000 euros the pair. You suggest that the audiologist got 2000 euros. Or 250 euros per year. For that I got about 3 hours’ worth of initial advice and initial fine-tuning, plus a free cleaning service as often as I need it, usually about once every nine months. And two hearing checks since. No one else can do these things. I find it cheap at the price. My ENT doctor charges 60 euros just to syringe my ears, and that’s pure routine. That’s a rip-off for you — a quarter of what the audiologists gets, for a five-minute procedure.

John
John

June 02, 2013

I purchased my first pair of hearing aids several months ago. Upon analyzing the bill, I found it to be the biggest rip-off I’ve ever experienced. The dispensing fee is outright robbery and this fee was not explained up-front.

The procedure of buying hearing aids is not like buying shoes, or other things which you can try before you buy, due to the fact that you can’t just try them on off the shelf. Shopping around is difficult as the various features and terminology describing different brands becomes confusing as they all seem to have different terms for similar features which makes them more difficult to compare. Collusion seems evident given the hearing aid cost and the dispensing fee rip-off.

Someone should open a chain of stores selling hearing aids using the structure in the article and advertise the cost analysis. I’d go there – who wouldn’t?

As for adjusting hearing aids, surely there is a program which could be installed on a PC to allow the user to tune the aids him/herself. ???

Elaine
Elaine

May 02, 2013

Online purchase of hearing aids? I need to replace my first set of hearing aids. I love your blog and the great information. I understand that one can purchase them online. Any help, cautions, experience?

mike
mike

April 26, 2013

Hi,
I am a Musician.I can purchase the very best Brand amplifier and a hand made exquisite guitar for less than the price of two of these hearing aids.The guitar and amp. will last a lifetime with a little tlc.I can prove this as I have two that I purchased in 1962 and they still work perfectly and are now valued at 40000 dollars,I kid you not.
Hearing aids are a total rip off.They should be priced at just a couple of hundred Bucks/Euro/Stg.I need aids big time but not enough to pay these silly prices.
These people will keep selling these aids at these prices as long as people are foolish enough to buy them.
We are being ripped off .Hearing aids should only be dispensed by qualified health workers
who’s best interests are the health of the patient.

Ed Belcher
Ed Belcher

March 29, 2013

Many comments from dispensers argue that hearing aids are expensive because of their cost to dispense. In my blog

http://hearingaidsunveiled.blogspot.com/

third entry down, dated Oct 2, 2012, and titled “Dispensing – Profit versus Quantity and Efficiency,” I consider the expenses of dispensing. I present a hypothetical retail franchise that does very well for its employees and owners as well as provides excellent service and premium products to its customers at prices between 25% and 50% currently charged by private practices.

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