An Analysis of US Hearing Aid Pricing: Insights and Commentary for the Practice Manager



Author: Amyn M. Amlani, Ph.D.

This article is a reprinted 5-part blog post from Hearing Health and Technology Matters (HHTM). It is reprinted with permission of HHTM and the author. Unlike the original HHTM blog posts, this version includes some Q&A between the author of the article, Amyn Amlani, and Brian Taylor, editor of Audiology Practices. If you’re a practice manager, owner or a clinician who wants to learn more about the intricacies of hearing aid pricing, find a quiet space and dig in.
Part 1: Nominal Wholesale-Side Trends
Before diving into a chasm of figures and numbers, I take this opportunity to calibrate the reader to several aspects related to the wholesale data. The caveats written in 2013 and 2016, paraphrased below, remain true today:
  • The categorical lines that separate hearing aid tiers—Economy to Mid-Level to Premium—are somewhat blurred given variations across product lines, manufacturer interpretation of technology tiers, and price points adopted by the market.
  • The dataset is truly a sample, provided by a small faction to whom I am beholden.
    • Prices reported are for a single-unit purchase with no additional discounts.
  • There is no data available prior to 2004.
  • Transparency is king.
Figure 1. Nominal wholesale hearing aid prices, in US dollars, for average (blue filled circles), premium-tiered (red filled circles), and economytiered (green filled circles) product lines.
Average, Premium, and Economy Hearing Aid Wholesale Price



Premium-Tier Wholesale Pricing
  • Premium products are depicted as red filled circles in Figure 1.
  • Comparisons are derived using nominal comparisons (i.e., not adjusted for inflation).
  • In 2004, providers paid an average of $1259 for a premium-tiered product. In 2019, a markedly more advanced, premium-tiered product was available for the average wholesale price of $1356.
    • The nominal difference in wholesale price between 2019 and 2004 is $97. Over a 16-year span, this difference equates to just over a $6 per year increase.
  • Over time, the wholesale pricing for premium-tiered hearing aids is nonlinear, reaching a peak of $1453 in 2010, and a low of $1150 in 2015.
  • Wholesale prices began rising in 2016 when a single unit could be acquired for $1221. In 2019, a single unit averages $1356.
    • In 2019, the nominal wholesale price has increased by $206 per unit compared to the average price in 2015.
    • This increase in pricing is not surprising, given technological advances in Bluetooth connectivity, rechargeability, artificial intelligence, and the transformation of hearing aids to track the user’s health and wellness.
    • In Part 2 of this series, we will assess whether providers are accounting for this increase in cost of goods (COGS) in their retail pricing.

Economy-Tier Wholesale Pricing
  • Economy products are depicted as green filled circles in Figure 1.
  • Comparisons are derived using nominal comparisons (i.e., not adjusted for inflation).
  • The wholesale pricing for economy hearing aids is also nonlinear, reaching a peak of $471 in 2016, and a low of $253 in 2006.
    • The astute reader will note that economy-tiered pricing patterns are inverse to premium-tiered pricing patterns. That is:
      • As economy-tiered pricing increases, premium-tiered pricing decreases, and as economy-tiered pricing decreases, premium-tiered pricing increases.
      • These pricing patterns are essentially synchronized in time.
  • Economy-tiered products in 2019 cost a nominal average of $46 more per unit than in 2004.
  • Since 2016, when a single-unit product cost $471, single-unit prices have dropped nominally by $145 in 2019.
    • In Part 2 of this series, this decrease in COGS is expected to yield increased revenue for the practice.
    • It is assumed that wholesale costs for this tier were reduced—and are expected to be reduced in the future—for the provider to compete with direct-to-consumer products.

Average Hearing Aid Wholesale Pricing
  • The average wholesale price for a hearing aid is depicted by blue filled circles in Figure 1.
  • Comparisons are derived using nominal comparisons (i.e., not adjusted for inflation).
  • The average wholesale price includes all product tiers (e.g., Economy, Economy-Premium, Mid-Level, Advanced, Premium).
  • Since 2004, the average wholesale price of hearing aids increases in a rather linear manner.
  • Premium-tiered vs. Average Wholesale Cost
    • In 2004, the nominal difference in wholesale cost between a premium-tiered product and the average hearing aid yielded $802.
    • In 2019, the nominal difference in wholesale cost between a premium-tiered product and the average hearing aid is narrowed to $582.
    • The narrowing of price differences between premium-tiered and the average hearing aid over time suggests that the wholesale cost of mid-tiered devices has increased markedly.
      • This was an unexpected finding and data to substantiate this outcome has been requested.
  • Average Wholesale Cost vs. Economy-Tiered
    • In 2004, the nominal difference in wholesale cost between the average hearing aid and an economy-tiered product was $177.
    • In 2019, the nominal difference in wholesale cost between the average hearing aid and an economy-tiered product ballooned to $448.
    • This nominal difference of $271 supports the earlier claim that COGS for mid-level products are driving up the average wholesale price of hearing aids.
      • Again, an unexpected finding that I hope to assess in an upcoming blog.
What we we’ve covered so far...
Thus far, the reader was provided a glimpse of nominal hearing aid wholesale pricing trends for premium- and economy-tiered products, as well as for the average hearing aid. Findings indicate an inverse pricing relationship between premium- and economy-tiered products, as well as a linear increase in the average wholesale cost of hearing aids. The latter finding is conjectured to be driven by wholesale pricing increases in the mid-tiered products.

Q: I noticed that back in 2012 the average wholesale premium price dropped a rather astonishing $200 per unit before slowly, over the course of several years, moving back in alignment with pre-2012 wholesale premium prices. What might be the cause of this premium price drop and why didn’t we see it for the other two wholesale tiers?

A: You have an observant eye! The most likely answer to the $208 drop in average premium wholesale pricing is the manufacturer's intent to increase the provider’s demand to dispense this technology. For the practice, an additional five units sold would equate to an additional $1040 (i.e., $208 x 5 units) in revenue.

Additionally, it may seem that the manufacturer is losing revenue given the reduction in average wholesale price of their premium product. This is not the case. In 2011, the average wholesale economy-tier product was $322, which increased to $428 in 2012, or an additional expense of $106 to the provider. Further, note that the overall average wholesale price of a single unit device—independent of technology tier—increased from $616 in 2011 to $694 in 2012. For providers and their staff, there is a constant need to adjust hearing aid retail pricing—in both directions—based on demand. Failure to assess these changes will influence the practice’s revenue.

Q: How much of a factor does Costco and other large retail chains have on these wholesale pricing trends?

A: Good question. The pricing data that we receive at HHTM from manufacturers is for self-pay patients in the independent channel only, based on a bundled-pricing approach. Manufacturers offer differing price options as a function of payor (e.g., patient self-pay, insurance, third-party administrators, Medicaid) and channel (e.g., independent channel, hospital, VA, big box). Whole prices are negotiable, and the provider—regardless of their business channel—has the greatest leverage in those discussions prior to signing the contract. The same negotiation leverage does not always exist as a function of payor. Thus, providers should have a clear understanding of the varying wholesale price options in the market, and how the market and payor interactions dictate the conditions of their contract.
Part 2: Inflation-Adjusted Wholesale-Side Trends
Let’s continue a review of pricing in the US hearing aid market, comparing unadjusted and inflation-adjusted, wholesale cost of a single unit device over time.

Consumer Price Index (CPI)
The Consumer Price Index (CPI) was used to assess historical changes in US inflation. CPI data, available through the US Bureau of Labor Statistics, allows for the assessment of whether a good or service has increased or decreased in price compared to the same good service at another point in time.

Average Hearing Aid Wholesale Price
Figure 2 compares the unadjusted, average, single-unit wholesale hearing aid prices (blue filled circles), in US dollars, and a 2004 average-priced, single unit wholesale hearing aid adjusted for inflation (blue asterisks) across all technology tiers.
Figure 2. Comparison between unadjusted, average, single-unit wholesale hearing aid prices (blue filled circles), in US dollars, and a 2004 average-priced, single unit wholesale hearing aid adjusted for inflation (blue asterisks) across all technology tiers.
Average Hearing Aid Wholesale Price


  • In 2004, the average wholesale cost for a single unit hearing aid was $457. In 2019, the average wholesale cost for a single unit hearing aid was $774, unadjusted for inflation. Over time, the average wholesale cost per unit has increased by $317, or an annual average increase of $19.81.
  • When CPI data are applied to the 2004 wholesale single unit cost (i.e., $457), the average cost of a single unit hearing aid in 2019 is calculated to be $608. This finding indicates that the 2004 unit increased in inflationary cost by $151 in 2019, or at an annual rate of $9.42.
  • In comparison, the unadjusted average wholesale price of a single unit hearing aid, in 2019, exceeds the rate of inflation by 47.5%.
  • This trend of the unadjusted wholesale cost exceeding inflation-adjusted wholesale cost rooted itself in 2007.

Figure 3. Comparison between unadjusted, average, single-unit wholesale hearing aid prices (red filled diamonds), in US dollars, and a 2004 average-priced, single unit wholesale hearing aid adjusted for inflation (red asterisks) for the premiumtechnology tier.
Premium-Tier Hearing Aid Wholesale Price


Premium-Tiered Wholesale Pricing
Figure 3 compares the unadjusted, average, single-unit wholesale hearing aid prices (red filled diamonds), in US dollars, and a 2004 average-priced, single unit wholesale hearing aid adjusted for inflation (red asterisks) for the premium-technology tier.
  • In 2004, the average wholesale cost for a single unit, premium-tiered hearing aid was $1259. In 2019, the average wholesale cost for a similar technology-tier hearing aid was $1356, unadjusted for inflation. Over this span, the average wholesale cost per unit increased by $97, or by an annual average of $6.06.
  • When CPI is applied for inflation, the average cost of a single unit hearing aid in 2019 was $1706. This finding indicates that the 2004 unit was $447 more expensive in 2019, yielding an annual average increase in wholesale price of $27.94.
  • For this technology tier, manufacturers are providing premium-tier hearing aids below the rate at which inflation has increased over time. In fact, manufacturer pricing is 4.61 times less than the rate at which inflation has grown.
  • The data in Figure 2 show that wholesale hearing aid pricing was rather consistent with inflation from 2004 to 2011. Starting in 2012, the wholesale price of this technology was reduced markedly and has stayed well below inflationary levels since.
Figure 4. Comparison between unadjusted, average, single-unit wholesale hearing aid prices (orange filled squares), in US dollars, and a 2004 average-priced, single unit wholesale hearing aid adjusted for inflation (orange asterisks) for the economytechnology tier.
Economy-Tier Hearing Aid Wholesale Price


Economy-Tiered Wholesale Pricing
Figure 4 compares the unadjusted, average, single-unit wholesale hearing aid prices (orange filled squares), in US dollars, and a 2004 average-priced, single unit wholesale hearing aid adjusted for inflation (orange asterisks) for the economy-technology tier.
  • In 2004, the average wholesale cost for a single unit, economy-tiered hearing aid was $280. In 2019, the average wholesale cost for a similar technology-tier hearing aid was $326, unadjusted for inflation. Over this span, the average wholesale cost per unit has increased by $46, or by an annual average of $2.88.
  • When CPI is applied for inflation, the average cost of a single unit hearing aid in 2019 was $380. This finding indicates that the 2004 unit is $100 more expensive in 2019, yielding an annual average increase in wholesale price of $6.25.
  • Over the years, the unadjusted wholesale pricing for economy-tier technology has vacillated, with pricing well-below inflation between 2006 and 2010, and well-above inflation between 2012-2016. The current trend indicates that wholesale pricing is, again, below the rate of inflation. It will be interesting to see whether wholesale pricing continues to stay low as direct-to-consumer products begin to penetrate the market in the future.

Q: I guess it’s no surprise we are seeing the same interesting trend in the premium pricing data that begins in 2012. Why do you think the premium wholesale price took a dip relative to the indexed values, while economy wholesale prices saw an increase at that time? Does this dip say more about the volatility of premium wholesale prices or the stability of the US inflation index over the past few decades?

The annual inflation rate in the US between 2010 and 2019 has remained essentially stable at roughly 2-3% over this span. The fluctuations in wholesale hearing aid pricing have to do more with consumer purchasing behavior, for example, as a function of the rising cost of healthcare premiums and co-pays. As patients pay more each year for their healthcare needs, it appears that manufacturers intentions are to reduce the costs of higher priced products in hopes that the providers follow suit with retail pricing. At the same time, and to sustain their corporate revenue goals, manufacturers increase the wholesale prices of the economy-line products for those that purchase products at this technology tier.
Part 3: Nominal Retail-Side Trends
So far readers have seen data on nominal and inflation-adjusted wholesale hearing aid prices. In this third section, the reader is presented with nominal retail hearing aid pricing. Let’s examine a pivotal question, what is the retail cost of a hearing aid?

What is the Retail Cost of a Hearing Aid?
The response to this question varies, with retail prices ranging between $1000 to >$6000 per device (www.healthyhearing.com/help/hearing-aids/prices). Internet information—for what it’s worth—also suggests that hearing aid prices are always on the rise, potentially increasing by 15% over a five-year span starting in 2015 (https://myhearingcenters.com/blog/what-will-hearing-aid-prices-be-in-5-years-do-you-really-want-to-wait/).
Figure 5. Nominal retail hearing aid prices, in US dollars, for average (blue filled circles), premium-tiered (orange filled circles), and economytiered (gray filled circles) product lines.
Average, Premium, and Economy Hearing Aid Retail Price


Premium-Tier Retail Pricing
  • Premium products are depicted as orange filled circles in Figure 5.
  • Data are nominal (i.e., not adjusted for inflation).
  • In 2004, hearing aid users paid an average of $2842 for a premium-tiered product. In 2019, a markedly more advanced, premium-tiered product was available for the average retail price of $2901.
    • The nominal difference in retail price between 2019 and 2004 is $59. Over a 16-year span, this difference equates to < $4 per year increase.
    • Between 2015 and 2019, hearing aid retail prices are essentially the same. So much for the predicted 15% increase over this time period!
  • Over time, the retail pricing for premium-tiered hearing aids increased modestly, with a low of $2605 in 2006 and reaching a peak of $2906 in 2015.

Economy-Tier Retail Pricing
  • Economy products are depicted as gray filled circles in Figure 5.
  • Data are nominal (i.e., not adjusted for inflation).
  • The retail pricing for economy hearing aids demonstrates a low of $1230 in 2005, a peak of $1666 in 2012, with prices slightly recovering to <$1500 in 2019.
  • Economy-tiered products in 2019 cost a nominal average of $264 more per unit than in 2004. Over a 16-year span, this difference equates to a $16.50 per year increase.

Average Hearing Aid Retail Pricing
  • The average retail price for a hearing aid is depicted by blue filled circles in Figure 5.
  • Data are nominal (i.e., not adjusted for inflation).
  • The average retail price includes all product tiers (e.g., Economy, Economy-Premium, Mid-Level, Advanced, Premium).
  • Between 2004 and 2012, the average retail price of a hearing aid increased by $605.
  • Between 2012 and 2019, the average retail price of a hearing aid has remained within roughly $100.

Premium-tiered vs. Average Retail Cost
  • In 2004, the nominal difference in retail cost between a premium-tiered product and the average hearing aid yielded $1057.
  • In 2019, the nominal difference in retail cost between a premium-tiered product and the average hearing aid is narrowed to $617.

Average Retail Cost vs. Economy-Tiered
  • In 2005, the nominal difference in retail cost between the average hearing aid and an economy-tiered product was $635.
  • In 2019, the nominal difference in retail cost between the average hearing aid and an economy-tiered product increased to $790.

Q: If I understand these last four bullet points, it tells us that average premium-tiered retail price has dropped and average economy-tiered has increased. What’s driving this divergence in pricing for these two tiers?

You are correct. This theme pervades through this analysis for both the wholesale and retail pricing segments and is supported by the price elasticity of demand. The price elasticity of demand is an economic concept that measures consumer purchasing between price and quantity demanded. When the demand is determined to be elastic (i.e., demand is > |1|), consumers are responsive to changes in price. When the demand is determined to be inelastic (i.e., demand is < |1|), consumers are not responsive to changes in price. Overall, the hearing aid market has an inelastic demand.

We can further analyze the demand function by comparing price and quantity demanded between price points. This is called arc elasticity. Here, the hearing aid market is elastic for products at the premium-technology tier (i.e., consumers are responsive to price changes) and inelastic for products at the economy-line tier (i.e., consumers are not responsive to price changes).

To maximize total revenue—defined as Price x Quantity Demanded—an elastic demand (i.e., premium-tier) requires reducing price (and increasing quantity demanded), while increasing total revenue in an inelastic demand (i.e., economy-tier) dictates increasing price (resulting in a decrease in quantity demanded). The details and calculations of this concept will be covered in a future article in Audiology Practices.

Part 4: Inflation-Adjusted Retail-Side Trends
Part 4 compares unadjusted and inflation-adjusted average retail cost of a single unit device over time.

CPI…A Reminder
Historical changes in US inflation are captured by the US Bureau of Labor Statistics and reported as the Consumer Price Index (CPI). CPI data allows for the assessment of whether a good or service has increased or decreased in price compared to the same good service at another point in time.

Average Hearing Aid Retail Pricing
Figure 6 compares the unadjusted, average, single-unit retail hearing aid prices (blue filled circles), in US dollars, and a 2004 average-priced, single unit retail hearing aid adjusted for inflation (blue asterisks) across all technology tiers.
Figure 6. Comparison between unadjusted, average, single-unit retail hearing aid prices (blue filled circles), in US dollars, and a 2004 averagepriced, single unit retail hearing aid adjusted for inflation (blue asterisks) across all technology tiers.
Average Retail Hearing Aid Price


  • As shown in Figure 6, the average retail cost for a single unit hearing aid was $1785 in 2004. In 2019, the average retail cost for a single unit hearing aid was $2284, unadjusted for inflation. Over time, the average retail cost per unit increased by $499, or an annual average increase of $32.27.
  • When CPI data are applied to the 2004 retail single unit cost (i.e., $1785), the average cost of a single unit hearing aid in 2019 yields a value of $2418. This finding indicates that the 2004 unit increased in inflationary cost by $633 in 2019, or at an annual rate of $42.20.
  • It should be noted that between 2009 and 2016, the unadjusted average retail price was notably higher than the inflation-adjusted average retail price. The difference was greatest in 2012, when unadjusted retail pricing exceeded inflation-adjusted pricing by $231.
  • It will be interesting, in time, to track whether the unadjusted average retail price remains below inflation. This trend began in 2017 and continues through 2019, as seen in Figure 6.

Premium-Tier Retail Pricing
Figure 7 compares the unadjusted, average, single-unit retail hearing aid prices (orange filled diamonds), in US dollars, and a 2004 average-priced, single unit retail hearing aid adjusted for inflation (orange asterisks) for the premium-technology tier.
Figure 7. Comparison between unadjusted, average, single-unit retail hearing aid prices (orange filled diamonds), in US dollars, and a 2004 average-priced, single unit retail hearing aid adjusted for inflation (orange asterisks) for the premiumtechnology tier.
Average Premium-Tier Retail Hearing Aid Price


  • In 2004, the average retail cost for a single unit, premium-tiered hearing aid was $2842 (Figure 7). In 2019, the average retail cost for a similar technology-tier hearing aid was $2901, unadjusted for inflation. Over this span, the average retail cost per unit increased by $59, or by an annual average of < $4.00.
  • When CPI is applied for inflation, the 2004 price tag of $2842 had ballooned to an average cost per single unit to $3850 in 2019. This translates to a difference of $949, yielding an annual average increase in inflation to the retail price of $63.27.
  • Clearly, premium-tier hearing aids are being dispensed at a rate well below that of inflation over time.

Economy-Tier Retail Pricing
Figure 8 compares the unadjusted, average, single-unit retail hearing aid prices (red filled squares), in US dollars, and a 2004 average-priced, single unit retail hearing aid adjusted for inflation (red asterisks) for the economy-technology tier.
Figure 8. Comparison between unadjusted, average, single-unit retail hearing aid prices (red filled squares), in US dollars, and a 2004 averagepriced, single unit retail hearing aid adjusted for inflation (red asterisks) for the economy-technology tier.
Average Economy-Tier Retail Hearing Aid Price


  • As seen in Figure 8, the average retail cost for a single unit, economy-tiered hearing aid was $1230 in 2005. (Note: we do not have data before 2005 for this technology tier.) In 2019, the average retail cost for a similar technology-tier device was $1494, unadjusted for inflation. Over this span, the average retail cost per unit has increased by $264, or by an annual average of $18.86.
  • When CPI is applied for inflation, the average cost of a single unit hearing aid in 2019 was $1615. This inflation-adjusted value is $385 above the unit price of $1230 (in 2005), of which $121 can be attributed to inflation.

Q: Let’s take a closer look at the recent dip in retail prices relative to inflation. What are some of the reasons for this drop? What consequences might practice managers face because of this dip?

In my opinion, the drop in retail prices for economy-line technology—for 2018 and 2019—are being challenged by the segment of direct-to-consumer (DTC) products. Today, consumers can purchase most personal sound amplification products (PSAPs)—with decent to excellent audibility and sound quality—between $100 and $800. Traditional hearing aid manufacturers are reducing wholesale prices so that providers can compete by dispensing traditional hearing aid technology at lower retail prices. This pricing strategy is known as “the race to the bottom.” For providers to breakeven by offering lower retail prices, they would have to increase patient flow and prospect conversion rates markedly. For most practices, this business model is neither profitable nor sustainable given the inefficiencies of our current service delivery model.
Part 5: The Markup Ratio
Drum roll, please. In the fifth, and final, part of this article, we do the unthinkable and assess the markup ratio between nominal pricing retail and wholesale prices over time. For those readers involved in determining the retail prices of your products, hang onto your hat because you might find the final section the most illuminating.

Cost-Plus Pricing and Markup Ratio
Of all the pricing strategies available, cost-plus pricing is the simplest strategy to employ because it (almost) guarantees that a business does not lose money on a sale. This pricing strategy is probably the most used one in the hearing care space. Cost-plus pricing is based on knowing (1) the wholesale cost of the product or service (i.e., invoice price) and (2) determining how much margin, or markup, is needed to generate operating profit (i.e., revenue minus expenses).

In this article, the reader is provided with the markup ratio for average, premium, and economy-line products, which is determined by dividing the nominal retail price by the nominal wholesale price at a given point in time. The data used to generate the markup ratios was adopted from pricing found in Parts 1 (i.e., wholesale) and 3 (i.e., retail) of this article.

Summary of Findings
Figure 9. Markup ratio (i.e., retail price divided by wholesale price), over time, for all hearing aids (denoted by the blue circles), the average premium hearing aid (represented by the red squares), and the average economyline hearing aid (designated by the green diamonds).


Average Hearing Aid
  • For the average hearing aid, the markup ratio has decreased from 4x to 3x between 2004 and 2019.
    • This decrease in markup ratio stems from a greater relative increase in wholesale prices compared to retail prices, although both wholesale and retail prices have increased.
    • In 2004, the average retail price for a hearing aid was $1785 and the average wholesale invoice was $457, yielding a markup ratio of 3.91 (i.e., $1785/$457).
    • In 2019, the average price for a hearing aid was $2284 and the average wholesale invoice was $774. The markup ratio for these data points is 2.95 (i.e., $2284/$774)
    • The average markup ratio for a hearing aid—independent of technology tier—has remained between essentially between 3x and 4x. This ratio has steadily decreased over the past decade and we will continue to monitor whether this trend holds in future blogs.
    • Analysis: The finding from this exercise indicates that the average provider is receiving a smaller margin (i.e., 3x instead of 4x) from overall hearing aid sales when we compare data over time.

Premium-Tier Hearing Aids
  • For the average premium hearing aid, the markup ratio is relatively unchanged over time.
    • The lack of gross changes in markup ratio stem from the fact that average retail prices have increased by only $59 between 2004 (i.e., $2842) and 2019 (i.e., $2901). Similarly, average wholesale prices have increased by a mere $97 during this same period (i.e., $1356-$1259).
    • Analysis: The lack of substantial price increases at this technology tier are consistent with the inelastic demand in the hearing aid market (i.e., lower markup at higher price points), and a primary factor that supports the rationale for why this technology tier comprises the largest segment of units sold on an annual basis.

Economy-Tier Hearing Aids
  • The highest markup ratio belongs to the economy-tier devices, ranging between 3.5x (in 2016) to 4.6x (in 2019).
    • The variability in markup stems primarily from changes in retail pricing. Economy-tier devices have ranged from $1230 (in 2005) to $1666 (in 2012).
    • Between 2005 and 2019, retail prices have increased by $264.
    • Wholesale prices, on the other hand, show a $37 difference between 2005 ($289) and 2019 ($326).
    • In 2016, wholesale prices peaked at $471 and retailed at a near-high price point of $1656. This markup ratio of 3.5 was also the lowest recorded for this tier using this dataset.
    • Analysis: The larger markup noted for the economy-tier also supports the market’s inelastic demand structure. A post-hoc review of the percentages by tiers indicated that in 2019, the quantity-demanded for economy-line devices was roughly 3% less than the quantity demanded for the same tiered product in the years 2012-2016. In other words, these outcomes indicate that market demand—and, ultimately, operating profit—is higher when the retail price of economy-line products are increased, not decreased.

Q: What are your thoughts on unbundling as it relates to the downward trend on the mark-up ratio? That is, as more practices unbundle or itemize, does it affect the reduced markup ratio?

Love this question. The answer is that the markup ratio becomes less of a factor with itemization. I provided a table below to help readers follow my response.
Bundled Itemized
Wholesale Price (single unit) $10 $10
Cost-plus Ratio 2.5 1.5
Retail Price (single unit) $25 $15


Assume that the wholesale price of a device is $10 for a single unit. In the bundled approach, the provider elects to utilize a cost-plus ratio of 2.5 that covers their product and service expenses, resulting in a revenue. The retail price is then listed at $25 (i.e., $10 x 2.5) per unit and includes unlimited services and hearing evaluations.

On the other hand, the itemized approach also assumes the wholesale price of a device is $10. The cost-plus ratio of the product only is 1.5, resulting in a retail price of $15 per device (i.e., $10 x 1.5). In the itemized approach, services are included for the first-year only. For subsequent years, patients are scheduled for routine (not unnecessary) services, such as maintenance checks, hearing evaluations, cerumen removal, and hearing aid repairs. The reader will note that the itemized approach offers $10 less gross revenue than the bundled approach.

For our examples, assume a breakeven rate of $1 for service delivery. The itemized approach will require that patients be scheduled only for routine, necessary services. This model of recurring revenue, along with an increase in long-term patient engagement, is the financial foundation in physician and dental offices. In our example, the itemization approach would require at least 10 patient visits over four years to match the gross revenue in the bundled approach. Most providers foresee this financial “gap” and are quick to dismiss the itemized approach.

Now, assume a patient fit with hearing aids is seen 10 times in the four-years post the initial year, with 2 visits merely for social reasons (although the patient indicated otherwise). In this example, the bundled approach yields a loss of unrealized revenue opportunities because of its inefficient service model. In the itemized approach, two new patients would have been scheduled instead, as the patient previously fit with hearing aids would not have set an appointment and paid for a social visit. With the average US clinic yielding a 50% conversation rate, there is a moderate-to-strong likelihood of one patient moving forward with a hearing aid purchase. This additional purchase results in an increase in total unit output. While the markup is lower in the itemized pricing strategy, the revenue opportunity is expectedly higher because of (i) the potential increase in total units sold and (ii) the ability to generate sustainable revenue streams based on the ongoing patient-provider relationship.

One more comment about itemization: from a professional and financial standpoint, it addresses the public health issue of intervention shortage and yields an increased gross revenue relative to the bundled approach. In my eyes, itemization affords the provider to work smarter, not harder, while effectively and efficiently performing their public health duties.

Q: I am a little surprised about the relatively low mark-up ratio of premium devices. Do you think if managers were more cognizant of lowering their cost of goods for these products, like committing to buying all their devices from just one or two manufacturers, we would see an uptick in this ratio?

To run a successful practice, both revenue and expenses must be considered. I absolutely agree that practices should lower their cost of goods through negotiation and manufacturer-discount offerings. This will yield a larger ratio and an increase in gross revenue. However, I do not believe that expenses should be reduced at the expense of the patient; in our example, by providing a limited selection of product offerings. Today’s consumer wants choices, and having choices enhances practice brand and patient purchasing confidence. Thus, the markup ratio should be used as metric to enhance business decision-making, not as an absolute metric in running your business.

Q: What are strategies managers can use to improve their margins?

Practices must be aware of the dynamic wholesale pricing changes by manufacturers. Relatedly, practices must be willing to adjust their retail prices based on the wholesale pricing changes, while being transparent to patients that the market is not static. Today’s consumer is aware of price fluctuations, for example, gasoline, housing, airline tickets, groceries, and restaurants.

For those practices uncomfortable with rolling wholesale price changes, negotiate a fixed price with the manufacturer. But beware; this activity could be revenue-prohibitive should manufacturers offer lower wholesale prices or a discount.

Q: Based on all this data you’ve shared here, what are one or two tactics managers can employ to improve their profitability?

Three things come to mind, and they are not mutually exclusive. First, negotiate the lowest possible wholesale price with manufacturers. If a particular manufacturer is unwilling to have discussions or if the wholesale price offered is disadvantageous to the practice’s revenue goals, then seek a partnership with another manufacturer. In other words, providers are also consumers. Second, providers and their staff must analyze wholesale and retail prices several times a year, and make adjustments that benefit the practice and its patients. Finally, strongly consider decoupling the product from professional services (i.e., itemize), expanding service offerings and including new and underserved populations. With the proliferation of consumer-electronics companies making products available directly to consumers, the race to the bottom is gaining momentum quickly. That said, the traditional business model is not designed to sustain historic profit results into the future. Embracing these pricing and business strategic tactics increases the likelihood of profitability, and are grounded on (i) itemization, (ii) long-term patient engagement, and (iii) operational effectiveness.