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Global Economics for Hearing Healthcare Providers

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Part 2: Vertical Integration & Loss of Autonomy * 10/13/2012 BCASLPA, 1:30pm-3pm BCASLPA, 1:30pm-3pm BCASLPA, 1:30pm-3pm BCASLPA, 1:30pm-3pm BCASLPA, 1:30pm-3pm ... – PowerPoint PPT presentation

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Title: Global Economics for Hearing Healthcare Providers


1
Global Economics for Hearing Healthcare Providers
  • Part 2 Vertical Integration
  • Loss of Autonomy

2
Trend 2 Forward Integration 
  • Manufacturers entry into retail
  • hard to distinguish between a HA
    manufacturers controlling interest in a clinic
    versus a multi-year supply agreement without an
    equity stake.  
  • They have to control distribution, one way or the
    other

3
How Big a Deal is It?
Widex 50-70 in US 100 ownership of distribution in 62 countries Buying up retail sites in South America?
Siemens 135 in US
Sonova William Demant 650-800 each, worldwide
Starkey 2000 (maybe much bigger) in US
Amplifon really big worldwide
GN Resound Maybe biggest all those Beltone offices
4
And growing.
  • MA activity bigger every year
  • resurgent buyer in 2012
  • at least 2 companies trying for 1 deal/week
  • Total deal volume in 2012 estimated at 60-75M
  • May peak in 2013
  • Possible change in capital gains incentivizes
    sellers
  • Implications
  • Strong Valuations for large practices (gt1M)
  • Competition for acquisitions (top 20 metro areas)
  • New market entry gt 1M
  • Corporate buyers outbid individuals by 65

5
Technology
  • basic technology from very few sources only
    five manufacturers will be real
    innovators working on a global scale Lars
    Kolind
  • Big Guys, Big Numbers in 2011
  • 6 month revenues
  • Sonova 904M
  • Wm Demand 689 M
  • Growth (Wm Demant)
  • 17 unit growth
  • 21 profit growth (142.49 M)

6
Product Cycle Grow or Die
  • Technological growth means you cant stop
  • fall behind
  • Fail
  • Absorbed by the others
  • Product Cycle
  • Convergence hearing aids and consumer
    electronics
  • Moores Law Components double every 2 years
  • Koomeys Law Energy efficiency doubles every 1.5
    years
  • Non-Stop Patent Applications

7
22 Billion market by 2015
Company Global Ear Machine Market
William Demant 14
Sonova 13.5
Siemens 11
GN Resound
Widex
Starkey
8
Pressures bring Supply Shifts
  • Technological advances
  • of Firms
  • Future Price Expectations
  • Government Regulation

9
Meanwhileback at the RanchUnless You
already sold it.
10
Audiologists aRE Middle Men
  • Constraints Redefine Autonomy
  • Networks
  • government regulations
  • state licensure
  • membership organization requirements
  • reimbursement schedules
  • buying groups
  • IPA-negotiated contracts

11
Autonomy Trending downward
  • 23 drop in independent ownership
  • Growth in retail stores with corporate
    affiliates/ownership
  • Large corporations are job creators
  • E.g., Hi HealthInnovations
  • Audiologists are moving toward the shelter
    of corporate service delivery to ensure survival
    if not autonomy

12
And Maybe toward extinction?
  • Why pay for high priced middlemen when you can
    automate the system?
  • Why not deal directly with Primary Care
    Physicians, who have access to patients?
  • Why not deal with a network with a centralized
    staff?
  • Contract with Audiologists
  • Pay piecemeal

13
Independents Alternative
  • demands to invest significant amounts in
    education and technology for their practices.
    Lars Kolind
  • Higher Costs, Lower Margins
  • Innovation
  • Education
  • Technology
  • Faster, economically efficient responses

14
Volume Is NOT Our Answer
15
Dont Forget Cost
  • TR P x Q
  • If P lt Cost to sell a unit, DONT SELL IT!
  • We cannot compete on Volume and Price against
    Big Boxes, giant manufacturers, online retailers,
    and health insurers that build their entire
    business plans around maximizing Volume.

16
What happens when UHC Enters the Market?
17
Non-Price Determinants Shift Demand Curve
  • Income
  • Tastes/Preferences
  • Price, related goods
  • Substitutes
  • Complements
  • Expectations, Future Prices
  • Market size

18
If Not QuantityThen It Must beQuality
19
Trend Quality Redefined
  • Credentialing doesnt cut it
  • being a member, a panelist and a doctor does not
    automatically guarantee quality
  • Outcomes, evidence-based practices
  • minimize variability, maximize efficacy
  • reduce risks, decrease waste
  • improve patient satisfaction

20
Guidelines for the Audiologic Management of Adult
Hearing Impairment
  • AAA Document
  • Only by measuring the outcomes can audiologists
    be assured that treatments make a beneficial
    difference

21
Can Small Practices Offer Quality and Keep Costs
Low?
  • I think you can.
  • Tie commission to net, not sales
  • Lose the front office
  • Wireless alerts
  • Wireless synchronization
  • Wireless scheduling
  • Lose the phone system
  • Smart phones for everybody

22
Can Small Practices Offer Quality and Keep Costs
Low?
  • Cut the advertising budget. No kidding!
  • More to come.

23
Can Small Practices Offer Quality and reduce
Costs?
  • Use substitutes
  • Blog site instead of website
  • Focused media instead of mass media
  • Skype
  • Email
  • Text messages
  • Weigh your credential costs
  • Share facility expenses
  • Find markets that cost less to penetrate
  • Watch your margins

24
Will This Make you rich?
  • No, you may not even be solvent, but you
  • wont have to leave the game
  • Wont have a ton of sunk costs
  • can maintain and hone your full skill set
  • can demonstrate real Audiology
  • Keep abreast of the field
  • Build a loyal practice
  • Have fun doing Economics!

25
Heres how that looks economically
26
Price Takers
  • We dont get to set Price
  • There are lots of us
  • We all have the same information
  • Few entry/exit barriers
  • Max profit is where PMC
  • Cost Q ATC
  • Revenue P Q
  • Profit Revenue - Cost

27
3rd Economic Rule
  • Competition increases until Price Cost
  • RATS!!!

28
Competition Drives Down Price
  • until MC ATC MR
  • Profit TR TC 0
  • OUCH!!!
  • TAKE HOME
  • Guy Who Controls His Costs Best Is the Last Man
    Standing

29
How Do you know when youre out of business
  • Economic Shutdown
  • What if P drops below MC?
  • Keep the doors open as long as you lose LESS by
    showing up than not showing up.
  • Shutdown ONLY if revenue is less than avoidable
    costs
  • Remember SOME OF YOUR COSTS ARE SUNK AND CANT
    BE AVOIDED

30
  • Shutdown Decision Example


Fixed Costs (FC) 10,000
Total Variable Costs (TVC) 79,999
Total Revenue (TR) 80,000
TR TVC 1.00
Shutdown Decision? OPERATE
31
  • Get in the Long Run
  • Negotiate out of your lease
  • sublet
  • Own your building
  • Cost Cut Judiciously
  • Innovate
  • KNOW YOUR NUMBERS No wishful thinking

32
1. Get Up Early2. Work Hard3. Discover Oil
  • Follow John D Rockefellers Advice

33
COFFEE!!!!! MORE COFFEE!!!!!
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