Hearing Aids, Monopolies, And Why The Health Industry Is Ripe For Disruption
from the can-you-hear-me-now? dept
Recently, we saw a huge reaction to the story of how a patent lawsuit was threatening to silence a little girl by shutting down a speech-assistance iPad app that is her only means of communication. For many people, the focus of that story was the human cost of patent warfare—a valid and important topic to be sure. But the story also points to another, larger issue that is bound to get more attention in our increasingly entrepreneurial culture: the health and wellness industry is in serious need of disruptive innovation.
TechCrunch has a post looking at another area that is very similar to speech assistance devices: hearing aids. The market for these devices is old and stale, dominated by a few key players who have cushy exclusive deals with doctors that allow them to charge exorbitant prices (averaging around $3000), but a year-old startup called Embrace Hearing is beginning to shake things up by selling $300+ hearing aids directly to consumers. They discovered that 75% of Americans who qualify for hearing devices don't actually use one, and the number one cited reason is high price. But they also know that those high prices are mostly artificial:
Audiologists (health care professionals who specialize in hearing, and the loss thereof) control the majority of sales in the U.S. market. While these specialists provide essential services, they use the sale of hearing aids to their own gain, often charging markups of three to five times — because they can.
Not only that, but the clever business people they are, they bundle re-fittings and follow-up visits into the cost, generally using this as the explanation for why hearing aids cost so much. The Embrace co-founders say that the reality of the situation, however, is that only 20 percent of customers make five or more visits to audiologists in the year after being fitted for the device. For those who fall into that category, the insurance and other benefits might make sense, but for most it doesn’t.
That, my friends, is what you call a market opportunity. Interestingly, the TechCrunch post doesn't discuss patents, instead focusing on other factors that have limited the market: the aforementioned exclusive deals with doctors, the lack of entrepreneurial presence since hearing aids aren't a "sexy" product, and the fact that many people are uncomfortable bypassing a healthcare professional when purchasing something like this. Embrace Hearing is turning all these problems into opportunities: they work with a new manufacturer who has no exclusive deals, they are trying to make hearing aids sexy (social stigma is the #2 reason people who need them choose not to buy them), and they are working on an online tool for testing your hearing.
I do wonder, though, if they will face patent problems in the future. Their German manufacturer is presumably operating in good faith, but that's never stopped a good patent showdown before, since aggressive companies like to use their patent portfolios as a way to control the market and crush competitors, regardless of how valid those patents are or whether any genuine infringement is taking place. If Embrace Hearing grows and is perceived by the incumbents as a threat, it's quite likely that they or their manufacturer will face litigation. Of course, all this just tells you they are on the right track: when the kings of a particular market defend their thrones through exclusive deals, patents and other monopoly protections—rather than by actually competing—it's a surefire sign that the market is underserved. And where there's an underserved market, entrepreneurs will eventually move in to capitalize on it. When that happens, existing monopoly protections can only delay the inevitable, but they can cause very real harm by doing so—and in an industry that effects the quality of life of millions of people, the public backlash against these monopolies can be huge. Any company that operates in the health and wellness space by selling at huge markups and relying on exclusivity would be wise to start thinking about their future in the long-term: if they don't meet the demands of the market, someone else will.