Impact of the BHI Physician Referral Development Program on Net Hearing Aid Sales

1. Impact of the BHI Physician Referral Development Program on Net Hearing Aid Sales June 2004 Washington DC

2. Introduction • The Physician Referral Development Program was designed to generate incremental referrals from physicians to hearing health providers. • Development work CY2000 with roll-out starting in January 2002. • A successful program should translate into more HOH people seeking hearing solutions. • Subjectively dispensers report significant physician referrals and incremental hearing aid sales.

3. Objectives • This study will objectively validate dispenser perceptions of the effectiveness of the physician referral development program. • To be fair --- effectiveness is a function of: • The physician referral program per se + • The extent to which dispensers ACTIVELY USE the program according to BHI instructions • The extent to which the consumer has a positive experience which is reported back to the physician

4. Methodology • Select test markets meeting 2 criteria: • At least 10 dispensing outlets in market • At least 20% market penetration of PRDP • Market = Metropolitan Statistical Area (MSA) or county. • Original sample size = 392 control and 392 PRDP retail outlets. • Match PRDP participants with non-PRDP dispensers (controls) by zip code. • Collect monthly net hearing aid sales for CY2001-CY2003 from manufacturers and compile sales at dispenser level. (Achieved 100% participation)

5. Asheville, NC Atlantic-Cape May, NJ Beaufort SC-County Benton Harbor, MI Grand Junction, CO Macon, GA Medford-Ashland, OR Redding, CA Santa Cruz-Watsonville, CA South Bend, IN Yakima, WA Boise City, ID Deschutes OR-County El Paso, TX Eugene-Springfield, OR Fresno, CA Johnstown, PA Little Rock-N Little Rock, AR Mansfield, OH Modesto, CA Barnstable-Yarmouth, MA Citrus FL-County Fayetteville-Springdale, AR Punta Gorda, FL Vallejo-Fairfield-Napa, CA Albuquerque, NM Saginaw-Bay City-Midland, MI Stockton-Lodi, CA San Antonio, TX Providence-Fall River, RI-MA Fort Myers-Cape Coral, FL Tucson, AZ Charlotte-Gastonia, NC-SC Riverside-San Bernardino, CA Denver, CO Portland-Vancouver, OR-WA San Diego, CA Los Angeles-Long Beach, CA Boston, MA-NH Chicago, IL Test Markets

6. Methodology • Measure net hearing aid sales trend prior to the PRDP (start month = Feb. 2002). • Not enough complete information to seasonally decompose sales history at the dispenser level. • Use the dispenser’s average hearing aid sales for CY 2001 as their baseline. • Three controls: • Manufacturers blinded on PRDP participation • Sales trend prior to PRDP program (baseline) • Control peers within same metropolitan statistical area.

7. Methodology • Use statistical regression to isolate the effects of the PRDP program: • Pre-PRDP baseline sales (average monthly sales for CY2001) • Time in the PRDP (months) • 1-22 months for participants • 0 months for control • Industry sales trends • Year and quarterly CY2002-CY2003 • Important to remove economic recovery in latter part of CY2003.

8. Methodology • Data cleaning – exclusions of dispensing outlets • Not possible to isolate the ship-to and bill-to locations (conversations with manufacturers). • CY2001 baseline data missing • Average month hearing aid sales <4 for either the baseline or the outcome months (CY02-CY03) • Removes small remote offices • Targets established practices that are known to most manufacturers • Removes outlet translation problems (e.g. differences in direct mail and manufacturer database identifiers) • Questionable records involving duplication of records, address confusion (11 outlets).

9. Cumulative PRDP Enrollment in Final Test Markets

10. Final Samples • Dispensing Outlets • 201 controls • 264 PRDP participants • 465 total • Monthly analysis • 5,007 control months • 2,220 PRDP months (< year in program) • 3,721 PRDP months (> year in program) • 10,948 total months

11. Results

12. Average Hearing Aid Sales Prior to Statistical Modeling and Controls Means Sample sizes

13. Statistical Model (Prediction of Monthly Hearing Aid Sales Rsq=.56) Model 1b shows impact of increasing sample size by 60 outlets for PRDP participants in program less than one year.

14. Results of Model • Model #1 • PRDP participants < 1 year in the program contribute one half hearing aid per month. (85% confidence level) • If the sample size were increased by 60 outlets (model 1b): • New PRDP participants contribute .71 hearing aids • At 93% confidence level • PRDP participants >= 1 year in the program contribute .91 hearing aids per month. (99.9% confidence level). The probability of this finding occurring by chance is 1 out of 1,000 studies of a similar nature.

15. Results of Model • Model #2 • Assumes no contribution of PRDP participants with less than a year of experience, because the probability is 15% that the positive finding is due to chance. • PRDP participants >= 1 year contribute .71 hearing aids per month (99.5% confidence level)

16. Results of Model • Recommendation is to accept model #1. Most likely the weaker finding for the newer participants is due to the small sample size (n=99) versus mature participants (n =163). • Assuming an average retail price of $1,810 (HR June 2003) the incremental retail impact based on 1,729 participants as of 12/03 is: • CY03: 3,521 units, $6.4 million • CY04: 15,954 units, $29 million

17. Recommendations • Communicate findings to HIA members and also non-HIA members who participated in study. • Prepare this study for publication for dispenser community. • Communicate results through direct mail campaign with PRDP flyer and reprint to dispensers as a means of: • Motivating new participants to join • Getting old non-participants to become active in the referral program.