- Hi guys, welcome back to the Dr. Cliff AUD vlog.
This is vlog number 120,
and I have to say first right off the bat,
happy mother's day mom.
Today is mother's day in the United States,
it really should be mother's day around the world
because moms are awesome.
Mom, you are included in that comment
and I will be calling you later today, I promise.
But, today's topic is actually
not gonna be about mother's day,
it is going to be about Eargo
and this massive settlement that they had
with the Department of Justice.
But before I get into that topic,
if you could do me a huge favor and click the like button.
As you know, it really helps out my channel.
And if you have not yet hit that subscribe button,
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So with that out of the way, let's go ahead
and get into this settlement of Eargo
with the Department of Justice.
So Eargo agrees to pay $34.37 million
to settle the common law and false Claims Act Allegations
for unsupported diagnosis codes.
So I've published a couple videos on this,
I think one like vlog video
maybe a couple months back when this was all announced
and then a couple of YouTube shorts and stuff like that.
But I think like a week ago,
we finally heard that there was a settlement in this case.
So this is actually really good news.
And I'll explain why.
Eargo has been dealing
with this kind of questionable interaction
with the Federal Employee Program
with submitting for insurance benefits
for their direct to consumer hearing aids,
their online hearing aids, right?
And it has really been taking a huge hit
on their stock price
over the course of the time as this thing has developed.
Well, here just recently,
they were able to reach this settlement
like a week ago with the Department of Justice.
So they finally kind of just like
have all of this behind them,
but there are some ramifications from it,
as well as a little bit more insight
into actually what was going on with this.
So obviously this is a huge amount
of money that they settled on, but this is basically,
they're not admitting guilt as to doing anything wrong,
that's what happens when you settle.
Now, I'm not a legal person, so I might be a little bit off
on some of the things that I say here
based on all of the information that I've read.
But according to the Department of Justice,
they take this obviously as a huge victory
because they feel like Eargo was doing fraudulent billing
methods
and basically submitting unsupported diagnosis codes.
So anytime that you go in and get a hearing test,
you will get a diagnosis
for whatever the hearing loss is that you have.
And there are a variety of different diagnosis codes
that can be come up with.
So the most common one I would say is H90.3,
which is bilateral sensory neural hearing loss.
But the thing with these direct to consumer,
like over the counter online hearing aid companies
is that if they are going to be submitting claims
to an insurance to get reimbursement from that insurance,
they have to submit a diagnosis code of some form.
And here's the thing,
when you buy these hearing aids online,
like you're not going anywhere to get a hearing test.
There's no requirement that you get a hearing test.
They could say, hey, go get a hearing test,
but if you don't have a hearing test
and you don't have a diagnosis
for what your hearing loss is,
what are you supposed to submit to an insurance company?
Well, they were submitting one of two codes,
either they were submitting H90.5,
which is unspecified sensorineural hearing loss.
So this is when you don't really know
what type of hearing loss that it is,
but it doesn't change the fact
that you actually have to receive this diagnosis
from someone who can diagnose you with it.
Like you can't just fill this in on a form
and submit it to an insurance company
and expect to get payments.
Now that is with my understanding,
of course, there could be a whole different understanding
and reasoning for actually doing the submission.
I didn't see anywhere in my readings from Eargo
why they felt like it was okay to do this,
but they had I imagine people internally
who like were totally cool with doing this
and felt like it was okay to do I presume.
Maybe they just got bad advice from a healthcare lawyer
or something like that, who knows?
The other code that they were submitting was H91.93,
which is unspecified hearing loss bilateral.
So again, it's one of those,
like we don't really know what the type of hearing loss is
but let's just put this diagnosis code down
so we can get approval to receive insurance benefit.
Now I have to imagine that the Federal Employee Program
run by Blue Cross Blue Shield
was starting to get a zillion of these
because they were their biggest third party payer for Eargo.
And they were probably getting
all these diagnosis codes being like,
why are we getting all these like unspecified
diagnosis codes?
I mean, wouldn't you think that
majority of these individuals
would get like an actual diagnosis
of sensory neural hearing loss or conductive hearing loss
or mixed hearing loss or something like that
that lets you know exactly what it is
and they weren't getting that.
So I have to imagine
that that's kind of what raised the red flag
over a year ago at this point,
I think we're over a year ago at this point
when this whole thing started happening.
But you know, as I look at Eargo here recently,
I think their stock price is down to like $2.24 cents
or something like that.
And it was up in like the 70s a year back
and they have just had
a horrible, horrible tumble from their highs.
And it's really all due to this insurance thing.
Now the company is restructuring
to be able to go without accepting insurance.
So I'm pretty sure that they laid off people,
they kind of reformulated
how they're doing things in their company
and focusing on the private pay individuals,
basically individuals who are not using insurance
to pay for these devices.
Now they did not rule out,
Eargo did not rule out
actually starting to accept insurance benefits again
and particularly from the Federal and Employee Program.
Right, so it's potential
that they could have discussions and be like,
okay, what do we have to do
to make sure we're compliant with this
and be able to get insurance benefits for patients again?
And I think it's critical to be honest with you.
I think that it's going to be
very difficult Eargo moving forward
if they do not have the ability
to accept insurance payment for these devices.
I mean this company, I think they said that their burn rate
of how much cash they spend each quarter
is like 20 to 25 million, somewhere in that range.
And then of course you have this
34 million settlement on top of that.
And that is a lot of money that leaves the company.
They need to make sure
that they are getting some private pay sales
in order to keep this engine moving.
Otherwise, things are not gonna be good
for this company moving forward.
Now, if you guys saw my review video
of the most recent Eargo 6 Hearing Aids,
I was actually pretty impressed with them
compared to previous generation devices that they've had.
So this company has shown that they can actually
do technological innovation from a hearing aid standpoint,
the question becomes is,
are they gonna be able to be alive long enough
to get it to the point where these hearing aids
are truly legitimate
in the scope of direct to consumer hearing aids
for the price point that they're at?
Because you know, when you compare them
to the Bose hearing aids,
which is a totally different story, I get it,
'cause they are just shutting their doors
for that whole program.
But when you compare the Bose hearing aids
being at like 900 bucks for a pair
and you've got these for being
three grand or over three grand for a pair
of hearing aids from Eargo, they're on the expensive side
so they had better work extremely well.
And I still don't feel like they're quite there yet
but the reason I don't feel like
they're quite there is more to do with
it's impossible to follow best practices
when getting a hearing aid from online.
Now I can have patients come into my clinic
and I've done this for Eargo, patients come into my clinic
and they have Eargo hearing aids and they wanna make sure
that they're set up the best way possible.
So I actually run them through real-ear verification
and all of that and and make sure
that they know how to do maintenance
on their own hearing aids
and make sure that their hearing aids are actually set up
to the best setting that they can possibly have.
And they end up having a little bit more success
with those devices for a period of time, right?
And so I do, I'm a fan of direct to consumer hearing,
it's because I do believe that it increases
access and awareness and affordability,
and I think that's an important thing.
And I think that Eargo has shown at least up until now
that from a technological standpoint
that they can be a serious player inside of this market.
And I think that if you asked Eargo,
and I know several people at Eargo
and I like the people that I know at Eargo,
I think that if you ask them, I think that they would feel
like they have a very robust technology there,
they just need to figure out a way
to get people to want to spend money
on those devices at that price point
without having to use their insurance.
And they, like I said,
I think they really need to figure that out.
Now, there is something else that's looming over Eargo.
And I've spoken with several individuals about this,
not necessarily at Eargo,
but the idea of a class action lawsuit by investors,
with this whole thing and with this settlement,
I don't believe that it is an admission of liability
on Eargo's behalf, but it can't look good
in terms of them settling this
and then having all these upset investors
who had purchased stock, either during the IPO or whatever,
before the IPO or whatever,
people who had invested in this company
and then because of these perceived fraudulent activities
that Eargo was undergoing
that it drove the stock price like into the ground,
they were down like 93% since their initial IPO
or at least since the high,
because they were at like 70 some dollars
and now they're at like $2,
and this company cannot go much lower.
And I don't know how much money that they have left
to be able to weather another lawsuit like this.
Maybe they can, maybe they can't,
but they're gonna have to raise more money somehow
and I don't know how they're gonna do that.
It's kind of a tricky thing for Eargo.
And like I said,
I do wanna see Eargo kind of come out of this, right.
I want them to get all of this stuff behind them
so they can just focus on like
being a part of this over the counter hearing aid market
when it becomes official, whenever the FDA guidelines,
the final guidelines come out, right?
But it is good to see
that this Department of Justice investigation is settled.
They don't have to worry about it anymore,
I don't have to hopefully report on it anymore
and we can just all kind of put it behind us
because at the end of the day,
the goal that I have and that you probably have
is just make sure that we're all hearing better, right?
Like that's the ultimate goal.
And if Eargo can play a role in people hearing better,
then we absolutely want them to be around
to help us do that.
So that is really all I wanted to talk about today.
I know it's really kind of just like,
let's just get this out of the way
and never really talk about it again.
And maybe you found this interesting, maybe you didn't,
regardless I feel like it's important to understand
what's going on in the world of hearing healthcare
because things are changing like crazy.
And this probably isn't the last time
that we'll see a company have to go through
these learning curves because this is such a new market
when you really think about it and everything becoming
as legitimate as we can possibly make it online.
But nonetheless,
that is enough of my rambling for today, guys.
I hope you enjoyed the video today.
If you did, make sure that you hit that like button,
and as always, I'll see you next week
(upbeat ambient music)