I suspect that two factors are at work here, and the post touches briefly on one of them: an inefficient market with an arguably unnecessary party to most transactions. As with many healthcare expenditures, there is a provider, a recipient, and then at least one third party to the transaction who either pays some or all of the cost or provides approval for the transaction based on some external criteria. This third party will always distort real market conditions, most often increasing the retail price of a good or service.
The other factor that springs to mind is regulation. Hearing aids are regulated by the FCC; but they're also considered a medical device, and as such they're regulated by the FDA. Getting a product through one labyrinthine regulatory approval process is a costly, time-consuming nightmare. I can only assume that getting two agencies to green-light a device must hellish.
Story via Slashdot.
A reader (who is an audiologist) sent me the following note, which politely underscores my ignorance of the subject matter. I don't think it disproves that there may be more parties to the transaction than necessary (i.e., an insurance provider or government agency), or that regulation is helping to drive prices up; but it certainly sheds light on the complexity of the devices as well as the field of audiology:
Actually, hearing aids are the most complex medical device made. The R&D that goes into the techonlogy brought you noise cancelling headphones, Bose sound systems, in-the-ear monitors etc., but manufacturers never fully see their return on investement because technology changes so rapidly. Mark-up is really not that high because typically follow-up visits, testing and even loss and damage is built into the device. They aren't mass-produced like cars, stereos, etc. and there is someone sitting there making your hearing aid (every model). However, hearing loss is the #1 most undiagnosed medical condition, and aiding a hearing loss brings more benefit to society than another procedure there is (heart, glasses, dialysis etc). So the cost is minuscule compared to the benefit. Alas, there is overhead (rent, equipement, staff, marketing). Audiology requires a doctorate. People want hearing aids to restore normal hearing and it doesn't. It can't, and so they feel the price isn't justified. But once they get hearing aids, they can't live with out them.