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IVF center consolidation accelerates

IVF center consolidation accelerates

With outside financing pouring in, commercialization of IVF practice continues in the New York region, with implications on patient care

We previously reported in the pages of the VOICE that the infertility industry all over the world is in a race toward consolidation. The concept of establishing nationwide medical practice networks actually first arose in the 1990 when, literally overnight, multi-billion practice networks were bought up by investors, with the idea of serving a quickly consolidating medical insurance industry, which in only a few short years had radically reformed itself from being run by regional medical insurance companies to national players, as bigger insurance companies swallowed up smaller ones or merged to create a size more appealing to investors.

What later on Wall Street was called the “physician practice management bubble,” ended as quickly as it had started after two of the leading practice management companies reported disappointing earnings. Within less than a year, billion-dollar companies had disappeared, and many investors were left with egg on their faces.

Consolidation of medical practices became in the U.S. again popular when Obamacare introduced the concept of comprehensive provider networks, including hospitals and physicians, as contract combined partners for insurances and government. Hospitals, especially in big cities, therefore, started buying up private practices all over the country, resulting in some cities in the almost complete disappearance of private practice.

Because this model was expected to result in cost savings, hospitals were expected to unify practice patterns following agreed-to standards of care, also alleged to improve quality of care. As so often is the case, things did not always work out as expected: Cost savings were not really possible when many services, previously performed in private offices, were moved into hospitals, where hospitals’ additional overhead charges (which the government allows) actually increased costs. It, therefore, remains to be seen how this experiment with the U.S. health care system will work out. Our prediction is that within a few short years we will experience a substantial physician deficit in private practice, and physicians will, once again, leave low paying hospital employments and reopen private practices.

But this is not meant to be the subject of this communication. Here, we, specifically, want to concentrate on what is happening in the infertility arena because almost no week passes without yet another U.S. IVF center having sold out to outside non-physician investors. This trend in infertility practice first started and peaked in Australia and New Zealand, where now only three companies control almost 100% of the IVF market. Since this consolidation has taken place, IVF live birth rates in Australia and New Zealand have plummeted, currently standing at approximately 15% of IVF cycle starts (less than half of U.S. rates).

Concomitantly, costs of IVF services have increased for a variety of reasons, not the least because of introduction of “add-ons” to routine IVF, which do not, as promised, improve IVF outcome, and in some patients actually decrease pregnancy and live birth chances. If one follows Australian media reports, the public also appears increasingly dissatisfied with IVF services.

Entry of investor money into IVF practice in Australia/New Zealand apparently negatively affected outcomes and, at the same time, also raised costs. This, of course, should not surprise. After all, after outside investments, IVF centers not only, as before, must earn the upkeep of staff and other expenses but, must service the debt of the investment and demonstrate profit. As purchasers of IVF practices in the 1990s quickly noticed, that can be extremely difficult because financial incentives for physicians rarely work if they are guaranteed a reasonable base salary. As a consequence, at least in the 1990s, revenues usually decreased in first years after purchases by as much as a third.

Considering what happened in the 1990s, one would expect investors to be aware of this risk and cautious in their practice purchases. Interestingly, some we spoke to were not! Who fails to study history is, of course, destined to repeat the same mistakes and this is, as we believe, currently happening.

IVF center consolidation accelerates

Investors cannot afford declines in revenue because such a development immediately debases their investment. As a consequence, medical practices are under tremendous pressure to develop new revenue sources, and this is where above-noted “add-ons” come into play. Once that happens, IVF cycles, which are already prohibitively expensive, significantly increase further in costs without benefit for patients and, in many cases, actually resulting in reduced pregnancy chances.

The IVF field is not alone in demonstrating these negative effects from investor-driven consolidations. Another area in medicine that is perceived by Wall Street as a similarly favorable target for consolidation, is dermatology. Lo and behold, a huge scandal just broke in the New York Times a few days ago. (David E. Sanger, New York Times October 27, 2018, page B1): Like in the IVF field, large sums have been spent by investors in buying up private dermatology practices. Early in October the Journal of the American Academy of Dermatology (AAD) published on its website a study that had investigated the consequences of this development. Once an article is peer reviewed and appropriately revised, it may be accepted for publication. When this happens, the paper is considered “in press” and usually appears in print within a few weeks to months.

In this case, however, the already accepted “in press” paper, suddenly, disappeared from the website and, when authors and others started to inquire why and how that could have happened, no reason was given.

As it turned out, the editor of this prestigious journal found himself under tremendous pressure from private equity firms that had invested in the field and from prominent dermatologists, some in the highest ranks of the Academy after the paper appeared on the journal’s website because, as observed in association with IVF, dermatology practices also demonstrated immediate negative outcome effects once they were under control of outside financial investors. One of the findings was that investors primarily acquired practices that were billing outliers, i.e., billed more than other practices. Moreover, once acquired, many practices opened their own pathology labs, creating an opportunity for further expanded billing.

This undue influence of financial interests on practice, of course, does not only exist in dermatology. The IVF field has been experiencing it for years, and we on a number of prior occasions pointed out obvious conflicts of editors of medical journals in our field, which affected which papers were or were not accepted for publication. Similarly, economic influence of investors must be anticipated. After all, their obligation toward their stake holders is profit and improving valuations for their investments. It remains the physicians’ responsibility to protect patients when all of the changes are happening.

And this is where, in our opinion, the field has failed, not only in Australia and New Zealand but also in Europe, Asia and here in the U.S. We are writing this article because in this country we are still at the relative beginning of these changes, though they are speeding up quickly. The table summarized New York-area practices that now are under investor management or strong investor influence. Remarkably, even the New York University Langone Fertility Center has recently joined one of the biggest investors in the field, Prelude Fertility.

IVF center consolidation accelerates

Another reason why we here at CHR are skeptical about this investment boom in IVF is, paradoxically, that insurance coverage for IVF is expanding. Insurance reimbursement rates, however, have not increased in over a decade and, indeed considering inflation, have significantly declined. It, therefore, is very difficult to even cover costs of IVF cycles, when reimbursements only come from insurance companies.

And this is yet another reason why above twice noted “add-ons” come into play. They usually are not covered by insurance and, therefore, clinics are free to charge even insured patients for their use. An IVF cycle reimbursement of, let’s say $4,500, then can easily grow to $8,500, if PGS/PGT-A, for example, is added to the cycle together with additional “add-ons.” Many IVF centers, especially those who serve many patients with IVF insurance coverage, therefore, have become financially dependent on “add-ons” to remain economically viable, even if they do not improve IVF outcomes and, sometimes, even may lower pregnancy and live birth chances.

Since we believe that most useless “add-ons” are under increasing pressure (PGS/PGT-A included; see also the article on PGS/PGT-A 4.0 in this of the VOICE), we remain skeptical about the ability of average IVF clinics in the long run to be able to significantly expand revenues.

Because of the unique patient population CHR serves, our center, fortunately, is not under these economic pressures and can afford to offer our patients the treatments they need, and not treatments that run up cycle revenues. With only less than 15% of CHR’s patient revenue coming from insurance company payments, we are in a position to charge for CHR’s services commensurate with the costs of our services. Since over 90% of our new patients come to CHR after they have had, usually multiple, failed IVF cycles elsewhere, they quickly recognize the differences between CHR’s treatment approaches and what they had experienced before, and between CHR’s and others' service levels.

Our healthy margins also permit us to offer generous income-based discounts for patients without insurance coverage for IVF and for active duty military personnel.

CHR’s long-term strategy is, therefore, no secret: The more other IVF centers are absorbed into these rapidly expanding commercial clinic chains, the more CHR’s services will be needed and appreciated because CHR's individualized approaches to fertility treatments, simply, cannot be replicated in a chain-clinic organization.

This is a part of the November 2018 CHR VOICE.

Norbert Gleicher, MD

Norbert Gleicher, MD, FACOG, FACS

Norbert Gleicher, MD, leads CHR’s clinical and research efforts as Medical Director and Chief Scientist. A world-renowned specialist in reproductive endocrinology, Dr. Gleicher has published hundreds of peer-reviewed papers and lectured globally while keeping an active clinical career focused on ovarian aging, immunological issues and other difficult cases of infertility.

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