This post co-authored with Robert J. Stillman, M.D., FACOG, Medical Director, Emeritus of Shady Grove Fertility, Rockville, MD.
A recent article in the American Economic Review examines externalities—behaviors that impose unpriced costs on third parties—in the context of in vitro fertilization (IVF). Patients often pay for IVF treatment out of pocket while the costs associated with birth are almost always covered by insurance. Because of this difference in who pays, and how patient choices can impact the size of birth costs, externalities are created when patients’ decisions impose increased costs on third parties.
Patients who pay for IVF treatment with their own funds face a tradeoff between the number of embryos transferred, IVF success rate, and the likelihood of more expensive multiple births. While improved IVF laboratory technology has increased the success rates with just a single embryo for many patients, others feel (at times correctly) they may improve the likelihood of a successful birth of at least one infant if they transfer more than one embryo at no additional cost.
That strategy, however, increases the likelihood of twins or triplets with greater medical costs for which the patients do not explicitly pay. IVF patients now account for approximately 50 percent of all higher-order births, “which are generally four (twins) to sixteen (triplets) times more expensive than a singleton birth.” The average cost of a single IVF birth and associated medical care, often more complicated for mothers and infants, is $26,922 while twin and triplet births cost $115,238 and $434,668, respectively.
Thus, patients face trade-offs “between delivery costs (which are large when twins and triplets occur) and IVF treatment costs (which [at $10,000–$15,000 per cycle of treatment] are large when many attempts are needed until success).” But, because the increased delivery costs are owed by insurers, the externalities are not priced into the costs patients face when deciding to transfer multiple embryos.
Today, medical success with the use of cryopreserved “frozen” embryos allows patients to transfer fewer embryos without the risk of not having non-transferred embryos available for a second separate try (or second or more children) from the same ‘fresh’ IVF cycle. However, a second transfer using frozen embryos brings additional costs, and, while less than the full ‘fresh” IVF cycle, the incremental costs are rarely covered by insurance.
Some countries manage the IVF externality through direct regulation by imposing caps on embryo transfer. “While single embryo transfer is uncommon in the United States (only 10 percent of IVF cycles in 2009 involved a transfer of one embryo), it is widely practiced in Europe. For example, 69 percent of IVF cycles in Sweden transfer a single embryo and in Belgium it is required.” The proportion of single embryo transfers in the United States is increasing as a result of improved success rates for each embryo transferred, but the frequency still does not reach those found when insurance coverage is extensive or there is state-imposed regulation limiting the number of embryos transferred to one.
Other than direct regulation, two other traditions exist in economics to guide the management of externalities. The first is associated with the work of Arthur Pigou and suggests that the government impose a price on the unpriced behavior. The second tradition is associated with Ronald Coase and suggests that in the absence of large negotiating costs, parties can solve externality problems through contract.
The article explores IVF externalities in the tradition of Pigou: charge patients the marginal expected costs of multiple embryo transfer. Given the increased medical costs of extra births described above and the probability of successful birth, the authors calculate that the appropriate marginal expected cost for two embryos is about $12,000 and $19,000 each for three or four embryos. The article is silent on who would receive the extra revenue from the fees. If it were the treating IVF clinic, it would have incentive to recommend transferring more embryos rather than fewer unless it was expected that the clinic had to pay the insurance company for the expected extra pregnancy costs.
A third possibility is guaranteed outcomes, which reduces the incentive for multiple embryo transfer and its higher likely medical costs. The article considers such a possibility but not in great detail. This blog post explores options in the context and experience of the largest IVF practice in the United States, including guaranteed outcomes.
In the tradition of Coase, one would predict that health insurers and IVF practitioners would strike a bargain in which insurers would cover IVF costs for the currently uninsured in return for single embryo transfer until successful pregnancy occurred. This bargain would reduce multiple birth outcomes and save the insurance company more money than it spends on IVF cycles compared to the costs from the complications to mother and infants—some lifelong—from multiple pregnancies. And the insurance company could, in turn, share some of the savings with IVF practitioners who employed single embryo transfer until success occurred.
One insurance company embarked on a trial of incentivizing patients to use single embryo transfer by covering the IVF clinic’s fees of a transfer of a cryopreserved embryo if the couple transferred a single embryo on their first ‘fresh’, but unsuccessful, embryo transfer. This resulted in an increase in the number of the couples utilizing single embryo transfer(s). Unfortunately, other insurance companies did not follow this initiative, and the number of patients who could take advantage of this arrangement remained limited.
Other approaches were initiated by the fertility clinic. One was an offer to insurance companies to share in cost averaging. The offer was that the clinic would receive no payment for otherwise covered services if triplets were conceived, an intermediate payment if twins were conceived, and a premium payment if the pregnancy was a singleton. Unfortunately, insurers, despite understanding the benefit of lowering their own expenses, were stymied by an arrangement outside their traditional payment model and having a contract with this innovation with some clinics and not others. And, while the model was between the clinic and the insurance company, it did not include any incentive to patients to decrease their risk-taking behavior of choosing multiple embryos for transfer.
While there have been attempts like those above to find innovative ways to work with the proportion of patients with IVF insurance coverage and with those insurers, most patients do not have such coverage, and insurers do not seem to appreciate enough advantage in reducing multiple pregnancy by providing coverage but incentivizing single transfers.
Instead of attempting to achieve Coasian bargains with insurance companies, the fertility clinic has introduced several pricing initiatives voluntarily to minimize risk for patients and their pregnancies. The first offered non-insured patients who elected single embryo transfer a 50% reduction in the fee for a subsequent transfer of a frozen embryo. This reduced the incentive for initial multiple embryo transfer to avoid the costs of a second transfer. A number of patients have, and still, utilized this offer, although many more wish to enroll in the clinic’s additional initiative, a 100% refund guarantee program.
For a premium, the Shared Risk 100% Refund Guarantee Program offers patients a full refund if they do not deliver a live-born baby. The premium is approximately twice the fee for a single cycle and is held in escrow. In return, the patients get up to six (6) full IVF cycles, including all the fresh and frozen embryo transfers from embryos derived from those 6 cycles. The fee in escrow is ‘earned’ by the fertility clinic only when a baby is born. If a baby is not born, or the couple wishes to discontinue care before the 6 cycles and transfers are completed, they receive a full 100% refund. “The basic principle of Shared Risk 100% Refund Guarantee Program is that it provides patients an insurance against failure.” A number of IVF clinics nationwide have adopted versions of this type of guarantee program.
The criteria for acceptance at the IVF fertility clinic are liberal and based on the clinic's historical actuarial likelihood of success for each patient who applies. Approximately 90% of applicants are accepted and almost all enthusiastically accept, even those with a very high prognosis for success on the first cycle. They are willing to pay more for insurance against repeated payments or ultimate failure. The fertility clinic is incentivized to maintain high success rates and have patients be successful quickly. And the patient no longer has an incentive to transfer more embryos to avoid the costs of repeated implantation cycles. Thus, importantly, the interests of the clinic and the patients are aligned. “Our patients with insurance coverage or participating in the Shared Risk 100% Refund Guarantee Program chose single embryo transfer at significantly higher rates than patients paying themselves for each cycle, supporting the contention that, freed from the immediate economic pressures, patients will be more likely to choose to avoid the risks of multiple pregnancy. And the more dollars patients paid out of pocket for a cycle the less likely they elected single embryo transfer.”
Externalities in IVF could be controlled by governmentally regulated caps on embryos transferred; by government-imposed costs for more than one embryo transferred (a la Pigou ); or by insurance company coverage of IVF (al la Coase), all of which of can regulate or incentivize safer single embryo transfers. Short of any of those approaches, an individual clinic may play a role with a) continued quality improvement in the laboratories increasing the likelihood of success with a single embryo (mitigating the goal of patients to increase their odds of success and avoid repetitive cycle costs); b) with educational programs to patients about the risks of multiple pregnancy and c) economic initiatives to insurance companies (yet unsuccessful) or direct economic incentives to patients with fee reductions or refund guarantee programs.
 Barton H. Hamilton, Emily Jungheim, Brian McManus, and Juan Pantano, “Health Care Access, Costs, and Treatment Dynamics: Evidence from In Vitro Fertilization, American Economic Review 108, no. 12 (2018): 3725–3777.
 P. 3726.
 P. 3730.
 P. 3767.
 P. 3731.
 Arthur Pigou, The Economics of Welfare (London: Macmillan 1920).
 Ronald H. Coase, "The Problem of Social Cost," Journal of Law and Economics 3 (October 1960): 1-44.
 Hamilton, p. 3766.
 Robert J Stillman, Kevin S. Richter, Nicole K Banks and James R Graham, “Elective single embryo transfer: a 6 year progressive implementation of 784 single blastocyst transfers and the influence of payment method on patient choice,” Fertility and Sterility 92, no. 6 (2009): 1895- 1906.
 P. 1898-1899.
 P. 1903.