Baby Makers Inc.

Diane Alston had almost given up hope. For a decade she took hormone injections, had surgery and logged dozens of hours in doctors' offices in hope of becoming pregnant. As a last resort, she called on Pacific Fertility Medical Center, a for-profit facility that performs in vitro fertilization. The process hardly guarantees results: on any given attempt, the chances of getting pregnant are dauntingly small. But Alston, now 39, and her husband, Daniel, were among the lucky ones. Over three years, she gave birth to three children-son Stephen, now 3 1/2, and 7-month-old twins, Samantha and Amanda, all conceived by IVF. The total cost was $40,000, but to the Alstons, it was a small price to pay. " If you really want kids, you just do it," says Diane.

Thanks to couples like the Alstons, who have rolled the dice and won, the business of high-tech baby making is booming. With millions of baby boomers' biological clocks winding down, more than $1 billion will be spent on fertility services in the United States this year. Since 1985 the number of facilities offering so-called assisted reproductive technologies has grown eightfold (chart). Many of these facilities are hospital clinics, but an increasing number of for-profit fertility "institutes" are also springing up. IVF America, one of the companies that pioneered in vitro fertilization in the United States, hopes to raise $15 million in a public offering next month to fund a series of ambitious expansion plans. But combining baby making with moneymaking can have its problems. Says Rep. Ron Wyden (Democrat of Oregon), who has called for increased government regulation of fertility services, " The field is ripe for those who would want to exploit families."

The fertility business has operated without federal regulation--or research dollars-for nearly two decades. The government issued a 1975 moratorium prohibiting federal funding for the study of assisted reproductive techniques like in vitro fertilization. With no government grants, today's fertility centers have had to look to venture-capital firms, pharmaceutical companies and patients to pick up the tab.

That hasn't stopped the proliferation of complex services, which are often expensive and emotionally draining for consumers. The new wave of fertility clinics offers a full range of technologies-an alphabet soup of acronymic procedures that involve stimulating and fertilizing eggs harvested from the ovary and implanting those that seem most viable. In addition to IV-F, there's GIFT (gamete intrafallopian transfer), which allows egg and sperm to unite inside a woman's fallopian tubes, and ZIFT (zygote intrafallopian transfer), where doctors implant the fertilized egg. IVF using donor eggs is also becoming more common. Success rates for the procedures vary widely, depending on how they are reported. But according to a report in the journal Fertility and Sterility, the average take-home baby rate in 1990 was 15 percent per attempt.

Despite the odds, some clinics figure they can become the Burger King of baby making. California's PFMC, which hopes to expand in 20 new locations, already has offices in San Francisco Sacramento, Torrance and Greenbrae, Calif. Greenwich, Conn's IVF America (formerly IVF Australia) will add clinics in Livingston, N.J., and Troy, Mich., to the four it already operates. Harley Earl, vice president of PFMC's holding company, contends that a rise in the attention paid to fertility problems and an increased number of women seeking treatment bodes well. "The market," he says, "has barely been scratched."

When compared with hospitals, chains like Earl's could have some big advantages. Because they serve many more patients, they theoretically could gather more data more systematically, standardize their procedures and ultimately lower costs, says Dr. Andrew Senyei, an obstetrician and partner in the California-based venture-capital firm Enterprise Partners.

The chains also seem to have a knack for Madison Avenue-style marketing. When IVF Australia came to Boston in 1988, the company targeted patients who felt they'd been through a wringer at other programs, says one Boston attorney who specializes in fertility law. In addition to state-of-the-art laboratories and operating rooms, the company created a comfortable area for spouses and staffed it with hand-holding therapists, nurses and a financial counselor. At all its locations, IVF America markets itself with ads and informational seminars. The public-relations piece de resistance: parties where the guests of honor are its "products"-legions of wide-eyed, cherub-faced children. "There's a certain amount of merchandising in IVF," says Dr. Alan DeCherney, chief gynecologist at Boston's New England Medical Center. "It's tough for people in university centers to hype what they do."

But success hasn't exactly been as easy as taking candy from a baby. IVF America, for example, has run afoul ofthe Federal Trade Commission for allegedly misleading consumers about its success rate. As recently as December the agency rejected some of the firm's promotional materials, saying they might give patients the wrong idea. (IVF says it has complied with FTC regulations.) After seven profitless years the company's fortunes may be turning around. Though the expanding company is still in the red, its four centers produced a $647,000 profit on $3.1 million revenues in the first quarter of 1992. According to the stock prospectus, IVF America's plans include managing clinics, not just owning them.

Some experts say the profit potential at clinics like IVF America's is promising. At a charge of roughly $7,000 to $11,000 per cycle, a well-run center can break even after 50 procedures, says a former IVF America employee. The future maybe especially bright for clinics in one of 10 states where some form of health-insurance coverage of infertility treatment is mandated. Serono Laboratories, the only company in the United States allowed to sell the fertility drug Personal (cost: as much as $2,000 per month), also stands to gain. But critics like Representative Wyden continue to raise questions about clinics operating at the mercy of corporate boards. Will they be under increased pressure to present results in a positive light even if it is misleading to consumers? And can they be counted on to advertise responsibly?

Some efforts at regulation have already paid off. The Society for Assisted Reproductive Technology, a Birmingham, Ala., watchdog group, recognizes only clinics that attempt 40 IVF procedures a year and produce three live deliveries. The organization publishes an annual list of clinics' results. Meanwhile, Wyden has introduced legislation that would require facilities to report their success rates to the Department of Health and Human Services. Beyond the potential for misrepresentation, however, is a fear that clinics will prey on women's false hopes. In reality, doctors say, most who seek their services fully understand the odds and choose to try to beat them--even at the risk of disappointment. Such was the case with Alston, who says she would have relentlessly continued her quest for a baby-even if it meant exhausting her savings. Until the success rates improve, that type of determination may be just what America's baby-making industry is banking on.

High-Tech Fertility

Between $7,000 and $11,000 a try for most high-tech procedures. It can take several tries to achieve a single pregnancy.

About 15% of high-tech attempts lead to births; 22% are multiple births.

An estimated 250 in the nation, up from only 30 clinics in 1985.

Not covered by most insurers, although many will cover some diagnoses and treatments of medical conditions-like blocked fallopian tubes-that can cause infertility.

Ten states-Md., Ark., Texas, Hawaii, Mass., Conn., R.I., Calif., N.Y. and Ill.-require insurers to pay for some form of infertility treatment. Several of the states mandate coverage for certain in vitro fertilization attempts.

SOURCES: AMERICAN FERTILITY SOCIETY/THE SOCIETY FOR ASSISTED REPRODUCTIVE TECHNOLOGY

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