The growth in new ambulatory surgery centers has leveled off the past few years, and healthcare attorneys, investors and executives are seeking new business opportunities. The rapidly growing industry of In Vitro Fertilization (IVF) laboratories closely resembles the growth and financial returns generated by ASC industry in the early 1990s.
Basics
IVF is the process of fertilization by manually combining an egg and sperm in a laboratory. The demand for IVF treatment has grown 
substantially in the U.S. (and globally) as an increasing percentage of the female population is delaying childbirth until later in life and technological advancement has helped achieve higher IVF success rates at a lower cost.
Reproductive endocrinologists (REs) are the medical specialists which focus on infertility treatment, and therefore refer patients to IVF laboratories for treatment. REs are traditionally OBGYNs with fellowship training in reproductive endocrinology.
In the IVF treatment process, REs perform the egg retrievals and transfers in surgical suites, before and after the actual fertilization process. The IVF laboratory itself is led by an embryologist likely holding a PhD degree and working under the medical direction of one or more of the referring REs.
IVF labs are not certified by Medicare or Medicaid like ASCs or hospitals, but some states do have their own licensing processes for tissue banks or laboratories which may apply to IVF labs. Because these labs perform testing on humans, they are required to minimally seek federal laboratory certification (CLIA). IVF labs may also voluntarily seek accreditation from the Commission on Laboratory Accreditation of the College of American Pathologists.
Treatment Process
The IVF process starts with ovarian stimulation. Special drugs are administered to female patients that causes many eggs to develop. The eggs are surgically removed via a retrieval (extraction) procedure performed in a surgical suite under sedation.
Eggs are traditionally fertilized by exposing them to sperm. However, for some couples infertility may be the result of the biology of the male rather than the female. Male biological factors like low sperm count may make fertilization challenging. In these situations a technique called intracytoplasmic sperm injection (ICSI) is used to inject sperm directly into an egg.
When fertilization is successful the embryo(s) are transferred and surgically implanted back into the female patient's uterus.
Pre-genetic screening (PGS) and pre-implantation genetic diagnosis (PGD) are procedures that have the ability to determine genetic information about an embryo before it is transferred back into the uterus. Assisted hatching is also technique that can be used to improve success implantation rates. Patients may also elect to have excess eggs or embryos frozen for future procedures through a fast freeze (vitrification) or a slow freeze process.
Business
IVF labs are pretty simple when compared to other outpatient medical businesses like ASCs, imaging centers, and home health agencies. The medical benefit plans for Medicare, Medicaid and most health insurance companies do not include IVF as a medically necessary treatment. This means that the vast majority of the patients pay cash. Nationally, the average fresh cycle cost is $12,000 when using eggs immediately after an extraction. Genetic screening may cost another $3,000 to $6,000. Frozen cycles using frozen eggs from prior extractions may be $3,000 to $5,000 each. An outpatient surgical suite is required for retrievals and transfers. The surgical suite must adhere to the surgical licensing requirements of the state, but not Medicare (federal). Incubators, freezers, microscopes, and special HVAC equipment is necessary. The capital costs and on-going overhead expenses associated with operating a combination IVF lab and surgical suite are generally much lower than a fully built-out one or two operating room surgery center. IVF profit margins can reach 50 percent or greater with ample patient volume. Furthermore, these margins can be further augmented through the addition of add-on services such as genetic testing and "egg banking."
The medical practices of the RE physicians are often separate and distinct from the IVF labs themselves, so IVF lab investment is usually fair game for outside investors from a corporate practice of medicine standpoint.
It is logical that IVF Labs and national ASC operators will seek future partnerships. IVF labs seek an equity partner with a proven track record of growing a healthcare business and the capabilities to synergize and leverage certain corporate functions (supply chain, data warehouse, etc.). ASC operators may look to expand into new growth markets as the ASC industry matures and de novo and /or acquisition opportunities become more difficult to identify.
Kyle Tormoehlen, ASA, MBA, is a co-owner of Healthcare Transaction Advisors. He can be contacted via kylet@hctadvisor.com or (303) 800-6444.