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A Live Baby or Your Money Back: The Marketing of In Vitro Fertilization Procedures

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  • David C. Schmittlein

    () (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104-6371)

  • Donald G. Morrison

    () (Anderson Graduate School of Management, University of California at Los Angeles, Los Angeles, California 90095-1481)

Abstract

Many clinics that offer in vitro fertilization (IVF) have begun to market the following options to couples: (1) an a la carte program where the couple pays $7,500 per attempt regardless of the outcome; or (2) a money-back-guarantee program where the couple pays a $15,000 fee that covers up to three attempts, however, if after three cycles there is no live-birth delivery, then the full $15,000 is refunded. We assess the a la carte versus the money-back-guarantee programs, and find the surprising result that the money-back-guarantee program appears (for the patients) to be "too good to be true." That is, the money-back guarantee yields a substantial negative expected profit per couple for the clinics. More importantly from the patients' perspective, the money-back guarantee is the better option for all couples with less than 0.5 success probability per cycle. Virtually all traditional IVF patients have had per-cycle success probabilities below 0.5. A detailed analysis of the key variables---i.e., success rate per attempt, heterogeneity of couples' rates of success, individual couples' "learning" on successive attempts, and cost to the clinic per attempt---shows that these money-back guarantees are unprofitable for the clinics. Since presumably clinics are not in business to lose money, the standard analysis must be missing something major. We suggest that the marketing of money-back guarantees is inducing couples who would previously have used---successfully---other less invasive procedures with fewer side effects and less risk of multiple births to decide to proceed directly to IVF, and that this scenario makes the money-back guarantees profitable for the clinics. The implications of earlier use of IVF are then considered from an overall public policy point of view. Just as mothers everywhere tell their children, "When something looks too good to be true, then it is too good to be true!"

Suggested Citation

  • David C. Schmittlein & Donald G. Morrison, 2003. "A Live Baby or Your Money Back: The Marketing of In Vitro Fertilization Procedures," Management Science, INFORMS, vol. 49(12), pages 1617-1635, December.
  • Handle: RePEc:inm:ormnsc:v:49:y:2003:i:12:p:1617-1635
    DOI: 10.1287/mnsc.49.12.1617.25119
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    File URL: http://dx.doi.org/10.1287/mnsc.49.12.1617.25119
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    References listed on IDEAS

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    1. Richard H. Thaler & Eric J. Johnson, 1990. "Gambling with the House Money and Trying to Break Even: The Effects of Prior Outcomes on Risky Choice," Management Science, INFORMS, vol. 36(6), pages 643-660, June.
    2. Haan, Ger & Rutten, Frans, 1989. "No cure, no pay: an acceptable way of financing fertility treatments?," Health Policy, Elsevier, vol. 13(3), pages 239-249, December.
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    Cited by:

    1. Wendy W. Moe & Peter S. Fader, 2004. "Dynamic Conversion Behavior at E-Commerce Sites," Management Science, INFORMS, vol. 50(3), pages 326-335, March.
    2. Miao He & Lei Zhao & Warren Powell, 2010. "Optimal control of dosage decisions in controlled ovarian hyperstimulation," Annals of Operations Research, Springer, vol. 178(1), pages 223-245, July.
    3. Anthony J. Dukes & Rajeev K. Tyagi, 2009. "Pricing in vitro fertilization procedures," Health Economics, John Wiley & Sons, Ltd., vol. 18(12), pages 1461-1480, December.
    4. Barton H. Hamilton & Brian McManus, 2012. "The Effects Of Insurance Mandates On Choices And Outcomes In Infertility Treatment Markets," Health Economics, John Wiley & Sons, Ltd., vol. 21(8), pages 994-1016, August.

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