The $3 billion reason Progyny is breathing new life into fertility benefits

On a recent visit to one of their clients, a large tech company, Progyny CEO David Schlanger spotted a whiteboard in the health-care manager's office. On it was a running count of how many babies had been born to employees of that company using Progyny's services. The number was about 50. The health-care manager didn't put that there for his benefit, Schlanger said — it's just something that was important to the client.

That's what Progyny aims to do nationwide — provide fertility benefits for employees of large companies. And that means helping women have more babies with the best possible outcomes.

"Our business model is dependent upon providing value to employers. And cost is only one element of value. The other, more important element is the outcome. We are much more focused on the experience our providers provide to our patients and the outcomes they create," Schlanger told CNBC.

Traditionally, companies that cover infertility give employees a cap on how much they can spend on treatments. But even before getting to in vitro fertilization, the necessary tests and screenings can burn through most of a budget (a single round of IVF can cost $12,000, not including medications).

To keep costs down, patients and providers could try to cut corners, skipping tests that could indicate if an embryo is viable and instead implanting multiple embryos. That would result in lower success rates for IVF, more dangerous pregnancies and multiple births.

And ultimately it would end up costing employers more: Employees trying to get pregnant would be stressed out and distracted, decreasing productivity. And hospital bills for high-risk pregnancies or premature delivery (more common with multiple births) could run tens of thousands of dollars more than a standard single birth.

Progyny "turns the insurance model on its head," Schlanger says. The company is more concerned with value and patient outcomes, so it doesn't want anyone to cut corners. Procedures including IVF and pre-implantation genetic screening are covered at almost 450 clinics nationwide, the largest network of reproductive endocrinologists in the country. Some employer plans also cover surrogacy. Each patient is assigned a Patient Care Advocate to help them understand the risks and benefits of each procedure and provide emotional support throughout the process.

The result is better outcomes, according to Schlanger. With IVF, he said, Progyny clinicians have a 20 percent higher success rate than the national average, and the rate of having multiple births is 74 percent lower than the national average.

This approach is appealing to employers in part because it results in cheaper hospital stays and fewer rounds of expensive IVF. But companies are also realizing they have to provide more benefits to keep the best employees. One in eight couples will experience fertility issues when trying to get pregnant, and covering infertility services shows those employees that they are important to the company, Schlanger says.

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If they give their workers better outcomes, they're more likely to stick with the company and come back after they've had babies. That's especially important for millennials, who demand better work-life balance. "We're helping employers realize that if they cover fertility the right way, if they provide access to all the best treatments and best science, they avoid all these extra costs, like absenteeism and loss of productivity," Schlanger said.

Progyny was created in 2008 when Auxogyn, a technology company that developed a technique for assessing embryo viability before implantation, acquired Fertility Authority, a direct-to-consumer company that negotiated discounts for reproductive services. In 2016 the company switched its focus to fertility benefits. "The board and the management realized there was another, bigger opportunity to create a fertility benefits business," Schlanger says. There's no more direct-to-consumer business, and the embryo implantation technology has been licensed by a partner.

There's reason to think that there is money to be made in the fertility services industry. Though only about 30 percent of companies cover infertility services, there are signs that a shift is happening; in 2014, Apple and Facebook announced they would cover egg freezing for employees.

In 2015, fertility-related services generated $3 billion in revenue, according to an estimate from mergers and acquisitions firm Harris Williams & Co. And the market is "absolutely growing," says Andy Dixon, a managing director with Harris Williams & Co focusing on health care and life sciences. That's in part due to societal shifts (people waiting to have kids longer, a rise in the prevalence of obesity that may complicate fertility) and cultural shifts (more same-sex couples seeking out reproductive services). "Without focusing on an individual company, I think there are very favorable long-term growth factors within the sector," Dixon says.

"This was clearly a space that we felt was opportune for innovation," says Beth Seidenberg, a general partner at Kleiner Perkins Caufield & Byers, which backed Progyny in three funding rounds.

So far, it's working out well for Progyny. It's not just edgy tech companies seeking out Progyny's services, Schlanger says — it's expanded to large employers in fields as disparate as media, financial services, pharmaceuticals and education, some of which have never provided fertility benefits in the past. In May, Progyny closed $10 million in Series B financing.

Seidenberg is excited about the company and the market opportunity available to it. "We're seeing tremendous demand and an opportunity to innovate on [our business] model and the services we provide."

Schlanger anticipates that the challenges facing Progyny are those common to any growing business. "As we continue to generate success, I expect competitors to take notice and emulate the way we're approaching the market. So you always have to be kind of prepared for that," he said.

Schlanger and his team plan to continue to educate the market on the importance of fertility services and grow their client base. In an effort to expand its services and make the experience more seamless for patients, Progyny is also looking into bundling medication into its coverage.

— By Alexandra Ossola, special to CNBC.com