Vaccines: The Short Run

by on October 14, 2004 at 7:28 am in Current Affairs, Economics, Medicine | Permalink

President Bush was correct when he said that liability risk is one factor in the recurrent shortage of vaccines. Based on a post by Mark Kleiman, suggesting that flu vaccines are immune from liability due to the Vaccine Injury Compensation Program, Brad De Long called Bush’s claim an “eternal lie.” To his credit, Kleiman (but not DeLong) quickly retracted his post when others pointed out that the VICP applies only to pediatric vaccines.

Liability is not the only issue, however. Costly FDA regulations and requirements, for example to remove thimerosal from vaccines despite no evidence of safety problems, have pushed firms out of the industry. See this paper in the The Independent Review (I am an assistant editor) for more on these regulations and their consequences.

A further problem is that the federal government is the major purchaser of vaccines, although not the flu vaccine, and it uses its monopsony powers and the law to require companies to sell at low prices. Firms have left the industry because they are squeezed on one end by regulation and on the other by low prices and, for vaccines like the flu vaccine not covered by VICP, potential liability. Note that even if the prices are high enough to earn the company a modest profit the point is that they are not high enough to make it worthwhile to make a surplus of vaccine that can be sold in the event of a contamination problem, as has happened this year. If the firms can’t price high during a shortage then there is no incentive to plan for a shortage.

Even without legal price caps there are significant disincentives to high prices. Here is a CDC spokesperson (link to audio file) on recent price increases:

Shame on the people who are price gouging. This is a reprehensible thing to be doing. I think an immoral thing.

Is it any wonder that firms don’t want in on this market?

Henry Miller, a former head of the FDA’s biotechnology division, summarizes well:

The fundamental problem is that government regulatory policies and what amounts to price controls discourage companies from investing aggressively to develop new vaccines. Producers have abandoned the field in droves….Although their social value is high, their economic value to pharmaceutical companies is low because of vaccines’ low return on investment and the exposure to legal liability they bring manufacturers….

Moreover, the FDA has a history of removing safe and effective vaccines from the market based merely on perceptions of excessive side effects — a prospect that terrifies manufacturers.

We need a fundamental change in mind-set: The rewards for creating, testing and producing vaccines must become commensurate with their benefits to society, as is the case for therapeutic pharmaceuticals.

Read Henry’s article for more on dealing with the problem today, (he notes, for example, that it may be possible to dilute current stocks and still maintain good effectiveness). Also, as Tyler reported last year, simply targeting vaccines to at-risk people is not necessarily the best approach. A better approach is to target super-spreaders, people who may not be at great risk themselves but who can and will spread it to many others.

Tomorrow: Vaccines: The Long Run.

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