Ah, syllabus week. The time to lounge around with friends, partake in that Tuesday karaoke night at Loco, embark on that spontaneous trip to Niagara Falls with your friends—these are the good days.
Unless you happen to be in bed with a 102-degree fever, curled up in a nest of blankets/scarves/bathrobes, alternating between passing out and silently cursing the gods while watching Seth Meyers: A Closer Look reruns.The latter, unfortunately, was my sad destiny this past syllabus week as the influenza ravaged my frail, defenseless body. A fate perhaps easily avoided with one little shot, offered for free at various locations on Cornell’s campus.
The vaccine market: a unique one within the pharmaceutical industry, revolving around shots administered once or twice a year to patients who are not yet actually ill. Between hacking coughs this weekend, I decided to do a slight investigation into its function, size, and unique array of problems.
Vaccines were commercialized in the 1960s, but were originally produced by small specialty manufacturers as opposed to big pharmaceutical companies, due to their complex production processes. By the 1990s, however, thanks to cumbersome liability payouts, mergers, and a lack of profitability in vaccine production, more than half of these smaller producers had shut down operations. This left the vaccine market barren of manufacturers, and it didn’t help that live vaccinations were simultaneously tricky to produce, closely regulated by the FDA, and oftentimes purchased at capped prices by public agencies.
However, a few events began to turn the wheel: firms began to patent the manufacturing process, global demand increased for vaccinations (particularly in developing nations), actually profitable vaccines were developed, and Congress passed a law essentially protecting vaccine producers from ordinary lawsuits that involved “unavoidable” injury or death resulting from vaccinations. As a result, larger companies re-entered the game, and the global vaccine market has soared from $8.9 billion in 2005 to $24 billion in 2015.
As prices rise for vaccines, a different slew of problems surrounds the industry. Vaccines, understood to be a necessity for preventative care worldwide, fall under a tiered pricing system, in which lower-income countries can purchase vaccines through a UNICEF-sponsored bulk procurement facility, sometimes paying less than 10% of the price in wealthier countries. Producers recoup the costs of production through volume and their wealthier markets. This tiered pricing, however, oftentimes leads to huge price gaps and opacity in how pricing works in the market. Some companies even go as far as requiring physicians to sign a legal agreement not to disclose the price he or she is paying for the vaccine. Physicians have no bargaining power and the pharmaceutical companies are now oftentimes de facto monopolies—a pretty inefficient market.
An interesting example is Prevnar 13, a vaccine that prevents diseases caused by pneumococcal bacteria produced by Pfizer. Whereas the vaccine sells for $3.30 a dose for the poorest countries through the World Health Organization, the private British healthcare market sells Prevnar for $82 per prefilled syringe, the Swiss Agency for Therapeutic Products pays $101, the American Center for Disease Control (which buys vaccines at a discount for Medicaid) pays $112.84, and private insurers pay a whopping median of $145 per dose. The 4394% price gap between $3.30 and $145 is price discrimination at its extreme. Vaccine prices are also privy to sudden jumps as they can be selected as requirements by school districts. For example, the price of Prevnar 7 in Singapore immediately jumped from $80 per dose to $120 per dose after it was mandated by Singaporean school districts.
The rising costs and price opacity of vaccines is causing a real headache for physicians, who are paying the costs to stock vaccines in their practices. Whereas patients oftentimes do not feel the burn of rising costs since vaccines are generally covered by insurance, public health budgets and individual practices—especially smaller ones—certainly do. The average cost to fully vaccinate a child to adulthood under private insurance has skyrocketed from $100 in 1986 to $2,192 today. Prices for Prevnar 13 have gone up an average of 6% per year since FDA approval between 2010 and 2014 despite the drug itself not changing. The problem has reached the point to where approximately one-third of family-practice doctors were considering stopping stocking vaccines due to the cost, and 40% of doctors do not hold at least some required childhood vaccines. The pain is not equally distributed amongst physicians: in 2014, 11% of practices were losing money to administer doses of Prevnar 13, while some doctors made $39 per dose. The burden, however, is passed on to families who cannot find the necessary immunizations for their children without bouncing from pediatrician to pediatrician.
Whereas the easy answer to pricing opacity and unequal negotiating power of pharmaceutical companies is more producers, the high fixed costs and exclusive licensing contracts in the industry still discourage competition. It takes five years and $600 million to build a vaccine manufacturing site, and one batch of Prevnar 13 takes two years and at least 500 quality control tests to bring to fruition. Meanwhile, vaccine trials now require tens of thousands of people due to mounting public fear against vaccines. The process for creating vaccines is still not easy, and it makes sense to have higher costs for certain buyers in order to support the market while still ensuring that lower-income countries can receive vaccines, too. But even after production costs are recuperated, it doesn’t seem as if prices have been going down—and that is concerning.
Though annual flu vaccines are no Prevnar-13, Ithaca’s shortage this year points towards the difficulties of the production and distribution mechanisms in the vaccine market—food for thought for the next time you’re immunizing yourself at one of Cornell’s free clinics (or, in my case avoiding them until you succumb to illness).