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COMMENTARY |
University of Colorado School of Medicine and Children’s Hospital
Denver, CO 80218
Abbreviations: VFC, Vaccines for Children (program)
Our current vaccine infrastructure is being stressed by the increasing costs of vaccines. Currently the cost of the vaccines that protect children from 11 diseases is about $400 at discounted private sector prices and $600 at full private sector prices. Adding varicella and pneumococcal conjugate vaccine to the federal Vaccines for Children (VFC) program doubled the annual budget from $500 million to $1 billion. More expensive vaccines are in the pipeline. Cracks are appearing and growing in the foundation that supports our vaccine infrastructure. Do these cracks indicate structural weaknesses that can cause a major collapse when we attempt to add new and expensive vaccines in the future? Is our foundation flexible enough to provide sufficient incentive to the pharmaceutical industry to invest in additional research, development, and licensing of new vaccines? Can we patch these cracks and possibly shore up the foundation with some new girders, or must we totally redesign the foundation to bear more weight to avoid a future collapse?
How we address these questions has enormous health policy implications for the United States. Although only a small part of the entire health care enterprise, our vaccine infrastructure is extensive with complex financing, distribution, and administration components. Financing and purchasing involves public federal, state, and local expenditures as well as private health plan and individual "out-of-pocket" expenditures. Distribution includes vaccine manufacturers, federal and state purchasers, health plans, private distributors, local public health departments, hospitals, clinics, and physicians and involves monitoring, ordering, shipping, and storage of vaccines. Vaccine administration is the outcome of complex interactions among the health plan, clinical setting, and family. Whether vaccines and pediatric preventive care are covered benefits, and if so, whether they are subject to cost-sharing requirements such as deductibles and/or co-payments is determined by the health plan. The willingness of clinicians to administer vaccines will be influenced by payments for vaccine costs and administration, the magnitude of vaccine carrying costs and ability to return unused vaccine, likelihood of payment delays, and the availability of alternatives such as free public health clinics. The willingness of families to consent to immunizations will be influenced by their perception of benefits versus risks and their ability to pay "out-of-pocket" if necessary for vaccines.
What are signs that cracks are developing in the foundation that supports our vaccine infrastructure? During the past few years we have seen vaccine shortages involving many vaccines and lasting for prolonged time periods. Today, only 4 companies produce vaccines for the United States market compared with 30 years ago when >25 companies manufactured vaccines. The federal government now purchases 
56% of all childhood vaccines sold in the country. And while the role of the federal government in vaccine financing has grown considerably, increasing numbers of low income privately insured families must pay "out-of-pocket" for childhood immunizations as employers attempt to moderate increasing health insurance premiums by increasing family cost-sharing. Unfortunately, these children cannot receive federally purchased vaccines in county health public health clinics at this time. It’s estimated that 11% to 22% of children are currently vaccine underinsured; 5% to 11% for whom vaccines are not covered, and the remaining with out-of-pocket costs related to deductibles and high co-payments. Further erosion of private sector coverage for childhood vaccines will occur if national and state level efforts are successful in overriding state legislation that mandates coverage for childhood vaccines to make available low-cost "mandate lite" catastrophic health plans to small business employers. These efforts suggest that our society does not appreciate and value immunizations, demonstrated to be the most cost-effective of all preventive care. How strange that so many politicians fail to recognize that stripping plans of cost-effective preventive care is counter-productive, increasing "downstream" expenditures while doing nothing to moderate the more powerful drivers of health care expenditures; hospital costs, pharmaceuticals, new medical technologies, and home health care.
One of the structural weaknesses in the vaccine infrastructure is that increasing the availability of "free" federally purchased vaccines to underinsured children in public health clinics or private practice clinician offices decreases the likelihood that insurance plans will cover new more expensive recommended vaccines. Insurance plans will be under intensifying pressure to contain premium increases and costly new vaccines are likely to impact insurance premiums unless there are clear short-term offsets in downstream medical expenditures. This shifting of coverage for vaccines from private to public financing and delivery systems imposes a double burden on the federal government; needing to pay for new expensive vaccines for the current VFC-eligible population as well as an increasing proportion of children who will become underinsured. I’m not sure that our public system will be able to efficiently incorporate new more expensive vaccines into the VFC program.
This shifting of coverage from the private to public sector also impacts the pharmaceutical industry, which is opposed to further expansion of the VFC program or other efforts to help states purchase more vaccine at federal contract prices. We need to provide sufficient incentive to the pharmaceutical industry to invest in more research, development, and licensing of new vaccines. The pharmaceutical industry feels strongly that it must have a pluralistic payer system with a significant private sector component. The pharmaceutical industry lacks confidence that the federal government, as the only or dominate purchaser, will negotiate a price that will provide a rate of return that will successfully compete with the opportunity costs of alternative investments. Today the purchasing of vaccines is divided almost equally between public and private sectors. However, industry representatives warn that further erosion of the private vaccine market in the absence of other incentives will decrease the willingness of the industry to commit substantial resources to vaccine research and development. It may also lead some vaccine manufactures to discontinue current vaccine production.
Can we patch these cracks and possibly shore up the foundation with some new girders or must we totally redesign the foundation to bear the weight of the new, expensive vaccines being developed? Unfortunately, the quick fix of creating vaccine stockpiles, allowing VFC vaccine to be used for immunizing underinsured children in public health clinics, and increasing 317 funds to help states purchase more vaccine for non–VFC-eligible populations will not address the major problems described above and will only buy us a relatively short period of time.
There are several approaches to a major redesign that merit serious consideration. One approach would combine universal federal purchase of all recommended vaccines (childhood or childhood plus adult) with strong federal incentives for the development and licensure of new vaccines. These incentives could include a monetary prize at licensure, patent buy-outs, setting a price floor for a desired vaccine, as well as research and development tax credits. A second approach would provide federal vouchers that had a monetary amount based on an analysis of the value of the vaccine to both the individual and society for all recommended vaccines. If this approach included a "funded" mandate that all insurance plans cover recommended vaccines, public (Medicaid and the State Children’s Health Insurance Program) and private insurance plans could receive the vouchers and then negotiate a price directly with vaccine manufacturers that could be either more or less than the voucher amount. Uninsured patients could use their vouchers to get immunized at either private physician offices or public health clinics and these providers could purchase vaccine either directly from the manufacturers or through purchasing cooperatives. Using this approach the government would not have to use special incentives to stimulate vaccine research and development because there would be a pluralistic payer system with a significant private sector component. In both of these approaches the case for federal financing for all vaccines is based on the unique public good of preventing infectious disease. The main difference is whether we directly support vaccine research and development similar to what is done in the defense industry or whether we try to allow market forces to generate sufficient profit to support vaccine research and development. An alternative approach, less costly to the public sector, would be to mandate (unfunded) that all insurance plans including Employee Retirement Income Security Act-exempt plans include recommended vaccines with limits on family cost-sharing. This would eliminate the problem of the vaccine underinsured and stabilize the erosion of private insurance vaccine coverage, especially for new, more expensive vaccines.
This is pretty complicated stuff. A new Institute of Medicine report1 titled "Financing Vaccines in the 21st Century: Assuring Access and Availability" explores these issues, analyzes the pros and cons of these and other options, and makes some bold recommendations about how to stabilize our vaccine infrastructure. I hope these recommendations are considered seriously by federal policy makers. We don’t have much time to shore up our vaccine financing infrastructure if we want to avoid having the infrastructure collapse.
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FOOTNOTES |
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Address correspondence to Steve Berman, MD, Children’s Hospital, 1056 E 19th Ave, B032, Denver, CO 80218. E-mail: berman.stephen{at}tchden.org
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This article has been cited by other articles:
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  L. O'Keefe Proposals would expand vaccine coverage, improve reimbursement: IOM report recommends government involvement AAP News, October 1, 2003; 23(4): 174 - 174. [Full Text] [PDF]
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