Flu Vaccine Shortage is Due to Low Price Not Manufacturing Problems

Widespread national reports of a flu vaccine shortage due to manufacturing problems and plant shutdowns are simply not true. The real cause of the shortage is the flu vaccine's low price.

The whole process of producing, selling and distributing flu vaccine is complicated. It not only involves manufacturers and distributors, but the World Health Organization who annually determines the formula. Manufacturers must wait for their recommendation to complete production of the vaccine. Most contracts for fall delivery of the vaccine are made early in the spring, long before the recommendation for the final strain has been announced.

Manufacturers begin producing vaccine in the winter with a limited amount of marketing and production data. At prices ranging from $2.00 to $3.00 per dose, quantities of vaccines that are not sold or returned at the end of the season can turn a manufacturer's annual profit into a loss. As a result each manufacturer produces only what they know they can sell.

Any negative variation in the actual production of the flu vaccine results in a market shortage during the critical months of September and October. By the time manufacturers learn their original projections are off, it is difficult to quickly make up the shortage. Chicken eggs are a critical component of the vaccine, and it is hard to make chickens lay several hundred thousand eggs on short notice.

No Financial Incentive for Manufacturers

There are also few financial incentives for manufacturers to produce more vaccine. Diverting resources away from vaccines with guaranteed sales of $7.00 to $60.00 per dose weakens their bottom line .

Two of the largest flu vaccine manufacturers have limited capacity and more profitable products to produce. Demand for Aventis Pasteur's Menomune, a vaccine for meningococcal meningitis, has increased significantly since the Advisory Committee on Immunization Practices (ACIP) recommended that college freshman residing in dorms consider vaccination as a strategy for reducing health risk. American Home Products has experienced a similar increase in demand for Prevnar , a new vaccine recently added to the infant immunization schedule for protection against streptococcus pneumoniae. Both vaccines sell for between $40 and $60 per dose.

The Human Cost

The impact of low pricing and resulting shortage of flu vaccine affects millions of Americans who need to be vaccinated. Vaccination rates are reported to have declined this year. The high-risk population, primarily senior citizens, has found it difficult to locate the vaccine. Many of these individuals who are traditionally vaccinated in their physician's office are now forced to wait in long lines at grocery stores and public health clinics, causing some to abandon their efforts.

While healthy adults want to be vaccinated, they are being denied that opportunity because the vaccine is only available to high-risk patients. Even if vaccine becomes available in late December and January, it is likely that immunization rates will not return to their historical norms. Many people will have already given up trying to get the vaccine or will surmise that it is too late to obtain full protection.

The vaccine shortage creates a variety of public health problems.

• In high-risk populations, the cost of flu is extreme. According to the CDC, flu results in 100,000 hospitalizations and 20,000 deaths per year. Dr. Steven Mostow of the University of Colorado Health Sciences Center predicts the shortage will contribute an additional 20,000 flu related deaths this year.
• In healthy adults, the cost of flu is significant. Dr. Kristin Nichol, chief of medicine service at Minneapolis Veterans Administration Medical Center, reported in a 1995 issue of the New England Journal of Medicine that the net benefit of vaccinating a healthy adult was $47.00 per individual. A primary benefit of flu vaccination for consumers and employers is reduction in lost workplace productivity.
• Flu is a primary contributing factor to otitis media. Annually otitis media is responsible for more than 31 million visits to doctor's offices. One-third of those visits are to pediatrician's offices. Treatment costs are in the 3 to 4 billion dollar range. According to a number of studies, vaccination of children reduces the transmission of the flu virus to adults residing in the same household.

There are also a number of indirect effects of low vaccination rates that have a direct impact on health care services. The American College of Emergency Physicians (ACEP) anticipates a significant increase in the use of emergency rooms this winter, while hospitals are anticipating increased admissions and a shortage of beds.

Allocation problems for manufacturers, distributors, and health care providers have increased. Current channels of distribution and sale do not lend themselves to neat segmentation of the high-risk population. Front line healthcare providers are faced with difficult allocation decisions, and increase their liability exposure.

The Advisory Committee on Immunization Practices (ACIP), a committee that advises the CDC on matters of vaccine policy, will now be much more reluctant to expand flu vaccination recommendations because of manufacturers' repeated inability to supply the U.S. market during the September to October time period. Populations that are negatively impacted by lack of these recommendations include healthy adults ages 50 to 65 and infants and young children.

Other issues that have arisen with the shortage include:

• A rise in black market activity , where entrepreneurs with little concern for safe vaccine handling enter the market to capitalize on arbitrage opportunities.
• Less time for healthcare providers to spend on patient care. Providers spend a great deal of time trying to find available vaccine, while managing the fallout from canceled clinics. Additionally, they must spend time addressing concerned patients about the shortage and how it will affect their health.
• Physicians often use the flu vaccine office visit to perform tests, talk about preventive health measures, and catch other illnesses in their early stages. No flu shot, no office visit.
• Vaccine shortages create an atmosphere of panic and chaos. There have been reports of telephone con artists soliciting phony donations to buy high-priced flu vaccines for the elderly.

Lessons Learned

The current influenza vaccine shortage is replete with lessons for pharmaceutical companies, the pharmaceutical industry, policy-makers, payers, healthcare providers, and consumers.

Pharmaceutical Companies

Pharmaceutical companies are facing increased pricing challenges. For obvious reasons, pharmaceutical companies are cautious about raising prices. In some cases, their hesitancy may cause more harm than good. Companies with mature products that haven't kept pace with increased marketplace valuation, increased production costs, or increasing costs of FDA compliance face major challenges. Companies need to

• increase reviews to ensure pricing is appropriate for market conditions
• reconsider standard "rate of inflation" price increases
• keep all parties informed on reasons for large one-time adjustments when they occur.

This year's vaccine shortage should serve as a wake-up call to pharmaceutical companies about the wisdom of using low prices to score public relations points. Although low pricing is appropriate in some cases, great care should be taken to ensure that it does not reduce customer satisfaction. If this happens, the company's reputation will suffer.

Tangible illustrations of the negative impact of low pricing (i.e. pharmaceutical price regulation) are excellent complements to more abstract approaches. Key constituents may identify with the flu vaccine shortage more readily than they identify with futuristic drugs that won't come to market because of pricing and R&D cuts.

Policymakers and Payers

• Pharmaceutical price regulation, a seductive mechanism for improving the health of seniors, can actually end up doing more harm than good. Consider with caution.
• Low pricing does reduce direct expenditures on pharmaceuticals. As the influenza vaccine shortage illustrates, in some cases it increases total system costs and the costs of many industry stakeholders. Both public and private payers need to fully understand the relative costs and benefits of low pricing and price regulation.
• These indirect costs, because they are difficult to quantify, are often not captured in boilerplate pharmacoeconomic studies of societal benefits and costs currently in vogue in public health circles. That does not mean that they do not exist, are not real, and are not at times large.
• Recently, employers have taken the lead on demanding effective management of health care costs, and consequently a great deal of inefficiency has been eliminated. Indiscriminate cost control, particularly price regulation, often ends up increasing employer costs. Do employers want employee sick time going through the roof this year, while employees rack up significant costs staying at the local hospital or visiting the emergency room?

Healthcare Providers and Consumers

Low pricing can impact healthcare providers in ways they never imagined. It can force them to make difficult allocation decisions, strain their already scarce resources, and take them away from quality patient care.

Low pricing and pharmaceutical price regulation sound great, especially to senior citizens and baby boomers facing the prospect of ever-increasing out-of-pocket drug expenses on fixed incomes. Cases like this year's influenza vaccine shortage might give one pause. Would consumers rather pay a little more for the vaccine and be sure to have it, or be flat on their back during their week-long cruise in the Bahamas? Even worse, canceling the cruise to attend to a hospitalized family member?



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