Prices of vaccines–an uncomfortable discussion

Injection of FundsSuddenly, there has been a lot of noise about the price of vaccines. Well, there’s always been over-exaggerations and outright misinformation about vaccine prices and profits from the antivaccination gang, and they must be embarrassed by the quality of their arguments. OK, I doubt that. But there is noise out there.

But when the criticism comes from the “pro-vaccine” world, I needed to stand up and see what was being said. In my world of vaccines, I believe that anyone, especially children, who needs vaccines should get them for free. This is true in the USA (which leads the world in this one facet of healthcare), thus, any argument about vaccines costing too much falls rather flat to me. I hate dropping anecdotal data on my readers, but the fact is my health insurance plan, by no means some corporate executive level concierge plan, pays for all vaccines. In fact, I asked for one vaccination out of indication (meaning I was about 10 years too young to receive it), and the insurance company paid for it immediately and without question.

In the USA, the Affordable Care Act (best known as Obamacare) mandates vaccinations for adults and children with no out-of-pocket costs. Medicaid pays for vaccines. Medicare pays for vaccines, though the rules for payment are unnecessarily bureaucratic and confusing, unless the member is in Medicare Advantage. Maybe not as of today, but certainly soon, the cost of vaccines shouldn’t matter to the average rich or poor or middle-class American. And considering the number of lives saved by vaccines, this is an incredible and modern aspect of the USA health care system.

Nevertheless, complaints do exist about the cost, and they’ve been showing up a lot lately. For example, I was pointed to a petition (one of the most useless methods of changing the discussion on any issue, in my opinion) which seemed to be written by someone who was pro-vaccine, but wants Pfizer to reduce the cost of Prevnar, the 13-valent pneumococcal conjugate vaccine, for pneumococcal diseases like pneumonia. The initiator of the petition, Joya Banerjee, relied upon some amateur level business accounting knowledge in her comments:

  • …Pfizer has priced the drug, on which it holds a monopoly, at over 40 times its actual cost.” This is a fallacy that people expect the price of an item should somehow reflect it’s cost. In a general sense it should, but in reality, they are almost irrelevant. The price to the customer, in this case patients, is dependent on demand. Prevnar, PCV-13, is priced at around $135 per dose, on average, but there is a fairly large variance around that average. If Pfizer, the manufacturer of Prevnar, couldn’t sell it at $135, it would sell it at $100, 50, or 10 if that’s where the demand point is located. Some products, many of them vaccines, are actually sold below cost. And no, not because Big Pharma are altruistic organization who ignore their shareholders, they sell at a loss because it helps with sales of other more profitable products.
  •  insurance companies won’t reimburse the full amount.” Where? Medicare pays the full cost. The Vaccines for Children Program pays the full cost. All insurance plans in the Affordable Care Act exchanges pay the full amount. Medicaid pays the full amount. Of course, one of the anecdotes in the story is about a Breanna Farris of San Antonio, Texas, a state which has refused to fund Medicaid and refused to participate in the ACA exchange. So that is sad, but hardly the fault of Pfizer’s pricing scheme.
  • Pfizer says Prevnar’s “price is justified because the vaccine cost $600 million to produce. But Pfizer didn’t develop the drug or build its manufacturing facility, both of which it purchased in 2009.” The cost of development doesn’t simply disappear into the atmosphere upon an acquisition. Pfizer bought Prevnar from Wyeth, and Wyeth’s sunk costs of development, plants and intellectual property, and other items were either transferred to Pfizer, or were paid in cash as goodwill to Wyeth. So, Wyeth’s costs became Pfizer’s costs upon closing of the deal. Moreover, even though pharmaceutical companies account for research and development costs toward individual products, that’s not how it really works. There is not a Bank of Prevnar inside of Pfizer in which the exchange of cash between the costs and profits of Prevnar are isolated from all other activities in Pfizer. In fact, the Bank of Prevnar now has to fund future development of other products, maybe other vaccines.
  • Pfizer’s CEO Ian Read takes home a hefty $25 million a year in salary.” So? Ian Read worked himself up from a Chemical Engineer in Scotland to the leader of a company. What he earns is simply a matter of what the Board of Directors of Pfizer thinks he’s worth, unless you want to nationalize Pfizer, and impose some sort of income rationalization. But let’s say he made $0. So, now Prevnar will sell for $134 a dose. Seriously, someone needs to be able to read an accounting statement. One last thing–Pfizer’s drugs save lives, thousands of lives a year from its cancer drugs alone. If Pfizer does a good job at saving lives, then one could contend that Ian Read is underpaid. And how many lives are saved by Prevnar? Hundreds? Thousands? Yes arguments can be made that Big Pharma overcharges people for life saving measures, but at least we’re not arguing whether a video game system costs too much.

I do find it difficult to defend Big Pharma (I feel ill when I do), especially when they do dumb things. In general, the hundreds of thousands of people who work in “Big Pharma” are devoted scientists, physicians, researchers, engineers and produce development specialists–they get up every morning thinking they can make human life better and more productive through better products. They are always looking for the ideas and products that save more lives. And yes, it can be economically lucrative, but hey, one can make a high-paying career in inventing a new handgun or video game, too. I think choosing “Big Pharma” isn’t such a bad choice.


And yes, sometimes the executives of the large pharmaceutical companies make unethical, if not outright immoral choices. I’ve called out GlaxoSmithKline numerous times for their unethical marketing practices. GSK seems to have a culture of trying to game the system for their economic benefit and they really deserve some of the punishment.

This MoveOn petition just didn’t appear out of nothing, it was based on an article in the New York Times by Elizabeth Rosenthal, a science/medical writer who happens to be a physician with a significant background in public health and infectious diseases. Dr. Rosenthal makes some very important points about the cost of vaccines that may not have a direct impact patient costs, but can have an issue with availability of vaccines.

For example, some physicians have to maintain an expensive inventory of vaccines and then manage how carefully they’re stored. Dr. Rosenthal tells the story of  Dr. Lindsay Irvin, a pediatrician who, like nearly every pediatrician in the world, is pro-vaccination. She has to maintain an inventory of $70,000 of vaccines, while she hired a security company to monitor the temperature of the storage fridge to prevent spoilage. Of course, Dr. Irvin needs to self-fund this supply of vaccines, because she gets reimbursed in the future by an insurance company. If she even does get reimbursed (some patients’ insurance coverage will lapse, some insurance companies unethically deny payments for the silliest of reasons). Now I don’t know how common or unusual this issue is, but this is a modern world, not one where our inventory planning is done on the back of a napkin:

  • Some independent physicians associations (IPA) that contract to HMO/PPO insurance plans acquire their own vaccines under contract and distribute them internally for members (that is patients on the plan that uses the IPA). For some vaccines, like HPV quadrivalent and PCV13, the internal distribution system sends it prior to the patient’s arrival, so that there is no chance of spoilage. In this case, the physician does not require any supply.
  • Self-managed medical organizations, like Kaiser-Permanente, have a centralized vaccine storage in the pharmacy, and hand deliver the vaccine to the physician’s office (always in the same building), which means no cost at all. Of course, this is a unique system which most physicians might be reluctant to join.
  • But outside of these type of organizations, an independent physician can better manage their inventory. Almost all vaccines do not require payment for 30 days after delivery (sometimes a bit more), which is generally, but not always within the time frame of reimbursement from the insurance company. Better planning for patients who need vaccines could reduce Dr. Irvin’s costs by 50%, if not more. Moreover, she could even get next day delivery of any vaccines by efficient ordering practices to reduce her storage costs. In other words, this is 2014. Get a computer, determine what patients are coming in, and place your order accurately for a future date. Moreover, get an authorization from the insurance company for the vaccine so you know that the insurer is obligated to pay for the vaccine.

My intent here was not to call out Dr. Irvin’s system, but just to say that there are alternative ways to go. Inventory management, in a physician’s office, can substantially add or subtract from cash flow. I see no valid reason why Dr. Irvin should continue on this path of maintaining a huge inventory–there are much better ways to go.

But the concern about rising prices of vaccines, specifically Prevnar, can be partially explained by a reasoned discussion of what is built into the costs of vaccines. Dr. Rosenthal mentioned a few points delivered by a Pfizer spokesperson, that it takes five years and costs $600 million to build a vaccine manufacturing site, and that one batch of Prevnar 13 takes two years to create, with more than 500 quality control tests. I think there’s a belief that all it takes to make a vaccine is a few bits of the bacteria or virus, mixed with mercury, formaldehyde, aborted fetal tissue, a wad of spit, and some ground up aluminum, stirred into a big beaker, then poured into a few vials to be injected into our children. How difficult can that be? I could do that in my kitchen!

In reality, making a vaccine is a complex, expensive affair. For example, despite the trope that vaccines aren’t tested, they are overly tested (to a point, that I think it’s been a huge waste). Dr. Rosenthal hits this point out of the park:

There are, of course, some good reasons vaccines like Prevnar are more expensive than previous offerings. Vaccine trials, which once included thousands of volunteers, must now include tens, if not hundreds of thousands of people, as fears about side effects like autism have grown, even though many studies have concluded that such worries are unfounded

These hundreds of studies (PCV13 and the predecessor PCV7 included in many of them) that showed that autism is absolutely unrelated to vaccines probably cost all the entities involved (governments, pharmaceutical companies, independent charities) billions of dollars, money which could have been better spent on researching real causes and real support for autism. What a giant waste! But it’s not for free, some of that cost has to be absorbed in current and future vaccines.

David Kroll, Ph.D., wrote about the underlying cost of vaccines in Forbes recently. Although you can read his well-reasoned discussion about vaccine prices, he attributed much of the rise in costs mainly to the myths of the vaccine refusers. Here’s a summary of his key points:

  • New manufacturing technologies, like moving from egg-based to mammalian cell systems to reduce allergic reactions, require substantial FDA review, meaning more testing, trials, and documentation. Again, the simplistic belief is that once a pharmaceutical company gets a drug (like a vaccine) approved for use, they have free reign to do whatever they want. Sorry, but that’s not how it works. Making a minor change, let alone huge ones, are almost equivalent to an initial application to the FDA.
  • New manufacturing facilities to support the new technologies.
  • The costs of doing clinical trials have increased substantially, mostly as a result of overreaction by both regulators (in the USA, Europe and other regions) and by the manufacturers themselves. Researchers have spent billions of dollars trying to determine the possibility of extremely rare adverse events that, in almost all cases, are not at all causally related to vaccines. The antivaccination crowd demands “perfect” vaccines (an impossible standard for any medical procedure or product), not knowing that reducing a known adverse effect from 1 in 100,000 to 1 in 1,000,000 could increase the costs of development by 10-100X. It’s not that the manufacturer wants to have any adverse effects, it’s that there comes a point where “the greatest enemy of good enough is perfection.”
  • Another point, overlooked by Dr. Kroll is that even though there is no evidence whatsoever that thiomersal had any effect on anyone, and in fact, there has been a number of articles that nullify the hypothesis that thiomersal had any neurodevelopmental effects, it was hastily removed from vaccines. Except for some multi-dose vials used for adult flu vaccines, nearly all vaccines are now sold as single-dose syringes or vials. This has driven up the cost of vaccines from US$5-10 per dose (actually $3-7 per dose if better syringes were used) for flu vaccines in the mid-2000’s to US$10-25 per dose for the single dose, a rise in prices of up to 500%.

Yes, this full-throated defense of Big Pharma’s pricing for vaccines was difficult. I personally think that pharmaceutical companies have the right to charge what they want, and it is up to the consumer through a competent insurance system (a lot like Medicare) to negotiate more rational and reasonable prices from pharmaceutical companies. It would take me 50,000 words to describe how we could create a better healthcare system without forcing government control on any aspect (other than possibly a better/improved ACA with single payer coverage and stronger group negotiation of drug and device pricing), but I’ll just stick with this topic. The price of Prevnar isn’t that far out of line with what one might predict on a price for this type of medication.

But let’s lay some of the more important facts out on the table:

  1. Vaccines save lives. The brilliant and dedicated scientists at the CDC estimated that the VFC program vaccinations have prevented more than 21 million hospitalizations and 732,000 deaths among children born in the last 20 years. We can make all kinds of irrational statements about Big Pharma, how they are evil or exist merely to take money out of our pockets, but saving three-quarters of a million lives in 20 years, 35,000 children’s lives ever year, well that pretty much makes up for every dumb thing Big Pharma does. What other industry can you mention that saves that many lives? Automobiles? Computers? Facebook? 
  2. If Big Pharma were so dastardly, reflected in many myths and conspiracy theories out there, then they’d stop making vaccines today, and walk away. Because those 21 million hospitalizations prevented by vaccines may have brought a US$5-10 billion in profits over 20 years (from the actual vaccination), but in a dystopian world where vaccines disappeared, pharmaceutical companies would make US$200 billion or more in profits from hospitals packed with sick children needing all kinds of medications and medical devices. Well, they would make that much until the country went bankrupt and the whole medical system collapsed because it couldn’t deal with that many sick children.

Vaccines can be pricey because the underlying costs to develop and manufacture have become much higher as a result of unnecessary “improvements” and typical annual rise in costs. There really is no replacement for pharmaceutical companies’ control over vaccine manufacturing and sale. None of the vaccine companies produce just for the USA, cost efficiencies are spread over sales to the whole planet. The vaccine system of our world is pretty efficient, and is at a lower cost than any imaginable replacement. And a billion times better than the world before vaccines, when parents panicked over every epidemic of measles, mumps, polio, smallpox, and other diseases, and whole wards were built into hospitals to handle the number of children who got sick from these diseases.

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