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Overcoming Economic Barriers To The Optimal Use Of Vaccines
Vaccines are among the most cost-effective interventions in health care, but economic factors may interfere with their optimal development and delivery in both industrialized and developing countries. For the United States, making the best use of available vaccines will require increasing the financing for vaccines via the public and private systems. For developing countries, innovative and promising approaches include pull mechanisms to establish predictable demand and push mechanisms such as targeted development programs. Partnerships between philanthropy and public resources have made progress in addressing gaps in vaccine financing and development for developing countries, but much remains to be done.
Vaccines are among the most cost-effective health interventions, but they are underused throughout the world. Economic barriers, especially gaps in financing, obstruct the optimal delivery of existing vaccines in the United States and slow the progress in developing the most-needed vaccines for developing countries. In this paper we first compare the cost-effectiveness of vaccines with some other health interventions, then we recommend the use of measures that give vaccines credit for preventing disease as well as death. We describe the economic barriers to optimal development and delivery of vaccines and discuss ongoing efforts and potential approaches to resolving these issues.
Vaccines provide excellent value for money spent.1 Vaccines introduced in the United States before 1990 result in net savings when the gains from disease prevention are taken into account. Analyses in the mid-1990s found that diphtheria-tetanus-pertussis (DTP), Haemophilus influenzae type b (Hib), and oral polio vaccines (OPV) all saved money from the perspectives of both the health care payer (including medical costs alone) and society (including medical and time costs).2 A recent analysis confirmed that older vaccines are cost-saving; it found that current childhood vaccines against diphtheria, tetanus, pertussis, Hib, polio, measles, mumps, rubella, and hepatitis B, when considered together, have benefit-cost ratios of more than 5:1 for direct costs and 17:1 for societal costs.3
Early vaccines set a high standard because they were cost-saving, but health interventions do not have to save money to be cost-effective.4 Most of the effects of health care interventions are measured in terms of reductions in morbidity or mortality. For example, mammography for women ages fifty to sixty-nine costs $29,000 per life year saved, while adding human papillomavirus testing to Pap screening costs $80,000 per quality-adjusted life year (QALY) saved (Exhibit 1
Most vaccine economic analyses have measured cost-effectiveness in terms of dollars per life year saved or per disease case prevented.6 However, these measures fail to provide a complete assessment of vaccine benefits. The metric of dollars per life year saved does not give credit for averting pain, suffering, or disability attributable to disease. The metric of dollars per case prevented fails to provide a standard outcome that policymakers can use to compare vaccines with one another or with other health services. To facilitate comparisons, economic analyses should give vaccines credit for preventing disease and disability using QALYs saved or disability-adjusted life years (DALYs) averted. Both QALYs and DALYs represent the value of different health states or diseases on a scale of 0 to 1, with 0 equal to death (or total disability, for DALYs) and 1 equal to perfect health.7 The U.S. Panel on Cost-Effectiveness in Health and Medicine and the 2000 Institute of Medicine (IOM) report Vaccines for the Twenty-first Century both recommended dollars per QALY saved as the standard for U.S. evaluations.8 DALYs, which are more commonly used in international economic analyses, can be viewed as a variant of QALYs that has been standardized with the intent of being more valid for cross-cultural comparisons.9 Opinion varies widely about what constitutes a reasonable standard for cost-effectiveness. Recent work has suggested possible benchmarks of $50,000 or $100,000 per QALY saved, or one to three times a country’s gross domestic product (GDP) per capita per DALY averted.10 By these standards, all vaccines recommended in the United States and in other countries are cost-effective, as are many vaccines that await widespread adoption in developing countries.
Including QALYs or DALYs saved by preventing disease, as opposed to just life years saved, can dramatically improve a vaccine’s appraised cost-effectiveness. For example, giving pneumococcal conjugate vaccine (PCV) to U.S. children has been estimated to prevent only 116 deaths per year, but it also prevents 610 cases of meningitis, 53,000 cases of pneumonia, and more than a million ear infections.11 Most of the QALYs saved by this vaccine come from preventing ear infections.12 Without QALYs, PCV’s cost appeared relatively high at more than $100,000 per life year saved, but after incorporating QALYs, it was well within the range of other interventions, at less than $10,000 per QALY saved (Exhibit 2
In developed countries, it will be increasingly important to use measures such as QALYs because mortality from major infectious diseases has been reduced. Several of the vaccine programs under U.S. consideration would mainly prevent morbidity. For example, pertussis vaccine for adolescents or adults (currently under U.S. licensing consideration) would prevent many cases of disease but few deaths.13 Using dollars per QALY saved, rather than only per life year saved, provides the most appropriate representation of these programs’ true value. Two other issues that affect how vaccines are valued are the perspective from which costs and benefits are assessed and herd immunity. The U.S. Panel on Cost-Effectiveness in Health and Medicine has recommended that reference case (primary) analyses use the societal perspective, which incorporates work loss and other time costs as well as medical costs. Regarding herd immunity, vaccines are unique among health interventions in that they not only induce individual protection but also indirect protection of unvaccinated people.14 However, making projections about indirect protection (also termed an "externality" or "herd immunity") is complex. Many analyses do not give credit for indirect protection, which causes vaccines’ actual benefits to be underestimated. Addressing the problem of vaccines’ being undervalued will require ensuring that economic evaluations give vaccines appropriate credit for preventing disease, but this alone will not be sufficient. Another key factor to optimize vaccine use will be to increase the financing for vaccines to support purchasing demand at prices that encourage development and adequate production.
Evidence that vaccines are cost-effective does not necessarily lead to their being used optimally. In the United States, one in five children ages 19–35 months have missed at least one recommended vaccine dose, and the risk of underimmunization is higher among families with lower socioeconomic status (SES).15 Among the U.S. elderly, influenza vaccination rates are only 66 percent overall and are lower among black and Hispanic elderly.16 For a vaccine to be used, producers must supply the doses in adequate quantity, and consumers must manifest an effective demand for the vaccine. The financing system plays a role in both of these sets of decisions. For some vaccines in routine use, the limited number of manufacturers has made supply vulnerable to difficulties in production. Vaccines are inherently more risky to produce than medications because they are made in biological systems that are more unpredictable than the chemical reactions used to make other pharmaceuticals. Vaccine prices are set in two ways: For public-sector purchase, government negotiates with manufacturers for a contract price. For private-sector purchase, the manufacturer establishes the price for each vaccine. As the dominant U.S. vaccine purchaser, government has some power to negotiate favorable prices. However, this power is limited when a vaccine is produced by only one manufacturer, as is the case for varicella vaccine, PCV, and certain vaccines in development. The U.S. government’s dual role as the country’s major purchaser of vaccines and major promoter of public health creates a dilemma. As a purchaser, government is responsible for negotiating the lowest possible prices on the public’s behalf. On the other hand, government aims to promote public health through the optimal use of vaccines, and prices that are too low may hinder this effort by making it less attractive for manufacturers to enter, or remain in, the market. This dilemma could also be cast as one of perspective. A short-term perspective implies that a lower price is better for the public buyer. Over a multiyear perspective, higher procurement prices can induce more investment in production capacity and developmental research. Ensuring supply. Low procurement prices lead to low profit margins. These may contribute, along with other factors, to the fragility of U.S. vaccine supply. The departure of manufacturers from the vaccine market—in particular, the influenza vaccine market—has been blamed in part on vaccine prices’ not justifying the economic and legal risks entailed in their production.17 As of 2002 only ten U.S. manufacturers produced vaccines, compared with 1967, when that number was thirty-seven.18 Vaccine shortages have become increasingly common in recent years, affecting influenza vaccine in 2003 and 2004, measles-mumps-rubella (MMR) vaccine in 2001–02, diphtheria-tetanus–acellular pertussis (DTaP) vaccine in 2002, tetanus-diphtheria vaccine in 2000–02, varicella vaccine in 2002, and PCV in 2001–03. To counter this problem, stockpiles have been established for childhood vaccines. However, the national stockpile of children’s vaccines is understocked for all but one of the nine vaccines it contains.19 The barrier is a U.S. Securities and Exchange Commission (SEC) accounting regulation that prevents vaccine manufacturers from gaining revenue from the stockpiled vaccines until they are delivered to the U.S. Centers for Disease Control and Prevention (CDC).20 As of fall 2004, three of the four major vaccine manufacturers were not participating in the program, and Congress had requested that the Department of Health and Human Services (DHHS) report on possible solutions to this problem. Flu vaccine presents a unique challenge for stockpiling, because the vaccine changes every year to match current influenza strains. Thus, a continuing stockpile is much harder to arrange. In 2004 the disclosure that one of the two flu vaccine manufacturers licensed in the United States had its license suspended because of bacterial contamination meant that the country had only approximately half of the 100 million doses that had been projected to be available.21 Modifications in the procurement process might also reduce the risk of supply disruptions. Multiple sourcing for vaccines might give some insurance against large-scale supply failures. Contracts from the CDC could include a penalty to a supplier that fails to deliver an agreed-upon amount of vaccine. Although shortages are inadvertent, they might be avoided if manufacturers were to increase production capacity or adopt more careful production processes. Such contracts could also increase procurement costs to government, but this is appropriate because the public buyer should pay for the costs of the careful production it requires of manufacturers. Financing mechanisms. Demand for vaccines relies on a complex patchwork of financing mechanisms in the United States as well as other factors including school laws and day care regulations. Childhood immunization is financed through a variety of mechanisms.22 Approximately 43 percent of children’s vaccines are purchased and administered in the private sector. Approximately 41 percent of vaccines are purchased by the Vaccines for Children (VFC) program, an entitlement for children who are uninsured or on Medicaid; most of these vaccines are administered in the private sector. Approximately 16 percent are purchased using federal, state, or local funds and are administered free in public health departments. Section 317 of the Public Health Service Act provides support for vaccine purchase and administration as well as program infrastructure. The situation for adults is quite different. No federally supported program exists. Private insurance plans may or may not cover immunizations. Medicare reimburses for flu vaccine and PCV for the elderly and other beneficiaries. Half of all adults ages 18–64 lack insurance coverage for immunization, and almost a third of this population is considered high-risk.23 When a new vaccine is recommended, the immediate cost of health care goes up, and the financing system may not easily accommodate the change. The U.S. introduction of PCV in 2000 doubled the cost of vaccine doses to immunize a child through age five years to $364 in public costs and $608 in private costs. A year after this vaccine was recommended, almost half of physicians said that some children in their practices lacked insurance coverage for it.24 Funding from Section 317 and state sources lagged behind, to the extent that nineteen states were unable to provide this vaccine to children attending health department clinics who were not covered by the VFC program.25 After a vaccine is in widespread use, underreimbursement of physicians for administration of vaccines can pose a financial barrier. A recent study in Colorado found that the average nonvaccine cost per shot by pediatricians was $10.67, whereas the average reimbursement by insurance companies was only $8.27.26 Physicians who provide vaccines to children may recoup costs via other preventive services offered at the same time, such as well-child visits. Those who provide vaccines to adults may have less opportunity to do this. A study of primary care practices found that the 2001 per shot cost of administering influenza injections to adults was less than the Medicare payment rate.27 However, based in part on input from advisory groups, the Centers for Medicare and Medicaid Services (CMS) announced that in 2005, payments for administering the influenza vaccine will increase from $8 to $18.28 Overcoming barriers. Varying approaches have been proposed to overcome barriers to optimal vaccine use. The 2004 IOM report Financing Vaccines in the Twenty-first Century identified sizable disparities in access to recommended vaccines among different geographic and demographic subgroups. It noted that many children, adolescents, and high-risk adults have no or limited insurance for recommended vaccines. It also predicted sizable spending increases as new vaccines become available, and it suggested that financial incentives are needed to protect the stability of U.S. vaccine supply. The IOM report recommended a new mandate for all health insurance policies to cover immunizations combined with a government subsidy and voucher plan for all vaccines recommended by its Advisory Committee on Immunization Practices. The National Vaccine Advisory Committee (NVAC) agreed with most of the findings of the IOM committee but disagreed with the emphasis on private health insurance as a route to solving the problems.29 It instead recommended expanding funding through Section 317, which provides support via the CDC for health department immunization programs and vaccine purchases. NVAC suggested that Section 317 funds be expanded to support adolescent and adult immunization programs, including vaccine purchase. It also recommended that new funds be more rapidly appropriated through Section 317 when new vaccines are recommended for universal use and that the VFC program be expanded to include underinsured children in all public health clinics and to remove price caps and limitations on the choice of available vaccines. Promoting vaccine adoption in developing countries. In developing countries, the gap between ideal and actual immunization coverage is far larger than in the United States. The Expanded Programme on Immunization (EPI), started in 1974, was associated with rapid increases in coverage for established vaccines. However, global coverage rates have now plateaued, with DTP3 coverage rates remaining at 71–75 percent for the past decade.30 More than a million deaths still occur each year from diseases covered by these older vaccines, including measles (610,000), pertussis (294,000), and tetanus (213,000).31
Disparities between developing and industrialized countries in the use of existing vaccines have grown over the past three decades (Exhibit 3
The lack of sustainable funding to purchase new vaccines is the most important barrier to their adoption in developing countries. This problem occurs despite an international two-tier pricing structure in which vaccine prices for developing countries are far lower than those in the United States and other high-income countries.33 Vaccine doses to fully immunize a child with the current EPI antigens would cost more than $100 at U.S. prices using U.S. formulations (for example, inactivated polio vaccine), but are only $13 at United Nations Children’s Fund (UNICEF) prices (using less costly formulations, such as oral polio vaccine).34 Still, the costs of newer vaccines are far beyond the reach of many countries. In thirteen very poor countries, the total per capita public spending on health care is less than $10 per year.35 The cost of subsidizing vaccination in developing countries would be small relative to the cost in industrialized countries. The total cost of immunizing the ninety-two million children born annually in the seventy-five countries eligible for Vaccine Fund support (based on a per capita income of less than $1,000) with current EPI vaccines has been estimated at $3.1 billion per year.36 This is less than half of the $6.4 billion spent on cosmetic surgery each year in the United States.37 The U.S. government contributes to immunization in developing countries via the U.S. Agency for International Development (USAID), the CDC, and the Vaccine Fund. New partnerships between private philanthropy and public resources have assumed an important role for developing countries. Since 1985 Rotary International has contributed more than $500 million to worldwide polio eradication through private donations.38 In 1999, the Global Alliance for Vaccines and Immunizations (GAVI) established the Vaccine Fund with an initial $754 million donation from the Bill and Melinda Gates Foundation (which in 2005 donated an additional $750 million) and subsequent grants worth more than $500 million from other donors.39 Through this fund, GAVI has offered support for vaccine programs in the world’s seventy-five poorest countries.40
If the right vaccines were developed and used, they would have tremendous potential to reduce death and disease worldwide. Vaccine development and adoption can be promoted through both "push" mechanisms and "pull" mechanisms.41 Push mechanisms subsidize costs, while pull mechanisms increase demand. Types of push mechanisms include direct financing of vaccine development, facilitating research, harmonizing regulatory requirements, and tax credits for vaccine research. Pull mechanisms also vary in nature. Examples include market assurances such as guaranteed prices or guaranteed quantities, subsidization of demand by nongovernmental organizations (NGOs), and tax credits. Stimulating vaccine development for the U.S. market. Even in the United States, the regulatory and financing structure for vaccines may not support the optimal development of new vaccines. About half of the doses of childhood vaccines in the United States, for example, are purchased by governments through negotiations with the CDC. The CDC is thus in a position of both being responsible for promoting vaccine development and keeping the current procurement price as low as possible. The CDC uses its buying power to obtain discounts on new vaccines and administratively set prices for old vaccines. These discounts serve the CDC’s second goal but not the first. Potential vaccine manufacturers choose to allocate development resources between regular drugs (whose prices are essentially set by the manufacturer with very high markups) and vaccines (for which a powerful public buyer negotiates discounts). These asymmetrical market opportunities direct investments away from vaccine development to other drug development. Historically, vaccines have accounted for only about 1.5 percent of global pharmaceutical sales—in large part because of their low prices relative to drugs.42 Push mechanisms are relatively weak drivers of vaccine development for the U.S. market.43 The National Institutes of Health (NIH) supports basic research in vaccines as well as clinical evaluations of the vaccines. On occasion, it has supported large-scale vaccine field trials.44 A variety of pull mechanisms could address this problem in the U.S. context. The main problem is to set up a regulatory financing structure that will credibly commit to paying manufacturers prices reflecting the value of vaccines. One recently proposed straightforward approach is simply to set the price for a vaccine against a certain disease on the basis of a priori calculations to give manufacturers the right incentives in light of the vaccine’s social value.45 A commitment to subsidizing purchase prices—an approach recommended by the IOM—would move in the same direction. Manufacturers have objected to the prospect of setting prices in advance as early price fixing that would not provide adequate incentives for them to take on the scientific and financial risks inherent in vaccine development.46 However, the point of setting prices in advance is not to lower the procurement price but to ensure that manufacturers receive adequate incentives to develop vaccines. If credible public commitments to prices could be made, manufacturers’ concerns might be allayed. Despite these issues, vaccine development is proceeding. Of the fourteen possible vaccines identified as priorities by a 1985 IOM report, six are in widespread use in the United States today, including hepatitis B, Hib, intranasal influenza, varicella, hepatitis A, and acellular pertussis vaccines.47 Some of the vaccines identified as highest-priority for development in the subsequent 2000 IOM report Vaccines for the Twenty-first Century are already available or close to being so. Many others (such as an HIV vaccine) are under active research, with the barriers to development as much scientific as they are economic. Promoting vaccine research for developing countries. Economic factors are a major barrier to research on new vaccines for developing countries. Spending on vaccine research and development (R&D) is apportioned unequally between the needs of industrialized and developing countries. The vaccine market for the former is expanding, while that for the latter continues to be characterized by large volumes and low prices.48 It has been estimated that the public and private sectors jointly spend more than $70 billion on health R&D, but only about 10 percent of this is used for research into 90 percent of the world’s health burden.49 Until recently, however, vaccines developed for use in high-income countries have served important vaccine needs of low-income countries. Today, the list of candidate vaccines with highest potential to deliver health benefits in developing countries has diverged from the list for industrialized countries. The potential vaccines with the greatest promise of reducing mortality in developing countries include those for rotavirus, pneumococcal disease, malaria, and HIV.50 There is little overlap between this list and the list identified as highest-priority for the United States.51 Pull mechanisms offer one of the most promising current approaches to encouraging investment in new vaccines and potentially lowering the costs—and hence prices—of these vaccines in developing countries. One that is being closely examined by GAVI and its Accelerated Development and Introduction Plan (ADIP) teams is a guaranteed advance-purchase contract to reduce the risks associated with unpredictable demand.52 The proposed contracts would specify a purchase price, although not a fixed quantity.53 GAVI hopes that this innovative procurement strategy will speed the development and adoption of rotavirus vaccine as well as forms of pneumococcal conjugate and meningococcal vaccines tailored for the needs of poor countries. Rapid progress has recently been made in the development of two new rotavirus vaccines, one of which is expected to be submitted for licensing consideration in Mexico and the other to be introduced simultaneously in developed and middle-income countries.54 Development of a malaria vaccine has posed more challenges, despite important investments by the U.S. Department of Defense and the National Institute of Allergy and Infectious Diseases (NIAID). The Malaria Vaccine Initiative (MVI), a focused vaccine development program, was created in 1999 through a Gates Foundation grant to PATH, an international research and dissemination group.55 This program aims to identify the most promising vaccines and technologies and to link government, industry, and academic partners with field trial sites in malaria endemic countries early in the development process. Of the $65 million spent on malaria vaccine research in 2003, $14 million was contributed by the MVI and $33 million by the NIH. The Gates Foundation has committed a total of $150 million to the MVI/PATH to support and accelerate malaria vaccine development. These targeted activities represent a form of push mechanism, which increases financial contributions to vaccine R&D. Still, investment in malaria vaccine research is far less than the estimated $300–$500 million needed to advance a vaccine through product development.56 Economic factors, including financing, play a key role in the development and use of vaccines throughout the world. To ensure that emerging vaccines are appropriately valued, economic analyses should include measures of health benefit that give credit for preventing morbidity, such as QALYs or DALYs. Ensuring the optimal use of existing vaccines will require increased funding for vaccines in the United States and sustainable funding mechanisms in developing countries. For developing countries, private philanthropy coupled with public efforts have stimulated increased activity in both the adoption of existing vaccines and the development of new ones. In the future, such countries will need new vaccines that differ from those of highest priority in the United States. Creative approaches to using economic factors to promote vaccines for developing countries include pull mechanisms to establish predictable prices or demand or both, as well as push mechanisms that support the development of new vaccines through targeted research efforts.
Tracy Lieu (tracy_lieu{at}harvardpilgrim.org) is an associate professor and director of the Center for Child Health Care Studies, Department of Ambulatory Care and Prevention, Harvard Pilgrim Health Care and Harvard Medical School, in Boston, Massachusetts. Tom McGuire is a professor of health economics in the Department of Health Care Policy, Harvard Medical School. Alan Hinman is a senior public health scientist at the Public Health Informatics Institute, Task Force for Child Survival and Development, in Decatur, Georgia. The authors are grateful to Fangjun Zhou, Lisa Prosser, Tom Ray, Grace Lee, Margaret Coleman, Roy Widdus, and Owen Barder for contributing important information from studies or discussions in progress. They appreciate the thoughtful suggestions of Amie Batson and Regina Rabinovich. They thank Charlene Gay for excellent assistance with research and manuscript editing. Tracy Lieu’s effort was supported in part by the Joint Initiative in Vaccine Economics of the National Immunization Program, Centers for Disease Control and Prevention, and a Mid-Career Investigator Award in Patient-Oriented Research from the National Institute of Child Health and Human Development (K24 HD047667).
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65 Years—United States, 1989–2001," Morbidity and Mortality Weekly Report 52, no. 40 (2003): 958–962.
