25169 Vaccine Costs and Manufacturer Profits: What Is the Right Balance?

Tuesday, March 29, 2011
Columbia Hall
Sheldon Jacobson, PhD , Professor and Director, Simulation and Optimization Laboratory, University of Illinois

Background:  Pediatric vaccine manufacturing s has become less profitable due to rising costs and limited demand, inducing many pharmaceutical companies to leave the market. To ensure the safe, secure, and reliable provision of vaccines, the economic interests of the vaccine industry must be considered by public health policy makers.

Objectives:  The monopsonistic market power of the federal government uniquely positions it to significantly influence the pediatric vaccine market by negotiating contractual agreements that increase the vaccine manufacturers' financial incentives to remain in the market.  The objective is to determine an appropriate balance between cost, profit, and public health to meet the needs of all stakeholders.

Methods:  A mathematical model is introduced to determine pediatric vaccine prices and purchase quantities that ensure a birth cohort is fully immunized according to the RCIS at an overall minimum system cost, while also ensuring that vaccine manufacturers each attain a reservation profit level. The practical value of this model is demonstrated by analyzing and assessing pricing and purchasing policies that the CDC could adopt in attempting to actively manage the long-term provision of pediatric vaccines.  Results: The base case a birth cohort of 2.3 million children can be immunized according to the 2010 RCIS at an overall vaccine system cost of US$663 million.  Moreover, all vaccines can be included in the formulary (with minimum vaccine purchase quantities levels) at a relatively small additional system cost of $40 million (US$703M vs. US$663M), an increase of approximately 6%.

Conclusions:  The CDC's vaccine pricing and purchasing policies are critical to the long term success of public immunization programs. The monopsonistic federal government is well positioned to achieve the appropriate balance between immunization coverage levels (facilitated by lower prices) and appropriate investment in research and development (facilitated by higher prices).