A Force More Powerful Than Anti-Vaxxers? Economics!

We have a vaccine crisis in the this country. Not just the one caused by anti-vaxxers like Jenny McCarthy, scaring Americans away from life-saving childhood vaccines with pseudo-scientific claims about autism. Instead I’m talking about a bigger crisis, one caused by a dangerously thin supply of vaccines. Wise parents who ignore the blatherings of people like McCarthy may soon arrive at their pediatricians’ offices prepared to vaccinate their children, only to find out there is no vaccine.

To protect supplies, we need to be sure we are paying well for the vaccines we receive.

That’s the conclusion of a study led by my friend and colleague David Ridley. Working with two graduate students, Ridley analyzed whether the likelihood of vaccine shortages was correlated with the price of the vaccine. You see, the majority of childhood vaccines in the U.S. are purchased by the federal government, as part of a Vaccines For Children Program created by congress to provide vaccines to low-income kids. In purchasing these vaccines, the government uses a “cost-plus-pricing” model.  This model establishes the marginal cost the manufacturers incur to produce a dose of vaccines and marks the final price up a titch, to give companies a small profit. This mark-up is pretty modest, however, especially for older vaccines. Such modest profits reduce manufacturers’ incentives to invest in vaccine production.
Shouldn’t a modest profit be enough to keep manufacturers in the market?
Unfortunately, it’s not enough of an incentive to avoid shortages. Vaccines can be complicated to manufacture. Inevitably, production lines get disrupted by contamination issues or other problems. If there were lots of excess production capacity, an occasional disruption wouldn’t matter. But many vaccines are manufactured by only one or two companies, and with very little excess capacity built into the system. Excess capacity, after all, is expensive to maintain. So when a production problem arises for an older, less expensive vaccine, often a shortage follows.
(To read the rest of this article, please visit Forbes.)

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