Taking the Profit Out of Medicine

by Russ Roberts on October 22, 2004

in Health, Prices

In an earlier post, I suggested that to understand the true source of the vaccine shortage, it would help to know how much of the flu vaccine is bought by the government and what is holding price down. I spoke with people at the Center for Disease Control. In a typical year, the CDC buys 7% of all purchases, the states buy 8% and the Department of Defense and the Veteran’s Administration also buy some. Haven’t nailed those numbers down yet, but in 2002, Medicare paid for 22 million doses. This year, if we hadn’t lost the Chiron supplies, that would have been about 20% of the total. So as a crude estimate of government purchases, either direct or indirect through Medicare, 40-50% is a good starting place. (I think the full effect is larger but I’ll save that for another time.) My guess is that the large role of government in purchasing vaccine restrains the price that manufacturers can charge, making it difficult to overcome the regulatory and litigation risks. Essentially we’ve taken the profitability out of this industry.

The news today is that MedImmune, the makers of FluMist will be supplying an additional 1 million doses.

The U.S. government has secured 1 million additional doses of the nasal-spray version of flu vaccine, bringing the total number of vaccine doses to 61 million, Health and Human Services Secretary Tommy Thompson said Thursday.

Phew. I thought we were going to be stuck with only 60 million doses, Good to know it’s going to be sixty one million. Too bad the FDA only approved FluMist for people ages 5-49, the low-risk population. Still it could help:

The government hopes the increased FluMist supply will act as “further incentive for people to forgo a flu shot intended for people in high-priority groups,” the health secretary added.

Too bad there’s not much of an incentive. We’re still relying on begging and pleading to get younger people to step aside rather than relying on price.

But the real story here is who is responsible for this modest expansion in supply. The government. The Department of Health and Human Services. With people lining up to get flu shots, waiting in line for hours, you’d think some private source would find it profitable to order some additional supply. Evidently not. Only the government finds it worthwhile. Which suggests that because of various regulations and social norms, we’ve taken the profit out of not just producing the vaccine but supplying it as well.

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