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THIS WON’T HURT A BIT:
Why the vaccine crisis shows we shouldn’t believe what
health “planners” tell us about how to reform drug policy
JULIA WITT
BRIAN FERGUSON
AIMS COMMENTARY
Atlantic Institute for Market Studies
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THIS WON’T HURT A BIT:
Why the vaccine crisis shows
we shouldn’t believe what health “planners”
tell us about how to reform drug policy
AIMS Commentary
2004 Atlantic Institute for Market StudiesPublished by Atlantic Institute for Market Studies2000 Barrington Street, Suite 1006Halifax, Nova Scotia B3J 3K1 Telephone: (902) 429-1143Fax: (902) 425-1393E-mail: aims@aims.caWeb site: www.aims.ca Edited and prepared for publication by Barry A. Norris.
The authors of this report have worked independently and are solelyresponsible for the views presented here. The opinions are not necessarilythose of the Atlantic Institute for Market Studies, its Directors, orSupporters.
AIMS Commentary
Table of Contents
About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Getting the Right Dose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 The UK Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Don’t Blame the Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 The Great Flu Vaccine Panic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Attack of the “Lawyeraptors” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 The Problem with Government Intervention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 The FDA in the Way . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 AIMS Commentary
About the Authors
Julia Witt is currently a PhD student at the Dr. Brian Ferguson is currently an Associate at the University of Guelph. He earned a BA at Mount Allison University, an MA at the of Guelph. Her fields of specialization dur- ing the PhD program include social welfare been visiting faculty at the Australian NationalUniversity, was Consultant Economist to theStatistical Research section of the AddictionResearch Foundation of Ontario, and visit-ing researcher at the Kansas Health Institute(and visitor at the Department ofEconomics, University of Kansas). He isalso the author (with G.C. Lim) ofIntroduction to Dynamic Economic Models(Manchester University Press, 1998).
AIMS Commentary
Introduction
Americans, Canadians rely on just two pro-ducers to supply our stock of flu vaccine, On October 24, 2004, the op-ed page of the one of which — fortunately not Chiron — New York Sunday Times carried an opinion also supplies half the US stock. Second, if piece (Bartlett and Steele 2004, 11) that Canada’s federal and provincial ministers of pretty accurately sums up the views of per- health proceed with some of the policies they discussed at their recent meeting, Canada’s Canadians about the October flu debacle in the United States — it’s all the market’s fault.
very much like its troubled US counterpart.
The article, by two Time writers, points outcorrectly that drug manufacturers make Getting the Right Dose
much more profit from products like Viagrathan they do from vaccines and that, with In the United States, approximately 95 per- regard to the flu vaccine shortage, “[t]he cent of the annual flu vaccine supply comes reason for the shortage is this: Preventing a flu epidemic that could kill thousands is not French-based Aventis Pasteur’s US facili- ties, each supplying nearly half the required something like erectile dysfunction”. This is partly true: the immediate reason for the shortage was contamination of the output of because it is a live virus, is not approved for vaccine maker Chiron’s UK plant and the most at-risk people. Canada also obtains flu UK government’s subsequent refusal to per- vaccine from Aventis Pasteur, but from the mit the export of any of the plant’s output to company’s French plant, whose output is the United States. The Time writers then go not licensed for use in the United States.
on to say that the United States does not Canada’s second supplier, ID Biomedical, is exercise any influence over pharmaceutical located in Quebec and is responsible for the prices, which, at least as far as vaccines are in this area. A New York Times article pub- monitors flu outbreaks worldwide and rec- lished a few days earlier (Grady 2004) cited experts as saying that the heart of the prob- to be used for the next flu season. In the lem was that government was not sufficient- United States, the decision about which flu ly involved in the vaccine market. As the virus strains to include in the vaccine is article put it, “The production, sale and dis- tribution of vaccines, particularly those for Related Biologicals Advisory Committee of flu, are handled almost entirely by pharma- but production and distribution of the vac- cine are largely left to the private sector. A back and watch the United States’ problems relatively small amount is purchased by the Centers for Disease Control (CDC) and state shouldn’t, for a couple of reasons. First, like AIMS Commentary
“cannot guarantee the safety of these vac- States requires each year is largely deter- cines”, states are not allowed to import them until the agency has conducted what it consid- previous year. For example, about 95 mil- ers to be adequate testing of vaccine batches.
lion doses of vaccine were produced for the2002–03 flu season, of which 83 million The UK Experience
doses were used. The requirement for the2003–04 flu season was set at about 87 mil- Northern Ireland was also adversely affected supplied 80 percent of its flu vaccine.
time to manufacture — production for the However, two factors averted a crisis there.
October-November inoculation period starts Services and Public Safety moved quickly to secure doses from other suppliers without viruses travel around the world, so unused imposing debilitating requirements on the approval process for the new supplies.
thrown away. It also raises the stakes for pro- ducers because there are no guarantees that their supply will be sold. Some companies enough to be filled by the UK’s five other suppliers of the vaccine. Chiron also sup- altogether — ten years ago, there were four plied nearly 20 percent of the required doses in the rest of the UK, but the Department of Health quickly secures additional supplies from three of the remaining five companies, regulations. Parkedale Pharmaceuticals in thus averting a severe shortage of flu vac- Rochester, Michigan, shut down its flu vac- cine production facility after a long debate flu vaccine suppliers is partly because of company to halt its vaccine sales during the that country’s pricing mechanism for phar- only time doses would have been in demand, maceuticals. The industry’s target profit level wasting nearly 14 million doses. The prospect of a recurrence left the flu vaccine market (represented by the Department of Health) and the pharmaceutical sector (represented by the Association of the British Pharma- ceutical Industry). The target is expressed as a level of return on capital employed, and is investing in costly FDA-required upgrades derived from the average level of profitabil- to the chicken-egg process makes less sense ity of industry in the UK in general. The than exiting the market completely. The FDA’s strict guidelines are also the reason US states prices” that “promote a strong and profitable are unable to secure flu vaccines from other pharmaceutical industry” that will “encourage countries that have a surplus. Since the FDA the efficient and competitive development AIMS Commentary
Department of Health 1999). Contrarily, in why aren’t those signals pointing in the the United States, the CDC typically negoti- other direction, toward certain vaccines? ates prices for itself and other government The answer, at least in the US flu vaccine purchasers that are roughly half the private case, is that government, not the market, sector cost.1 Unreasonable prices do not pro- sets the signals. The problem with the US mote a strong and profitable pharmaceutical vaccine sector isn’t too little government Don’t Blame the Market
The Great Flu Vaccine Panic
This year’s flu vaccine panic in the United Critics of market involvement in health care States is just the latest, and most dramatic, argue that, while the market is fine for pro- of the unintended consequences of deliber- viding cereals and cosmetics, it simply cannot be relied on where health care is concerned.
The story is set out in a pair of reports, Barlett and Steele (2004) take the view thatthe flu vaccine case shows “[t]he money is in the treatment — not prevention — so the 2003), the other from the General Accounting market and good health care are at odds”.
Office (GAO) (United States 2002). In 1967, Most health policy reformers believe that 26 manufacturers were licensed by the FDA health care is simply too important to be left to produce vaccines for the US market. By to the market, implying that some sort of 1980, that number had declined to 17, and by failure on the part of the market requires that the number of firms and laboratories pharmaceutical companies’ allocation of A recent New York Times article (Pollack 2004)gives the impression that the vaccine market is effort between vaccines and other products.
no longer unprofitable, and cites examples of It is not true, though, that the market has new vaccines various companies have under failed. The market has done exactly what it development. It characterizes older vaccines as is supposed to: allocate resources toward unprofitable by comparison with newer ones, butalso mentions that the prices of vaccines covered their highest-value use or, more precisely, by the Vaccines for Children program are capped their highest-profit use. Firms make produc- without seeming to appreciate the connection tion decisions on the basis of market signals between the two. The article also fails to addressthe shortage of suppliers in the huge US market.
that have led them to shift production away And while it mentions that liability concerns about a rare possible side effect have prompted which reformers usually deride as “me-too” Merck to run a massive clinical trial on a new vaccine, the article ignores the implications ofsuch a trial for the cost of drug development. Infact, the article merely confirms that the market For a comparison of the costs of children’s vac- will allocate research funds toward highest-profit cines to the CDC and the private sector, see web- uses, which, thanks to government intervention site: <http://www.cdc.gov/nip/vfc/cdc_vac_price and concerns about litigation, do not include the AIMS Commentary
cines for the US market had declined from ceasing production of the vaccine because demand had dropped off significantly, which GAO report warned that, of the eight recom- was true — demand had fallen precipitously mended routine childhood vaccines, five were as the rumours spread. Despite the FDA’s made by a single firm. Two other vaccines clean bill of health, a class action lawsuit was brought against the manufacturer.
made by as many as three firms. It was also reported that the number of manufacturers over a million dollars, small change as lawsuits go, but every penny went to the 34 lawyers and paralegals involved in the case and not one went to the vaccine’s purported victims.
based in the United States (Aventis Pasteur’s The lawyers hailed the settlement as a victory US vaccine industry were trial lawyers and The Problem with
Government Intervention
Attack of the “Lawyeraptors”
The US government experienced the“lawyeraptor” effect first hand in 1976, as a The trial lawyers had a field day in the 1970s result of an outbreak of swine flu at Fort and 1980s, driving up drug prices, forcing manufacturers to build liability reserves, and putting some out of business. The California manufacturers were unwilling to participate Supreme Court boasted that litigation had because they were unable to get liability driven all but two manufacturers of diphtheria- insurance. In response, after hearing Congress- tetanus-pertussis vaccine from the market and the cost of a dose of the vaccine up from lion, Congress decided, after suitably demoniz- 2002). A 1974 report linking pertussis vac- ing the insurance industry for its lack of cine to epilepsy, though rejected by later social conscience, to provide the insurance studies, led to the filing of 800 lawsuits over itself. Total damage awards ultimately came the next decade and resulted in all but one to more than US$100 million (Tucker 2004).
National Childhood Vaccine Injury Act, removed the vaccine from the market three years later after rumours began to circulate that it was causing serious arthritis, although cases determined by scientific panels.
Plaintiffs were still able to opt out and go AIMS Commentary
directly to trial, however, and trial lawyers the consumer price index inflation rate by (2003) report refers to as “novel legal theo- The FDA in the Way
two elements: keeping prices down anddriving manufacturing costs up.
prices down, it drives manufacturers’ costs Barlett and Steele (2004) that the govern- ment does not exert any influence over drug which is responsible for ensuring the quality cine so low that manufacturers refused to sell to the CDC at that price, leaving the quently does require upgrading of produc- become available, even if there is no evi- its purchasing clout to negotiate discounts dence of problems with the old methods. As Foulkes (2004) notes, the FDA has not hes- 2003). Since the government is by far the itated to shut down production even when it largest purchaser of vaccines, these dis- acknowledges the absence of problems.
product profitability. Yet the government’s entry and research in the vaccine field.
efforts to restrict prices go beyond merely Before it will license a new vaccine, the negotiating its own discounts. According to FDA insists that the manufacturer construct the IOM report, the Department of Veterans and pass inspection of a commercial-scale Affairs penalizes firms for increasing prices production facility, and that the batches ofvaccine the FDA is inspecting as part of theapproval process be produced in that facili- It is ironic that flu vaccine has been the largest crisis in recent years, as flu was not on the 1993list. The CDC does, however, set the reimburse- approval, the manufacturer could find itself ment rate for flu shots under federal programs, stuck with an unused and unusable produc- and is quick to cry of “gouging” when prices tion plant. Regulatory delays also sometimes AIMS Commentary
mean that facilities are no longer state of the to take their reformulated vaccines through art by the time the vaccine comes into pro- the whole regulatory approval process.
health scare with no scientific basis at the efforts toward safe bets — vaccines that are rejected it since, but it had the effect of virtually guaranteed to obtain approval.
Innovative research — say, into vaccines vaccine for the US market from four to two.
for hitherto neglected conditions — is effec- tively discouraged by the risk that the vac- uation surrounding the production of small- cine might not pass large-scale trials and that the company might be stuck with a use- regulations, created as a result of changes to the vaccine production, now treat smallpox requirements suddenly. A recent case involves increased standards associated with such a its decision that the preservative thimerosal decision.4 One can see how the FDA’s deci- been used in vaccine manufacture for more twice before deciding whether or not to pro- than 60 years and has never been associated in clinical trials with side effects other than expect vaccines to meet certain standards of swelling at the injection site (Foulkes 2004, 39). Its presence in vaccines reduces the approach imposes large costs on producers risk of bacterial contamination when indi- vidual doses are drawn from multidose vials short run. Some recent shortages of child- hood vaccines have occurred because man-ufacturers could not make FDA-mandated their production facilities off stream for associated with autism. Despite the fact that expected. Thus, the FDA’s ill-judged regu- hypothetical problems instead created seri- ous, real problems of vaccine shortages.
in the United States. This proved extremely difficult in some cases. One manufacturer of also do not allow manufacturers to pass on diphtheria-tetanus-acelluar pertussis (DTaP) the increased costs of production to con- vaccine simply ceased production; another sumers in the form of higher prices except had to change its packaging from multi- tosingle-dose form, reducing its output of the See “A Wartime FDA”, Wall Street Journal (Eastern Edition), November 15, 2001, p. A.26; addition, producers staying in the field had AIMS Commentary
ifying drug companies and complaining that they devote too much effort to developing costs of production, and it’s no wonder prof- “me-too” drugs. Somewhat ominously, fed- agreed, at their most recent meeting, todevelop ways to use their combined pur- Conclusion
chasing clout to drive drug prices down.
Setting aside the vanishingly small likeli- The US flu vaccine shortage is not a case of hood that federal and provincial ministers of market failure. Rather, the US government health can work together on anything, the is sending vaccine producers a very clear ministers should take a close look at how message: If you produce an important vac- precisely that sort of policy has worked out cine, especially one of the required child- Like it or not — and a lot of people do diminishing profits and a high risk of law- not — government intervention in health suits. If you are sued, do not expect the fact care markets does more harm than good.
that you followed FDA rules to be a defence And like it or not, government cannot guar- or that FDA testimony on your behalf will antee supplies or access to essential medica- do you any good. On the other hand, if you tions of any kind. Ultimately, the market is you can make as much profit as you like. Is valuable drugs are produced and supplied to health policy types) that the market favours failures of vaccine supply the United States has experienced regularly over the past sev- eral years illustrate, not market failure, but are getting just as prone as Americans to vil- A forthcoming AIMS paper by Brian Fergusonhas a more detailed look at these issues.
AIMS Commentary
References
ABPI (Association of the British Pharmaceutical Access and Availability. Washington, DC: Industry) and Department of Health. 1999.
The Pharmaceutical Price Regulation Noah, Lars. 2002. “Triage in the Nation’s Medicine Cabinet: The Puzzling Scarcity of Bandow, Doug. 2003. “Demonizing Drugmakers: Vaccines and Other Drugs”. South Carolina The Political Assault on the Pharmaceutical Law Review 52 (2): 371–403.
Industry”. Washington, DC: Cato Institute.
Pollack, Andrew. 2004. “Vaccines are good Bartlett, Donald L., and James B. Steele. 2004.
business for drug makers”. New York Times, “The health of nations”. New York Times, Shea, Kathleen Brady. 2003. “Glaxo settles Foulkes, Arthur E. 2004. “Weakened Immunity: Lyme disease vaccine suit”. Philadelphia Caused Recent Vaccine-Supply Problems”.
Tucker, William. 2004. “La Grippe of the Trial Independent Review 9 (1): 31–54.
Lawyers: Guess Who’s to Blame for the Flu Grady, Denise. 2004. “With few suppliers of flu Vaccine Fiasco”. Weekly Standard, October 25.
shots, shortage was long in making”. New United States. 2002. General Accounting Office.
Childhood Vaccines: Ensuring an Adequate Henderson, Diedtra. 2004. “Shortage in flu Supply Poses Continuing Challenges. GAO- vaccine teaches lessons”. Seattle Post- IOM (Institute of Medicine). 2003. Financing Vaccines in the 21st Century: Assuring Selected Publications from the AIMS Library
Fisheries & Aquaculture
Commentary Series
Who Should Own the Sea and Why It Matters, by BrianLee Crowley Fencing the Last Frontier: The Case for Property Rightsin Canadian Aquaculture, by Robin Neill Locking Up the Pork Barrel: Reasoned EconomicDevelopment Takes a Back Seat to Politics at ACOA, by Canadian Aquaculture: Drowning in Regulation, byRobin Neill and Brian Rogers Taking Ownership: Property Rights and Fishery Following the Money Trail: Figuring Out Just How Management on the Atlantic Coast, edited by Brian Lee Large Subsidies to Business Are in Atlantic Canada, by Allocating the Catch Among Fishermen: A Perspective First, Do No Harm: What Role for ACOA in Atlantic on Opportunities for Fisheries Reform, by Peter H. Pearse Behind the Cod Curtain: A Perspective on the PoliticalEconomy of the Atlantic Groundfish Fishery, by Leslie Research Reports
Financing City Services: A Prescription for the Future, Making the Oceans Safe for Fish: How Property Rights Can Reverse the Destruction of the Atlantic Fishery, byElizabeth Brubaker “Smart Growth”: Threatening the Quality of Life,by Wendell Cox Do Cities Create Wealth? A Critique of New Urban Thinking and the Role of Public Policy for Cities, How to Farm the Seas II: The Science, Economics & Politics of Aquaculture on the West Coast, February Doing Business with the Devil: Land, Sovereignty, and 15–17, 2001, Vancouver, British Columbia Corporate Partnerships in Membertou Inc., by Jacquelyn How to Farm the Seas I: The Science, Economics & Politics of Aquaculture, September 28–30, 2000,Montague, Prince Edward Island Framing the Fish Farmers: The Impact of Activists onMedia and Public Opinion about the Aquaculture Rising Tide? Rights-Based Fishing on the Atlantic Coast, November 7–8, 1996, St. John’s, Newfoundland &Labrador You Can Get There from Here: How Ottawa Can PutAtlantic Canada on the Road to Prosperity, by Brian LeeCrowley and Don McIver Grading Our Future: Atlantic Canada’s High Schools’ Retreat from Growth: Atlantic Canada and the Negative- Accountability and Performance in Context, by Rick Road to Growth: How Lagging Economies Become Definitely Not the Romanow Report, by Brian Lee Crowley, Brian Ferguson, David Zitner, and Brett J.
Skinner Looking the Gift Horse in the Mouth: The Impact ofFederal Transfers on Atlantic Canada, by Fred Rags to Riches: How “The Regions” Can and Should Be Leading Canada’s Productivity Push, by Brian Lee Crowley These publications are available at AIMS, 2000 Barrington St., Suite 1006, Halifax NS B3J 3K1 Telephone: (902) 429-1143 Facsimile: (902) 425-1393 E-mail: aims@aims.ca They can also be found on our Web site at: www.aims.ca 2000 Barrington St., Suite 1006
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