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Blame Congress

Robert Goldberg, Ph.D.
New York Post
October 22, 2004

America's flu vaccine shortage has become a campaign issue, with Sen, John Kerry blaming President Bush for failing to take steps to assure a reliable supply of shots this year. That's a typical Kerry tactic: Blame the president for a problem he's been trying to solve - and which Kerry and other politicians created.

The fact is, this is the fourth year in a row we have had shortages of flu or pediatric vaccines. This year's shortage came when British health authorities closed a U.S.-owned plant that makes half our nation's flu shots. But that begs the question of why the entire United States is served by only two manufacturers of flu vaccines.

The answer is that Congress decided 10 years ago to have the government buy up most of the vaccines at fixed, below-market prices. The Vaccines for Children Program, established by the Clinton administration and a Democratic Congress in 1994, federalized much of the once-private U.S. market for vaccines - vastly expanding the government's role as price-setter and production manager. (Despite the name, it covered many shots for adults, too.)

Pitched as a way to improve development and supply, VFC wrote price controls on vaccines into federal law. Faced with government-set low prices - and with development and production costs soaring thanks to frivolous lawsuits, other new regulations and the need to invest in new technology - companies have been pulling out of the vaccine business in droves.

President Bush lifted the price caps when he came to office - but VFC also made the government the main purchaser of flu and pediatric vaccines, moving it from about 30 percent of the market to 65 percent and rising. That enormous purchasing power has allowed it to continue to command pitifully low prices for the existing stable of vaccines.

Bush has also tried to reduce development costs, to no avail. His effort to limit the liability of companies that make vaccines for the public health and fight bioterror has been thwarted by Kerry, Edwards and other leading Democrats. And the same politicians that blame the president for not getting the FDA to speed up vaccine approvals were responsible for demanding that the agency set up tougher and more expensive regulations for testing and manufacturing shots.

If your prices are set at unreasonably low prices and your costs keep rising, at some point you've got to close up shop. That's what has happened in the vaccine business. In 2001 there were four flu-vaccine makers in America; now there's only one. Twenty years ago we had 30 pediatric vaccine producers; today, only three.

As a result, we've had four straight years of flu-shot shortages as well as shortages of seven of the 11 shots that children need before age 5.

Vaccine development is risky. Many prototypes have failed, along with the start-up companies and venture capitalists that financed them. Still others are in the pipeline and require billions more in private capital for further testing. Until investors and vaccine makers have confidence that there is a private market for their products and they are protected from crazy lawsuits, the shortages will endure and new vaccine production will lag behind the science.

It is hypocritical and disingenuous for Kerry to promise he'll solve the vaccine shortage: His proposals to import all medicines from countries with price controls and to make the government the biggest buyer of all drugs would decimate all pharmaceutical development in the same way government control has destroyed the vaccine industry.

The president needs to encourage private insurance coverage of vaccines (it's a tiny share of total health-care spending in any event) and limit government purchases to public health clinics.

A great model for where to go next is the "Bioshield" bill introduced by Sens. Joe Lieberman and Judd Gregg; it would encourage the development of biodefense vaccines with stronger patent protection, less FDA regulation certifying new vaccine facilities, caps on liability and a no-price-control pledge on new products purchased by the government. Those reforms should be extended to vaccines generally.

Critics will say that vaccine production is too important to be left to market forces. The same thing could be said about all drugs. But the shortages that are the result of government-controlled vaccine purchases and pricing has taught us the exact opposite: If something is really valuable, putting a price on it will get you more of what you need.

Robert Goldberg is Director of the Center for Medical Progress at the Manhattan Institute.

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