Vaccine gap shows faults in supply system

$85 vial may cost $600 amid shortage in U.S.

October 08, 2004|By M. William Salganik | M. William Salganik,SUN STAFF

To David Webster, an industry consultant, flu vaccine is like a mixed investment portfolio. Some is pre-sold at low but secure profit margins, like bonds. The rest, like stocks, might be sold at varying prices in a "spot" market.

To Mark V. Pauly, a health economist, flu vaccine is like avocados. It's a perishable product whose price can go up, producing a windfall for the distributor when supply is short. On the other hand, if you don't unload your avocados quickly, they go bad and must be tossed out.

Neither is surprised at reports this week of prices reaching $600 or more for a 10-dose vial of a vaccine with a normal price tag of $85. A production problem blocked distribution of nearly half the country's vaccine supply, which has set off a scramble by providers to get their hands on what's left.

Although the production and safety of flu vaccine is tightly regulated, it is distributed through a complex and free market in which the balance of supply and demand can bound between extremes. While the system provides a chance for some distributors to profiteer, it also makes wide-scale price gouging unlikely, industry experts say, because much of the supply is committed under contract, at set prices, to customers who ordered it months ago.

John. L. Kreger, an analyst at William Blair & Co. in Chicago, said distributors also are likely to be pressed by the Centers for Disease Control and Prevention (CDC) to redirect much of their supply to those most at risk, including seniors in nursing homes. Such sales tend to be at lower markup than sales to lower-priority buyers, such as companies that purchase vaccine to offer to employees, he said.

The good and bad

The system usually works well, said Pauly, a University of Pennsylvania professor who served on a national Institute of Medicine panel that issued a report last year on the process for buying and distributing vaccines. But he said it is a system that makes reallocation difficult in a crisis, with some vaccine sitting in refrigerators in doctors offices and clinics and the rest in the hands of distributors.

Some doctors, hospitals and clinics buy vaccine directly from manufacturers. But many manufacturers do not have the salespeople and trucks to serve hundreds of thousands of doctors and clinics, so much of the supply moves through a network of large and small distributors.

Large distributors tend to keep prices stable on vaccines to keep customers happy, said Webster, president of Webster Consulting Group in Bethlehem, Pa., which advises pharmaceutical manufacturers and distributors.

The largest distributor, Henry Schein Inc. of Melville, N.Y., said it has stopped shipping flu vaccine and has not changed the price. Spokeswoman Susan Vassallo said the company is awaiting word from the CDC on whether the supply should be directed to providers serving high-risk patients.

A "second tier" of smaller regional distributors includes "opportunists" who will charge what the traffic will bear in times of shortage, Webster said.

Those times arrived this week, when British regulators suspended the license of Chiron Corp., one of two manufacturers expected to supply flu vaccine to the United States for this fall and winter - blocking distribution of up to 48 million doses.

The other manufacturer, Aventis Pasteur Inc., has produced 57 million doses of its vaccine Fluzone. Of those, 52 million had been ordered by clinics or end-users before Chiron's announcement, and 33 million had been shipped, an Aventis spokesman said yesterday. Aventis does sell directly to doctors and hospitals, but much of its vaccine - the percentage was not immediately available - moves through distributors.

"Aventis Pasteur has not changed and will not change the 2004-2005 list price for Fluzone," said spokesman Peter Vigliarolo. That's $85 for a 10-dose vial, $106.20 for a box of 10 filled syringes, and $120 for a box of 10 syringes with preservative-free pediatric vaccine.

However, Vigliarolo said, "The company doesn't control prices charged by distributors."

Gray-market gouging

Barbara Ertle, pharmacy director at St. Joseph Medical Center in Towson, said she had gotten a fax this week from a "gray market" distributor claiming to have vaccine for $600 a vial.

Dan Herlihy, president of Premium Health Services in Columbia, a small distributor, said he had heard from a customer about prices of up to $600 but could not verify that. He said his company, which specializes in intravenous antibiotics but normally carries some flu vaccine, had tried to get more from other distributors but "I heard the prices were outrageous."

Fran Lessans, president of Passport Health, a Baltimore-based franchiser of shot clinics, said she was quoted a price as high as $260.

"This gouging is nasty stuff, and it happens every year" with flu vaccine, she said.

All of them had ordered Chiron vaccine. Providers who ordered Aventis products, such as Mercy Hospital in Baltimore, said they already had a supply in hand.

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