The recent arrival of the influenza season has focused attention on the dismal condition of our nation's system of vaccine development and distribution. Shortages of flu vaccine have been widespread, and stocks cannot be quickly replenished. The key factors behind the shortages are economic--diminished financial incentives for the development of new vaccines and a dwindling number of vaccine manufacturers. Coupled with the ongoing threat of bioterrorism and the outbreak of infectious diseases, these deficiencies reveal a system in urgent need of reform. The Institute of Medicine (IOM) recently released a report offering solutions to the growing immunization problems, and members of the panel gathered at AEI on December 1 to discuss the report with experts in the pharmaceutical and health insurance markets.

Dr. Frank Sloan, chairman of the IOM, presented the findings of the report. Although vaccines reduce medical costs and enhance the quality and length of life of recipients, only four manufacturers actually produce vaccines; with this small number, the likelihood of interruptions in vaccine supply is high. Regulatory costs imposed on manufacturers depress the marketplace for vaccines, leading Dr. Sloan to conclude that "the vaccine market may be too small and the incentives too few to bring these potential therapies to market." Furthermore, the federal government purchases 55 percent of the vaccine units sold in the United States and therefore has considerable leverage on pricing. After the introduction of the Vaccines for Children program in 1993, immunization rates rose for several years but have now leveled off.

The IOM proposed a mandate, subsidy, and voucher plan to meet these challenges. Under this proposal, insurance plans, including Medicare and Medicaid, would be required to provide vaccine coverage. The federal government would, in turn, provide subsidies to insurance plans based upon the potential social benefits offered by vaccines. The government would also provide vouchers equal to the value of the subsidy to the uninsured.

Dr. Mark V. Pauly and Sara Rosenbaum, both members of the panel that wrote the IOM report, compared these recommendations to earlier IOM reports and defended the economic considerations influencing the report. Dr. Pauly warned that vaccine manufacturers cannot survive if prices fall below a certain level. He argued that new vaccine pricing should be decided, before marketing, based upon each vaccine's estimated social value. Ms. Rosenbaum commended the inclusion of economic experts and lawyers alongside public health officials on the panel but noted that delivery strategies, largely overlooked in the committee report, must nevertheless be central to any reform of the immunization process.

Carmella Bocchino, vice president of medical affairs at the nation's largest association of health insurers and health plans, disagreed with the assumption that any new federal mandate would increase immunization rates, noting that immunization mandates already exist in six states whose collective immunization rate remains the same as the national average, approximately 77 percent. Health plans currently allow patients to make most decisions to prevent disease and tend to associate mandates with increased costs; therefore, insurers cannot be counted on to promote vaccination. She also argued that "a government subsidy is unlikely to be a strong incentive for research and development. Any funding would quickly enter the congressional appropriations debate, and plans would never receive the full funds."

AEI's John E. Calfee stressed the importance of the Food and Drug Administration in increasing immunization rates. He described the FDA vaccine approval process as "unnecessarily slow and cumbersome" and the regulatory burden on manufacturers after vaccine approval as often "onerous." He noted that the initial IOM plan applies only to large-scale immunizations, the demand for which is difficult to predict, and that no firm scientific calculation exists to estimate the size of the social benefits.

Christine Grant of Aventis Pasteur, one of the vaccine manufacturers, argued that the creation of a new government subsidy risks creating a price-control system that would further discourage research and development.

Although the panelists disagreed as to solutions, they did agree that the immunization system has fundamental problems and that reforming it should be a top priority for public health.