To Ensure Access to Covid Vaccines, Demand a Fair Price
(Bloomberg Opinion) -- As the rollout of vaccines to protect against Covid-19 proceeds, Americans may begin to glimpse the pandemic’s end. It’s not possible to bring the coronavirus under control, however, until vaccines are accessible to everyone. For the moment, that is largely a logistical challenge. Price has not been a major obstacle, because the U.S. government has contracts to buy from the manufacturers all the doses they’ve been able to provide.
These purchases are only a start, however. The shots that the government has contracts to procure are unlikely to be enough for the whole population, even on the first pass. And questions remain about how long immunity will last and whether the virus will continue to evolve. Additional shots may well be required in years ahead, like the annual influenza vaccine.
When the government is no longer buying the vaccine for everyone, health insurers and individual patients will need to foot the bill. Then, keeping the pandemic at bay will require that the vaccine be affordable to all. In a country where people pay the world’s highest prices for branded drugs, this is a considerable challenge.
One strategy to lower drug prices broadly, proposed by a growing number of experts and policy makers, is to link them to the clinical benefits they provide. Under this model, people would pay more for drugs that are effective and more beneficial than other available treatments, and far less for those that offer no more help than lower-cost alternatives could.
But such a system would not make sense for vaccines. When you factor in the lives saved, the major illnesses prevented, the economic benefit of people returning to work and more, it would make them too expensive. And it would fail to account for the unprecedented investments that the public has already made in their development.
Operation Warp Speed has spent more than $18 billion to expedite the development and manufacturing of Covid-19 vaccine candidates, including $11 billion given directly to drug makers. Moderna, one of the companies with a vaccine that has been given emergency use authorization, received taxpayer-funded grants totaling $4.1 billion.
Pfizer and BioNTech, the makers of the other vaccine already in use in the U.S., were not given direct research and development funding by the government, but Operation Warp Speed provided a commitment to purchase $2 billion worth of their vaccine. What’s more, the technology used to make both the Pfizer-BioNTech and Moderna vaccines, which targets the coronavirus’ spike protein, was developed by scientists supported by the U.S. National Institutes of Health long before the pandemic began.
Through all these different types of support, the government reduced the risk for companies to develop vaccines. Yet it has not secured assurances that the companies won’t charge high prices down the road.
A fair pricing model in this case is one known as “cost-plus,” which aims to cover the cost of manufacturing plus an additional amount to ensure a reasonable return for drug makers. The cost-plus model would cover the companies’ opportunity costs and give them incentive to remain involved in the production and distribution.
As vaccine distribution picks up steam under a reorganized federal process, and as more doses than the government has paid for are required, President Joe Biden’s administration should demand this pricing approach. The government has strong leverage to negotiate contracts to ensure that prices are fair for patients and taxpayers. For example, if a vaccine maker refused to come to reasonable terms, the administration could license other companies to make the same shots, after paying reasonable compensation to the patent-holding company.
Drug companies can be expected to claim — as they always do whenever policy makers consider limits on their charges — that anything short of setting their own prices would discourage companies from developing future vaccines. Yes, it is essential that drug companies have sufficient incentive to invest in vaccine development, an area that has often been neglected. But there will always be companies willing to accept public funding to create vaccines for public health crises as long as they are allowed reasonable profits.
The fast development of Covid-19 vaccines is something to celebrate. It is appropriate at the same time to celebrate the contribution that taxpayers have made to these successes. By seeing that the shots are priced according to a cost-plus model, the Biden administration can ensure that all Americans can always afford to be inoculated.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Aaron S. Kesselheim is an associate professor of medicine at Harvard Medical School and the director of the Program on Regulation, Therapeutics and Law at Brigham and Women’s Hospital.
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