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VA ~~_~! Committee on the Evaluation of Vaccine Purchase Financing in the United States Board on Health Care Services INSTITUTE OF MEDICINE OF THE NATIONAL ACADEMIES THE NATIONAL ACADEMIES PRESS Washington, D.C. www.nap.edu

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THE NATIONAL ACADEMIES PRESS 500 Fifth Street, N.W. Washington, DC 20001 NOTICE: The project that is the subject of this report was approved by the Gov- erning Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engi- neering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for ap- propriate balance. Support for this project was provided by the Centers of Disease Control and Pre- vention. The views presented in this report are those of the Institute of Medicine Committee on the Evaluation of Vaccine Purchase Financing in the United States and are not necessarily those of the funding agencies. Library of Congress Cataloging-in-Publication Data Financing vaccines in the 21st century: assuring access and availability / Committee on the Evaluation of Vaccine Purchase Financing in the United States, Board on Health Care Services. p. ; cm. Includes bibliographical references. ISBN 0-309-08979-4 (pbk.) ISBN 0-309-52619-1 (PDF) 1. Vaccination United States Planning. 2. Vaccines Economic aspects- United States. 3. Vaccination Economic aspects United States. 4. VaccinationGovernment policy United States. [DNLM: 1. Mass Immunization economics United States. 2. Vaccines- economics United States. WA 110 F4818 2003] I. Title: Financing vaccines in the twenty-first century. II. Institute of Medicine (U.S.~. Committee on the Evaluation of Vaccine Purchase Financing in the United States. RA638.F54 2003 614.4'7 dc22 2003018817 Additional copies of this report are available from the National Academies Press, 500 Fifth Street, N.W., Lockbox 285, Washington, DC 20055; (800) 624-6242 or (202) 334-3313 (in the Washington metropolitan area); Internet, http://www.nap.edu. For more information about the Institute of Medicine, visit the IOM home page at: www.iom.edu. Copyright 2004 by the National Academy of Sciences. All rights reserved. Printed in the United States of America. The serpent has been a symbol of long life, healing, and knowledge among almost all cultures and religions since the beginning of recorded history. The serpent adopted as a logotype by the Institute of Medicine is a relief carving from ancient Greece, now held by the Staatliche Museen in Berlin.

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"I(nowing is not enough; we midst apply. Willing is not enough; we mast do." Goethe ... ........ .................... -. - - - - ....... ... . ...... INSTITUTE OF MEDICINE OF THE NATIONAL ACADEMIES Shaping the Future for Health

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THE NATIONAL ACADEMIES Advisers to the Nation on Science, Engineering, and Medicine The National Academy of Sciences is a private, nonprofit, self-perpetuating soci- ety of distinguished scholars engaged in scientific and engineering research, dedi- cated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Bruce M. Alberts is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its mem- bers, sharing with the National Academy of Sciences the responsibility for advis- ing the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Wm. A. Wulf is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Insti- tute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sci- ences in 1916 to associate the broad community of science and technology with the Academy's purposes of furthering knowledge and advising the federal gov- ernment. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the Na- tional Academy of Sciences and the National Academy of Engineering in provid- ing services to the government, the public, and the scientific and engineering com- munities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Bruce M. Alberts and Dr. Wm. A. Wulf are chair and vice chair, respectively, of the National Research Council. www. nationa l-academies.org

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COMMITTEE ON THE EVALUATION OF VACCINE PURCHASE FINANCING IN THE UNITED STATES FRANK A. SLOAN, Ph.D. (Chair), I. Alexander McMahon Professor of Health Policy and Management, and Professor of Economics, Duke University, Durham, North Carolina STEVE BERMAN, M.D., Professor and Head, Section of General Academic Pediatrics, and Director, Children's Outcomes Research Program, University of Colorado School of Medicine and The Children's Hospital, Denver, Colorado DAVID CUTLER, Ph.D., Professor, Department of Economics, Harvard University, Cambridge, Massachusetts ERIC FRANCE, M.D., M.S.P.H., Chief of Preventive Medicine, Kaiser Permanente-Colorado, Denver, Colorado WILLIAM I. HALL, M.D., Chief, General Medicine/Geriatric Unit, University of Rochester School of Medicine and Dentistry, Rochester, New York DAVID R. JOHNSON, M.D., M.P.H., Deputy Director and Chief Medical Executive, Michigan Department of Community Health, Lansing, Michigan ALISON KEITH, Ph.D., Consultant, Health Economist, Pfizer, Inc. (retired), Springdale, Utah JUNE O'NEILL, Ph.D., Professor of Economics and Finance, Zicklin School of Business, Baruch College, City University of New York, New York, New York MARK PAULY, Ph.D., Bendheim Professor and Chair, Health Care Systems Department, The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania SARA ROSENBAUM, J.D., Hirsh Professor and Chair, Department of Health Policy, George Washington University Medical Center, School of Public Health and Health Services, Washington, D.C. IRIS R. SHANNON, Ph.D., R.N., Health Consultant and Associate Professor, Health Systems Management, Rush University, Chicago, Illinois Committee Staff Rosemary Chalk, Study Director Robert Giffin, Ph.D., Senior Program Officer Nakia Johnson, Senior Project Assistant Ryan Palugod, Senior Project Assistant v

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INDEPENDENT REPORT REVIEWERS This report has been reviewed in ciraft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by the National Research Council's Report Review Committee. The purpose ofthis independent review is to provide candid and critical comments that will assist the institution in making its published report as sound as possible and to ensure that the report meets institutional standards for objectivity, evidence, and responsiveness to the study charge. The review comments ant! draft manuscript remain confidential to protect the integrity of the deliberative process. We wish to thank the following inclividuals for their review of this report: WILLIAM V. CORR, Executive Vice President, National Center for Tobacco-Free Kids, Washington, D.C. HELEN DARLING, M.A., President, Washington Business Group on Health, Washington, D.C. SHERRY GLIED, Ph.D., Assistant Professor of Public Health, Columbia University, New York, NY HENRY G. GRABOWSKI, Ph.D., Professor of Economics and Director of the Program in Pharmaceuticals ant! Health Economics, Duke University, Durham, NC RUTH J. KATZ, J.D., M.P.H., Associate Dean of Administration, Yale University, New Haven, CT TRACY LIEU, M.D., M.P.H., Associate Professor, Department of Ambulatory Care and Prevention, Harvard University, Boston, Massachusetts BARBARA D. MATULA, M.P.A., Consultant, Health Care Access Program, North Carolina Medical Society Foundation, Raleigh, NC GEORGES PETER, M.D., Director, Division of Pediatric Infectious Diseases, Rhocle Island Hospital, Providence, RT JEFFREY L. PRATT, M.D., Professor of Immunology, Mayo Clinic, WILLIAM SCHAFFNER, M.D., Professor and Chairman, Department of Preventive Medicine, Vanderbilt University, Nashville, TN DAVID TAYLOE, JR., M.D., Goldsboro Pediatrics, Goldsboro, North Carolina THOMAS VERNON, M.D., Executive Director, Medical, Scientific, and Public Affairs, Merck Vaccine Division, West Point, PA Although the reviewers listed above have provided many constructive comments and suggestions, they were not asked to endorse the report's conclusions or recommendations, nor clid they see the final draft of the report before its release. The review of this report was overseen by William L. Roper, M.D., M.P.H., Dean of the School of Public Health, The University of North Carolina at Chapel Hill, and Willard Manning, Ph.D., Professor, The University of Chicago. Appointed by the National Research Council and the Institute of Medicine, they were responsible for making certain that an independent examination of this report was carried out in accordance with institutional procedures and that all review comments were carefully considered. Responsibility for the final content of this report rests entirely with the authoring committee and the institution. V1

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Independent Report Reviewers This report has been reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with pro- cedures approved by the National Research Council's Report Review Committee. The purpose of this independent review is to provide candid and critical comments that will assist the institution in making its pub- lished report as sound as possible and to ensure that the report meets institutional standards for objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confi- dential to protect the integrity of the deliberative process. We wish to thank the following individuals for their review of this report: WILLIAM V. CORR, Executive Vice President, National Center for Tobacco-Free Kids, Washington, DC HELEN DARLING, M.A., President, Washington Business Group on Health, Washington, DC SHERRY GLIED, Ph.D., Assistant Professor of Public Health, Colum- bia University, New York, NY HENRY G. GRABOWSKI, Ph.D., Professor of Economics and Direc- tor of the Program in Pharmaceuticals and Health Economics, Duke Uni- versity, Durham, NC RUTH J. KATZ, I.D., M.P.H., Associate Dean of Administration, Yale University, New Haven, CT TRACY LIEU, M.D., M.P.H., Associate Professor, Department of Ambulatory Care and Prevention, Harvard University, Boston, MA . . v''

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vIll INDEPENDENT REPORT REVIEWERS BARBARA D. MATULA, M.P.A., Consultant, Health Care Access Program, North Carolina Medical Society Foundation, Raleigh, NC GEORGES PETER, M.D., Professor and Vice-Chair for Faculty Af- fairs, Department of Pediatrics, Brown Medical School, Providence, RI JEFFREY L. PLATT, M.D., Professor of Immunology, Mayo Clinic, Rochester, MN WILLIAM SCHAFFNER, M.D., Professor and Chairman, Depart- ment of Preventive Medicine, Vanderbilt University, Nashville, TN DAVID TAYLOE, OR., M.D., Goldsboro Pediatrics, Goldsboro, NC THOMAS VERNON, M.D., Executive Director, Medical, Scientific, and Public Affairs, Merck Vaccine Division, West Point, PA Although the reviewers listed above have provided many construc- tive comments and suggestions, they were not asked to endorse the report's conclusions or recommendations, nor did they see the final draft of the report before its release. The review of this report was overseen by William L. Roper, M.D., M.P.H., Dean of the School of Public Health, The University of North Carolina at Chapel Hill, and Willard Manning, Ph.D., Professor, Department of Health Studies, The University of Chicago. Appointed by the National Research Council and the Institute of Medi- cine, they were responsible for making certain that an independent examination of this report was carried out in accordance with institu- tional procedures and that all review comments were carefully consid- ered. Responsibility for the final content of this report rests entirely with the authoring committee and the institution.

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Contents EXECUTIVE SUMMARY 1 INTRODUCTION Background, 22 Conceptual Framework for the Study, 26 Study Process, 35 Summing Up, 36 Organization of the Report, 37 2 ORIGINS AND RATIONALE OF IMMUNIZATION POLICY Legislative History of Vaccine Policy, 45 Shared Federal and State Responsibility for Financing, 47 Shared Public and Private Responsibility for Coverage, 49 Public and Private Delivery Systems, 51 Private Vaccine Production, 52 The Setting of National Vaccine Policy, 56 Findings, 61 3 PUBLIC AND PRIVATE INSURANCE COVERAGE Public Insurance Coverage, 66 Private Insurance Coverage, 69 Barriers to a Well-Functioning Immunization Finance System, 73 Findings, 89 21 39 63

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x CONTENTS 4 DELIVERY SYSTEMS 91 Delivery of Adult and Childhood Vaccines, 91 The Work of Immunizing, 94 Provider Reimbursement, 98 Barriers to a Well-Functioning Immunization Delivery System, 100 Findings, 105 5 VACCINE SUPPLY Size and Growth of the Vaccine Market, 107 Vaccine Production, 109 Cost Structure, 111 Research and Development, 116 Industry Concentration, 121 Regulation, 126 Pricing, 127 Shortages, 131 Stockpiles, 137 CDC Contracting, 138 Barriers to a Well-Functioning Vaccine Supply System, 139 Findings, 142 6 CONCLUSIONS AND ALTERNATIVE STRATEGIES Conclusions, 146 Alternative Strategies, 151 Weighing the Alternatives, 179 7 RECOMMENDATIONS Recommendations, 185 Final Observations, 210 REFERENCES GLOSSARY APPENDICES A Recommended Vaccine Schedules (Childhood and Adult) B List of Contributors C Survey of State Vaccine Finance Practices D Overview of Commissioned Papers E Committee and Staff Biographies 107 145 183 211 221 229 235 239 241 243

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Tables, Figures, and Boxes TABLES 1-1 Change in Annual Morbidity from Vaccine-Preventable Diseases: Prevaccine Baseline and 2002, 24 1-2 Benefit-Cost Ratios for Selected Vaccines, 28 1-3 Prices of Selected U.S. Vaccines: 1980 Versus 2003, 29 1-4 Vaccines for Children Program: CDC Vaccine Price List, 30 2-1 Government Roles in Immunization, 40 Insurance Coverage for Immunization by Age Group, 2000, 64 Public Immunization Funding, Fiscal Years 1999 and 2002, 66 State Vaccine Purchase Financing Systems, 70 Insurance Coverage for Immunization and Employer-Based Market Share by Type of Insurance Plan, 71 3-5 Studies of the Impact of Insurance and Cost Sharing on Immunization Rates, 76 3-6 Adults Considered to Be at High Risk for Influenza or Pneumococcal Disease, 88 Proportion of Publicly Purchased Vaccines Administered in the Private Sector, 93 Provider Payment for Vaccines and Administration Fees, 98 Studies on the Impact of Insurance on Referrals, 102 Xl

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X11 TABLES, FIGURES, AND BOXES 5-1 Domestic Producers of Vaccines for the U.S. Market, 110 5-2 Foreign Producers of Vaccines for the U.S. Market, 112 5-3 Deaths from Selected Diseases Not Yet Preventable by Immunization, 119 Approved Vaccines Withdrawn from the U.S. Market, 123 Number of Producers of Selected Vaccines for the U.S. Market, 2003,127 Federal and Private Prices of Vaccines Per Dose, 1983-2002,130 Vaccine Supply Status in 2001-2002,135 Vaccine Shortages and Their Causes, 136 Vaccines With and Without Supply Problems, 137 5-4 5-5 5-6 5-7 5-8 5-9 6-1 Summary of Alternative Strategies for Vaccine Purchases, 154 Legislative Impact of Committee Recommendations, 199 Proposed Redesign of ACIP Recommendations, 202 FIGURES Cumulative vaccine cost trends, 32 2-1 Central role of ACIP in vaccine policy, 58 Insurance coverage of vaccination, children aged 0-5 (2000),65 Insurance coverage of vaccination, adults aged 18-64 (2000),65 5-1 Federal contract vaccine prices in current dollars, 134 New vaccine development and subsidy, 188 BOXES ES-1 Charge to the IOM Committee, 3 Charge to the IOM Committee, 23 2-1 Vaccine Spillover Effects and Public Good Properties, 42 2-2 Public-Private Collaboration: The Case of DTaP Vaccine, 53 5-1 Vaccine Development and Approval, 115 5-2 Vaccines Expected to Be Developed by 2010,118

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~[ES, OG-ES, ~~ BOXES 5-3 Vaccine Supply: Me Case of DEAF' 125 5-4 Vaccine Furchasing by the Veterans Administration and the Department of Defense' 129 6-1 SetUng Frices for Near Vaccines in Advance' 174 Calculating the Societal Benefits of Vaccines' 192 . . . a,,,

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