Free Markets and Flu - A Deadly Combo

[Mr. Harley]

At my little girl's six month check up, we specifically asked that she receive the flu vaccine at her nine month check up. Six months was a little early, tough on the budding immune system, and since her nine month visit was going to be the first week in December, no problem.

Well, we arrive, and guess what? No vaccine. I call up subsequently, to talk to the office manager. I am more than a trifle upset, to say the least. Now we won't even go into the fact that the office did not log our request, hold vaccine, et cetera. That is an entirely different issue, which we are going to deal with for next year. I found out some interesting items.

I knew that the lead in time was fairly extensive for flu vaccine. The physicians office is required to put in their order a year in advance. Since the production cycle takes six months, I'm not exactly happy with the factoid, though I will grant it doesn't make much practical difference.

However, the company sat on the info that they were running low on the vaccine, especially low on the infant version. Thus, doctor's offices gave the infant version
to children who could take either that or the slightly older children's version, resulting in an even graver shortage of the infant version. I made some of my own luck, and had to stand in cold, 33F drizzling weather for over an hour to get my little girl a vaccine (public health clinic).

Here is the bigger point. This is the second year running we are short on the vaccine. If the profit is only pennies on the dollar,

http://www.wsws.org/articles/2003/dec2003/flu-d22.shtml

than each unused dose can literally eliminate the profit on several dozen vaccinations. When you had state/federal health departments purchasing and adminstering vaccines, you ended up with success stories like smallpox and polio. Now, with the "free market" approach, we have shortages due to the cost incentive factors.

The vaccine companies have an disincentive to produce enough vaccine, by free market doctrine they will always want to produce a slight shortage. If they are going to make an error, the error of slight overproduction can have a massive impact on actual profits. Therefore, they are going to tend to make certain they underproduce for the lowest probable demand. If demand spikes, the underproduction instead becomes a significant shortage.

Myself? I am going to have another "discussion" with the office manager for our pediatrics group. Either I will get a guaranteed vaccine for my little girl (prepaid if the pediatrics group prepays, capital is not free) or I will find a physician whose office staff understands customer relations.

I will also vote against the next moron who tells me just let free markets work, and everything will be alright. I believe in regulated free markets, and am willing to pay in taxes for the services of those regulations, vaccine stockpiles, etc. Unregulated free markets inappropriately applied, especially in areas like vaccines, are deadly. Please, don't spout on about tort reform, the US Congress gave vaccine manufacturers legal relief in 1986 (google 1986 vaccines laws US -site:.com). This is a textbook case against unregulated free markets.

[Oncle Boris]

How could we even possibly disagree with you?

[notyoueither]

We have state medicine. We can wait 6 months to get an MRI. Elective surgeries can be put off beyond a year in some cases.

Just before Christmas, there was a seven week premie transferred 500 miles to another province due to staff shortages. The whole family packed up and spent Christmas in a hotel/hospital ward in a strange city.

I'm not sure where the middle ground is. Unregulated free market? Nope. Nanny state bureaucracies? Nope.

[Oncle Boris]

Originally posted by notyoueither
We have state medicine. We can wait 6 months to get an MRI. Elective surgeries can be put off beyond a year in some cases.

Just before Christmas, there was a seven week premie transferred 500 miles to another province due to staff shortages. The whole family packed up and spent Christmas in a hotel/hospital ward in a strange city.

I'm not sure where the middle ground is. Unregulated free market? Nope. Nanny state bureaucracies? Nope.

Please, notyoueither, it has nothing to do with "nanny states". The vaccin he was talking about is not covered by the public insurance anyway. At least, not in Quebec, that I am sure.

I meant, his statement that such kind of things should be regulated is true. Medication shortages are dangerous.

[Imran Siddiqui]

Well, we arrive, and guess what? No vaccine. I call up subsequently, to talk to the office manager. I am more than a trifle upset, to say the least. Now we won't even go into the fact that the office did not log our request, hold vaccine, et cetera.

Breach of contract (basically)... that is something you can sue for under any theory (free or not) out there. It also seems your doctor's office was a bit incompetant, giving out infant vaccine to those not infants.

free market doctrine they will always want to produce a slight shortage.

Actually by free market doctrine, they'll want to produce extactly the same as demand .

I don't know why you are blaming the free market for this. I mean, this is an exceptionally high flu season, as stated in your article. Also this is definite breach of contract in not supplying enough vaccines as ordered by hospitals. If the Congressional law prevents suing on that, it is silly. Then again, one of the three vaccine makers may have gone out of business if they put something new into the vaccine (according to the article). Perhaps they were reacting to that, but prevent suit on this is silly. The states should be able to sue their brains out.

The problem is the high cost of producing vaccines. States won't be able to afford it (already in deficits). And the Federal Government may not have the power to do so.

[notyoueither]

Originally posted by Oncle Boris


Please, notyoueither, it has nothing to do with "nanny states". The vaccin he was talking about is not covered by the public insurance anyway. At least, not in Quebec, that I am sure.

I meant, his statement that such kind of things should be regulated is true. Medication shortages are dangerous.

Our situation has everything to do with nanny state inefficiencies, and is a good example that a lack of free market forces in medicine is not necessarily something good.

And I could have sworn that childhood vaccines are covered, but that would depend on which province you are in I suppose.

[Imran Siddiqui]

The best system is a mix... keep the insurance companies, just let them compete over huge groups administered (and for the poorest, paid) by the government. There you get the best of both worlds.

[notyoueither]

And... allow profit motivation in establishing new facilities, but that is heretical north of the 49th.

[Imran Siddiqui]

Well of course allow profit motivation. Everyone having health insurance wouldn't kill profit motivation at all. You could always pay more than your insurance will allow for extra treatments.

[Vince278]

It would seem to me that China and the flu is the deadly combo here. What is it about China that creates the flu and what can we do about it?

[notyoueither]

Originally posted by Imran Siddiqui
Well of course allow profit motivation. Everyone having health insurance wouldn't kill profit motivation at all. You could always pay more than your insurance will allow for extra treatments.

Not here you couldn't. Equal access is another of the dogmas, so rich Canadians just buy US insurance and go to the States if it is important. Like our recently ex-Prime Minister did.

[Mordoch]

Originally posted by Imran Siddiqui
I don't know why you are blaming the free market for this. I mean, this is an exceptionally high flu season, as stated in your article. Also this is definite breach of contract in not supplying enough vaccines as ordered by hospitals. If the Congressional law prevents suing on that, it is silly. Then again, one of the three vaccine makers may have gone out of business if they put something new into the vaccine (according to the article). Perhaps they were reacting to that, but prevent suit on this is silly. The states should be able to sue their brains out.

The problem is the high cost of producing vaccines. States won't be able to afford it (already in deficits). And the Federal Government may not have the power to do so.

Actually this is definately the fault of the current free market system, and I can put it economic terms to boot. The goal of the vaccine makers is to make money, not to make sure the everyone who wants the vaccine can get it. The positive externalities generated by people being vaccinated are not considered by the companies when they decide how much to produce.

The demand for vaccine can vary substancially from year to year, and due to the fact that strains change each year, any unusused vaccine from that year has to be thrown away by the vaccine companies. If the companies underestimate demand, from their perspective this isn't the end of the world and simply means that they lose a little additional potential profit, while a large surplus could mean financial disaster. As a result and due to the time it takes to produce the vaccine in the first place, vaccine companies consistantly tend to produce less than the market demand is for the vaccine, leading to a shortage.

A solution to the problem is for the government to promise to buy any extra vaccine that companies can't sell to the market (there probably need to reasonable limits on how much the government will buy in order to prevent company abbuse of this policy). The purchased vaccine can probably then be offered through various channels to poor people that couldn't ordinarily afford a shot. This will give the companies an incentive to produce more vaccine than market demand warrents, actually a desirable state of affairs due to the positive externalities associated with flu vaccinations. The CDC is already talking about doing some like this in the future, and I haven't heard anyone other than you suggest that they don't have the power to do so.

[Mr. Harley]

Actually, there is an age overlap between the infant and younger children's vaccine. The manufacturer sat on the info that the latter was in shorter supply. Pediatricians offices would use whatever locally they had on hand, versus ordering the younger children's vaccine to save precious stocks of the infant vaccines. All the supplies were tight, but the infant vaccines have all but disappeared.

If my little girl had died, or been permanently hurt, I sure as hell would have sued. I cannot sue over losing a day of work (I got sick standing out in that miserable weather), the monetary and time cost would make it silly. The first come/first served attitude of pediatricians groups evidently is a standard industry practice, however, I am not going to passively sit by and watch "standard practices" evolved for different situations apply to my daughter.

The problem in China is vertical livestock integration, and the eating of waste products from one species by the next. Thus you have humans-pigs-chickens-fish (in some cases) cycle. While the chance of viral crossover/recombination in any one case is infintesmal, take 1.2 billion infintesmal shots a year (I don't even want to know the numbers of pigs-chickens-fish in China - I'd have to use scientific notation) and every so often you get a new and nasty flu. Add in the natural mutation rates of the extant varieties, and the fact we have 6 billion people for them to mutate in (theoretical) and you have new varieties of flu all the time, with the occasional pandemic thrown in for fun. To misquote: "Mother nature hates an overpopulation."

Imran, I don't know if you caught my economic analysis of the problem. It may be you don't have the biological or medical background (I come from the former). They cannot know the exact demand. Therefor, given the razor thin profit margins, they are ALWAYS going to underproduce, given the minimum sixth month lead in time. I'm not blaming the companies, they have to preserve their profits. I am however stating that here is a case that unregulated free markets, or free markets without state intervention, do not work for children's vaccines. They can't.

The nanny state has it's own problems. Ask the military guys about the Anthrax vaccine. Trust us, there's no problem. Honest. That's why I started the post, I'm interested in some other people's spin. Plus anybody else out who will have an new child next year might catch this and be forewarned!

(crosspost with Mordoch, didn't bother to rewrite)

[Imran Siddiqui]

Actually this is definately the fault of the current free market system, and I can put it economic terms to boot. The goal of the vaccine makers is to make money, not to make sure the everyone who wants the vaccine can get it.

Actually, according to the article and the OP, one of the main problems is hospitals are ordering a certain amount of vaccines and the companies do not supply the amount specified. That is a problem with contract.

The CDC is already talking about doing some like this in the future, and I haven't heard anyone other than you suggest that they don't have the power to do so.

Buying vaccines is different than making the vaccines themselves.

If my little girl had died, or been permanently hurt, I sure as hell would have sued. I cannot sue over losing a day of work (I got sick standing out in that miserable weather), the monetary and time cost would make it silly.

No, no... I meant the hospital should sue for not getting what it contracted in vaccines.

Therefor, given the razor thin profit margins, they are ALWAYS going to underproduce, given the minimum sixth month lead in time.

I think a further problem is they are not fulfilling their orders, which leads to greater problems. The hospitals are asking for a decent amount (at least that is what the article says), and the companies are giving the hospitals less than they originally asked for.

I am however stating that here is a case that unregulated free markets, or free markets without state intervention, do not work for children's vaccines. They can't.

That may be true, but the main problem I see is that they are contracted to produce a certain amount and don't do so.

[Mr. Harley]

Imran, I see your point - except this is the second time in a row. You're right, the situation is worse, but the hospital's don't dare sue the maker - they would only have one manufacturer then, instead of two. Like the hideous case with the Anthrax vaccine, but that would take at least one, if not three, other threads.

So the razor thin profit minimizes investment, leading to a tiny number of companies chronically underproducing due to market dynamics. It's why many investors avoid mature markets with no growth potential. Again, I will stand by the fact that free markets aren't working here, and that they cannot. If you look at the historical success of the government programs against smallpox and polio, I think it proves my point. Not for total government control, look at the two different polio vaccines due to a free market/competative basis. It makes the case for government intervention and regulation, and taxpayer funding.

[Oncle Boris]

Actually by free market doctrine, they'll want to produce extactly the same as demand .

Hmmmm... just like the '73 oil crisis... it seems to me that by free market doctrine they'll just mean circumventing it by producing slightly less and selling disproportionately more...

[Oncle Boris]

Originally posted by notyoueither

And I could have sworn that childhood vaccines are covered, but that would depend on which province you are in I suppose.

Maybe this is a language misunderstanding, but it seems to me the flu is not something that'll kill you... I guess the public insurance would only pay for it if the hospitalization costs were rising.

EDIT flu=influenza. Now I understand. Disregard what I've said about the coverage.

[Berzerker]

Three senators

"A few weeks from now, when the country has run out of flu vaccine and people want to know why, we suggest they knock on the doors of Senators Olympia Snowe, Susan Collins and Lincoln Chafee. Perhaps the three Republicans can explain when they intend to honor their promise to hold an open debate about the tort liabilities facing vaccine makers," the Wall Street Journal says.
"The reason for today's shortage — as well as seven previous preventive vaccine shortages since 2000 — is that there are just five vaccine makers. This lack of suppliers is partly thanks to Hillary Clinton, who as first lady turned government into the majority buyer of vaccines and pushed prices so low as to make business unsustainable. (This price control approach, we'd note, is what Democrats would now like to inflict on the Medicare drug program.)
"But just as worrying to manufacturers is an explosion of class action lawsuits. Vaccine makers are supposed to be protected from suits by 1986 legislation, but tort lawyers have found loopholes and filed more than 200 cases. The Republican leadership fixed this by including a liability provision in the Homeland Security legislation of a year ago. That is, until Ms. Snowe, Ms. Collins and Mr. Chafee objected to its 'dark of the night' insertion and forced Senate Majority Leader Bill Frist into repealing it," the newspaper said in an editorial.
"In return for their victory, the senators promised an open debate on broad liability reform within six months. That would have been ... June. But the Senate canceled a markup on a reform bill in April and the senators have gone quiet. Apparently, making sound vaccine policy isn't as politically rewarding as preening before the media by standing up to 'special interests' (vaccine makers). So, what's your solution for the flu-shot shortage, senators?"

http://washtimes.com/national/20031210-120855-1153r.htm

[Berzerker]

Blaming a non-existent free market for the results of government policies again I see.

[Mordoch]

Originally posted by Berzerker
Blaming a non-existent free market for the results of government policies again I see.

I read an article specificly quoting flu maker representatives as saying they had understimated demand this year. I suspect your article has quite a political axe to grind, even if it is somewhat accurate. My point remains fundimentally valid regardless, and the market has actually been cited as one with a positive externality in many economics textbooks. An obvious point is that the five suppliers could easily produce the vaccine if there was economic incentive to do so. While I'll have to investigate the government buying vaccine at an unreasonably low rate, this sounds pretty much bogus, particularly given the demand for the vacccine from a variety of private hospitals, doctors offices, and even businesses. If this was the problem, the businesses would sell just to the private customers.

[Berzerker]

Mordoch, address the article, don't claim it's bogus without something to back it up.

If the following is true:

"The reason for today's shortage — as well as seven previous preventive vaccine shortages since 2000 — is that there are just five vaccine makers. This lack of suppliers is partly thanks to Hillary Clinton, who as first lady turned government into the majority buyer of vaccines and pushed prices so low as to make business unsustainable. (This price control approach, we'd note, is what Democrats would now like to inflict on the Medicare drug program.)

Then there is no free market in vaccines... This is an example of price controls imposed by government... Make it unprofitable to produce vaccines and watch as pharmaceutical companies stop producing vaccines. Result? Not enough vaccine makers and not enough vaccine doses.

[JohnT]

shawn: You had the opportunity to get your girl the flu shot. You passed it up. In this specific case, blame yourself, not the "system." We got Sophie her first flu shot at 6 months, you decided not to. Why is it "the systems" fault that you made the wrong decision?

Mordoch:

I suspect your article has quite a political axe to grind, even if it is somewhat accurate.

As opposed to the original article, from the World Socialist Web Site?

If the government is the primary buyer and distributor of flu vaccines... they ordered 83,000,000 for a country with a population approaching 300,000,000. Y'all do the math.

Edit: However, I don't think that's the case. I think appx. 10-15% of flu vaccines are purchased by the various governments, with the remainder going to whomever orders them in the private sector.

[JohnT]

The number of Flu vaccines made is dependent upon last years demand, hence the 83,000,000 made this year matches the number of flu shots given last year. Unless y'all can make a convincing argument that the "non-free market" can accurately predict disease patterns, I'm not too sure how the "free market" can do any better. And if y'all can make such amazingly accurate predictions, then why are you wasting such valuable talents here on Apolyton? Go, save the world!

[JohnT]

Not reading more than a few articles, this proposal by Charles Schumer makes more than a bit of sense:

New York Senator Charles Schumer has introduced a package of proposals that would go a long way toward a workable solution to the recurring problem of supply, distribution and affordability of flu vaccines. Some of his proposals include:


Building a national reserve of influenza vaccines in which the federal government would purchase enough doses to treat the number of Americans that the Centers for Disease Control determine are at risk for this disease each year. Such guaranteed government purchases would be in excess of the normal private-sector demand.

Funding research into methods for producing influenza vaccine faster and at a lower cost. Today, it takes about four months to make a batch of flu vaccine.

[Ned]

This is a classic example of what happens to any product subject to price controls.

Any remember the long lines at gas stations when we had price controls?

The solution to this problem is to end price controls, just as it was the solution to the gas shortage issue.

[JohnT]

Originally posted by Oncle Boris


Hmmmm... just like the '73 oil crisis... it seems to me that by free market doctrine they'll just mean circumventing it by producing slightly less and selling disproportionately more...

Spoken like a person who doesn't know what he's talking about. How is a governmental cartel raising oil prices by over 400% in a 12 month period (from $2.18/barrel in Dec. 1972 to $11.65 in December 1973), the 1973 Arab-Israeli war, and the ensuing 4-month embargo on ME oil shipments to the US by the OPEC countries (from November 1973-February 1974) the fault of the "free market"?

[Ned]

JohnT, remember that Schumer is an extremist liberal.

The solution to a goverment created problem is not more government.

Remember in all systems three dependent factors are always present: price, time and quality. In the case of the vaccine, it is the timeliness of the supply that is flexible given regulation of pricing and quality.

I am more than dumbfounded that no one in this thread except Berz had a clue as to why there is a shortfall of flu vaccine.

[JohnT]

Problem is, Berz might not have a clue either. Most sources I referenced state that from 10-15% of flu vaccines are purchased by the various US governments. Also note that his argument begins with the highly speculative "If", and that the article quoted qualifies its charges with "partly". So "if" the charges are "partly" true, you can blame Hilary... but only partly.

[JohnT]

Originally posted by Ned
I am more than dumbfounded that no one in this thread except Berz had a clue as to why there is a shortfall of flu vaccine.

Again, vaccine manufacturers base their production schedules on what happened last year. Last year only 83,000,000 flu vaccines were demanded by US citizens, therefore only 83,000,000 were made this year.

However, I am unsure as to why research of processes to speed up production is de facto worse if the government does it than if private industry does it.

[Ned]

Originally posted by JohnT


Again, vaccine manufacturers base their production schedules on what happened last year. Last year only 83,000,000 flu vaccines were demanded by US citizens, therefore only 83,000,000 were made this year.

However, I am unsure as to why research of processes to speed up production is de facto worse if the government does it than if private industry does it.

JohnT, I am sure the shortages are caused by price controls or market restraints of some kind. I would assume that most suppliers of vaccine would add about 20% to estimated demand just to make sure given the lead times in producing the vaccine and to avoid spot shortages. However, the narrow profit margins caused by the market structure forces companies to try to hit the exact number, but never go over it. Now, that is very strange behavior for any supplier who is trying to keep his customer happy.

The question has to be asked - why do we have a shortage of just this one drug in the United States?

We only have to look as far as the Clinton administration to find the answer, do we not?