Each year the winter seasons brings with it cold, snow, holidays, and to a lucky few a break from work or school. To many, however, winter brings the dreaded Influenza virus, a virus which, if left to it’s own devices, can bring death, especially to the young, the old, and the infirm. This year winter also brought with it a shortage of the Influenza vaccine, which was due to a contamination of one manufacturer’s supply. (Flaherty A02) The resulting decrease in supply caused a dramatic increase in the price demanded by suppliers (and the price paid by consumers). (Flaherty A02)
Flu Vaccine for the United States was produced solely by two foreign manufacturers this year, Aventis Pasteur and Chiron Corp. These two manufacturers sell their vaccine to U.S. distributors like Stat Pharmaceuticals Inc. of El Cajon, CA and Meds-Stat based in Ft. Lauderdale, FL who will go on to sell to hospitals, pharmacies, and health care clinics (Flaherty A02). On October fifth the Chiron Corp. announced that their entire supply of Flu vaccine destined for U.S. markets was unfit for use due to a contamination problem at their British manufacturing plant (Flaherty A02). This contamination effectively reduced the U.S. supply of flu vaccine by half (Flaherty A02). Unfortunately for consumers, though profitable to the distributors the drop in supply did not diminish the demand for the vaccine.
The quantity of Flu vaccine demanded in the U.S. was greater than the original supply let alone the reduced supply. The market price for the vaccine was between eight and nine dollars prior to the October announcement by Chiron, that it’s vaccine was contaminated, and soon afterwards doubled in price (Flaherty A02). By the eighth of October the vaccine was being offered to pharmacies at prices approaching ninety dollars per-dose a tenfold increase over the original price (Flaherty A02). The demand for the Flu vaccine is shown to be inelastic (the quantity demanded before the discovery of contamination was the entire supply (X) and after the announcement was the remaining quantity (X/2), while the price jumped from nine to ninety dollars or Ed = .41}).
According to the Washington Post “the higher prices simply reflected the heightened demand for a scarce item”, though this is not the case, demand did not shift at all, only supply shifted. Not all distributors took advantage of the supply shift as in the case of Stat Pharmaceuticals, which sold its vaccine for fifteen to thirty dollars per-dose. Not all consumers paid the inflated price either, hospitals, according to the Washington post article, “were able to get cheaper, although limited, supplies through local public health systems that began redistributing the vaccine they had on hand”.
The decisions to hike prices are disparaged by many healthcare professionals while distributors seemingly support them. “To hospital pharmacists such as Rich Carvotta of Los Robles Hospital and Medical Center in Thousand Oaks, Calif., the price markups are gouging, disgusting and a disgrace to the industry.’ His counterpart at St. Francis Hospital in Charleston, W.Va., Nate Kahn, deemed the offers aggravating — no, make that an outrage, and I’m one who believes in the free-enterprise system.'” “Gene Alley, chief executive of Stat Pharmaceuticals Inc.,. said: It’s the vaccine a commodity, although some in the medical business don’t want to admit that.’ (Flaherty A02).” One of his salesmen mentioned, in an e-mail to pharmacies, that distributors could “pretty much ask and get what ever the old market will bare,” (Flaherty A02). Alley adds, “It’s happened for the last seven flu seasons”. As a result of this year’s shortage several government agencies are looking into the problem. The Securities and Exchange Commission is looking into how Chiron handled the disclosure of its contaminated vaccine. (Flaherty A02) While the FDA and the British Medicines and Healthcare Products Regulatory Agency are cooperating to “address the concerns related to Chiron’s production problems.” (Flaherty A02)
Some Suppliers Jack Up Flu Vaccine Price
By Mary Pat Flaherty
Washington Post Staff Writer
Thursday, October 14, 2004; Page A02