What Is Reasonable? Covid-19 is largely off the radar of most Americans. Yet, as with the flu, we can expect a new Covid-19 outbreak later this year. This has prompted Xavier Becerra, the secretary of Health and Human Services, to issue a caution to the biopharmaceutical industry about pricing for the next generation of vaccines.
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“Updated Covid-19 vaccines entering the market this fall should be priced at a reasonable rate, reflective of the value that you have obtained through U.S. government investment,” he said. “Price gouging behavior takes advantage of the trust the American people have placed in you through the Covid-19 response.”
Unfortunately, Becerra’s rhetoric reinforces many misconceptions about the history of the discovery and development of the Covid-19 vaccines, work that was critical in getting past the worst pandemic in the last 100 years. Yes, through Operation Warp Speed, the U.S. guaranteed that it would purchase millions of doses of Covid-19 vaccines should such be deemed safe and effective by the FDA and CDC. Why wouldn’t the government do this? We were in the midst of a pandemic. People were dying. Businesses were shut down. One would hope that the role of the government is to take such action to save lives and restart the economy.
Were these vaccines of value? According to data gathered by the Commonwealth Fund, a U.S. Foundation seeking to promote a high-quality healthcare system, the impact of these vaccines was extraordinary. From December 12, 2020, through March 31, 2022, thanks to these vaccines, there were 2,265,222 fewer deaths, 17,003,960 fewer hospitalizations and 66,159,093 fewer infections resulting in $899.4 billion in healthcare costs averted! All of this for the modest price of $39 for the two-dose Pfizer vaccine regimen and about $32 for Moderna’s.
By the way, when anyone went to a pharmacy like CVS or Walgreen’s for their Covid-19 shots, the government paid the pharmacy $43 for each shot administered. Pfizer, which took no money from the government in its Covid-19 R&D efforts and which invested $2 billion at risk into the then-unproven mRNA technology, got $19.50/shot, less than half of what was paid to administer the vaccine. (I also challenge anyone to walk into a pharmacy to get a Covid-19 vaccine and not buy anything while being there!)
So what is fueling Becerra’s concern? For one thing, the U.S. government is no longer providing Covid-19 vaccines to the public for free. Congress did not renew the funds to continue doing this. Thus, the cost for vaccines will be shifted to insurance companies and they will now be demanding their share of the commercial pie. There were no such middlemen when the government was the sole customer for vaccines. As a result, both Pfizer and Moderna have announced that the prices of these vaccines will increase significantly, perhaps as high as $120. How can such a price be justified? Is this the blatant price gouging that Becerra feared? Actually, the $120 price is deceiving. This would be the list price of the vaccine, the price that would then be used to start negotiations with insurance companies. This is what happens in our healthcare system. Insurance companies will determine which vaccine they will provide to their customers based on the best price they negotiate with the vaccine makers. Thus, the net price, the price that the vaccine innovators actually will receive, will be far less than $120, perhaps around $85.
Still, $85 is a lot more than the original prices of $32-$39. Is this justified? In fact, there are reasons why higher prices will be needed. For one thing, research investments have been made to find a modified vaccine to protect against new variants. The next round of vaccines will differ significantly from the original, resulting in new manufacturing processes, etc. In addition, other factors will drive up costs: the next generation of vaccines will be delivered via single-dose vials as opposed to vials that contained six doses when mass inoculations occurred; there will be greater distribution costs; and vaccines will expire before use. All of this will result in higher costs for the manufacturer.
The cost of the Covid-19 vaccine should be put into the context of those for other vaccines. The average cost of the high-dose flu shot (for those over 65) is $75 for those without insurance. Keep in mind that while the Covid-19 vaccines are greater than 95% effective, efficacy for the flu shots hovers around 50% each year—another important point when considering the value of Covid-19 vaccines. Vaccines for meningitis cost on the order of $150–$200, that for shingles—$325 (two doses) and measles/mumps/rubella—$90. Clearly, a net price of $85 for the Covid-19 vaccine is pretty reasonable.
Nevertheless, politicians will howl when the new, higher prices of the Covid-19 vaccine prices gets announced. No one will remember how the vaccine makers saved lives and the economy with their efforts. Instead, Covid-19 vaccine prices will be incorrectly attacked as an example of the greed of biopharma. That will be a shame.
John L. LaMattina is the former president of Pfizer Global R&D and the author of Pharma & Profits – Balancing Innovation, Medicines, and Drug Prices.