Pricing for Miracle Drugs

Another “miracle drug” has been reported – this time it is a lifelong vaccination for influenza.  We welcome the achievement and look forward to the benefits of a “once in a lifetime vaccination” that can protect us against the annual flu scare.

Influenza viruses spread during cool periods leading to autumnal (or spring in southern hemisphere) campaigns to vaccinate people over 6 months of age.  The genetic makeup of viruses that are active in any year “drifts” somewhat, leading to vaccine adjustments thought to be most effective against the circulating viruses.  The CDC estimates the incidence of flu at 5% to 20% each year across the US population, so we can expect it to average 12%, but the incidence fluctuates with many factors.

When a vaccine matches viruses circulating, vaccinated individuals are 60 percent less likely to catch the flu.  Even if it does not prevent the flu, a vaccination results in a milder course of illness than for people who were not vaccinated.  Flu vaccinations do not cause flu.  A high-dose (4 times the regular dose) flu vaccine increases protection by 24% for older adults.

In the 2015-2016 flu season, about half the population (43.3% of adults and 59% of those under age 18) received a flu vaccine.  In that same period, 40 million caught the flu, resulting in 11 million medical visits, 308,000 hospitalizations and 12,000 deaths.  The annual direct cost for flu-related hospitalizations and outpatient visits is estimated at $10.4 billion.

The flu vaccine is relatively cheap., shows 13 flu vaccines priced between $20 and $103 at local pharmacies.  At Walgreens Pharmacy, a flu shot for most adults and children runs $32 excluding any insurance contribution.  The more potent vaccine shot for those over 65 is priced at $60.

The economic impact of influenza and vaccinations is significant.  A study of 2003 revealed that in the US, influenza caused loss of 610,660 life-years, 3.1 million hospitalized days, and 31.4 million outpatient visits.  Outpatient visits in 2003 were triple the number seen during the 2015-2016 season.  The reduction is explained by the convenience of pharmacies performing vaccinations that were once done only at doctors’ offices.

The 2003 study reveals the total economic burden of health care treatments, including loss of earnings due to sickness and death (using projected statistical life values), amounted to $87.1 billion.  That cost will have increased over the 2003 through 2017 period, because employment increased by 12% and wages increased about 42%, indicating a 59% increase in the total economic burden (medical treatment, lost work time and lives lost), i.e. $139 billion in 2017, or an average of $3,475 per flu patient.

These statistics will become relevant when government programs such as Medicare and Medicaid  consider appropriate pricing for a lifelong influenza vaccination.  The once-and-done drugs such as Harvoni, a Hepatitis-C cure, tend to be very highly priced (e.g. $70,000 for a course of treatment) partly because the entire development cost has to be recovered in one “treatment” of the patient.  That is a very similar financial situation that a lifetime vaccination will face.

As a maximum price estimate, we could look at the cost that the new vaccine avoids.  The new drug could avoid annual preventive treatments.  Since the US average life expectancy is about 78 years, and the current median age is 37 years, a consumer taking the “lifetime vaccination” could avoid about 41 years of the annual vaccine, or $820 worth of “flu shots.”  Each year, 4 million newborn children would be ready for “lifetime” vaccination as soon as they pass 6 months.  That lifetime protection could avoid 78 years of annual vaccination (i.e. $1,560 worth of flu shots).

Since the new vaccine does not seem to claim increased efficacy in preventing flu infections, any reduction in work-days lost (due to sickness or death) would be a benefit retained by the patient, and should not be priced into the value of the new vaccine.  Still, the cost-displacing value of the vaccine could be astronomical — 330 million people times $820 apiece, or $271 billion, plus an additional $6 billion per year for each cohort of newborns.

Today, only half of those who should take the flu vaccine actually receive it.  Nevertheless, with prospective costs of $271 billion, Government needs to negotiate aggressively on drug pricing.  We cannot afford “good-ole boy” agreements such as the embarrassment that forces Medicare to pay rack prices for drugs.

This topic will consume years of consulting and lobbying work, because a similar analysis needs to be performed for each new miracle drug.  Yes, we must congratulate those whose insights and hard work produced these miracle drugs, but we must be pragmatic about the price level that government can afford to pay for new drugs.