Last month, during a Senate hearing in which Moderna CEO Stephane Bancel testified regarding the quadrupling of the list price of the company’s Covid-19 vaccine, he cited declining consumer demand. as one of the many reasons for the need to raise the price. For an economist like me, but also for the general public, this is an extraordinarily strange justification. Higher prices do not reflect lower demand. Rather, they are a function of a sub-optimal market.
Throughout the pandemic, the federal government has provided Americans with free Covid-19 tests, vaccines and treatments, but that will soon change. On May 11, the US public health emergency for Covid-19 will end. The Biden administration says it is “shifting” Covid-19-related costs to public and private markets, including health insurers and pharmacies.
Late last year, White House Covid-19 response team coordinator Ashish Jha said his “hope is that in 2023 you’re going to see the commercialization of almost all of these products “. Of course, that begs the question, aren’t all of these products on the market now? Commercialization is simply the process of doing something primarily for financial gain. Moderna and Pfizer-BioNTech are definitely there to make a profit, even when the federal government is the primary buyer.
As part of the “transition”, Moderna increases the price of its Covid-19 vaccine by more than 400%; from $26 a dose to $130. Moderna has promised a patient assistance program to provide its vaccine for free to about 30 million uninsured Americans, though it’s unclear whether that would also include covering the costs of administering the shots.
While the price hike won’t directly affect the vast majority of Americans, as most won’t pay out-of-pocket for their vaccine (reminder), purchasers such as insurers and drug benefit managers from the chain of supply will pay for it. And when payers spend more on healthcare services and technologies, they end up passing that on to their customers in the form of higher premiums.
In testimony, Bancel said a price increase was necessary to account for the establishment of distribution systems once the federal government is no longer involved, undisclosed “supply chain issues” and a reduction in the number of orders as demand declines. Moderna expects a 90% reduction in demand for its vaccine this fall, when the next Covid-19 recall campaign begins. But since when does a drop in demand lead to a rise in prices? In a normally functioning market, the reverse is true: lower demand leads to lower prices. Because Moderna (and Pfizer) seem so certain that the price will rise dramatically, there is something wrong with the market forces at play here.
During the hearing, the senators tacitly accepted the existence of a less than optimal commercial market for vaccines. In the United States, when a product enters the commercial market, its price can increase somewhat fourfold. This should have raised questions, first and foremost about the seemingly limited negotiating abilities of payers. Admittedly, the $130 a dose is a list price and there will be discounts and discounts negotiated on that number. But the important point is that a dramatic price increase will occur, dictated by drug and vaccine manufacturers, and most payers will accept it.
Certainly, the mosaic of private payers in the United States has something to do with it. Such fragmentation means that payers have less bargaining power than the federal government. Yet even so, in the context of a significant drop in demand, the dramatic increase in prices seems quite problematic.
Bancel also said the higher price reflects value. Here he was on somewhat firmer ground. As he pointed out, vaccines have saved many lives and prevented many more hospitalizations.
Certainly at current The price of a Covid-19 vaccine is good value for money by any criteria, including cost per quality-adjusted life year (QALY). The additional cost per QALY gained for the US adult population is $8,200 compared to no vaccination. This would increase to over $30,000 with the price increase, but would still be considered profitable, if we assume a cost per QALY threshold of $50,000 to $100,000. And for subpopulations most at risk of complications from Covid-19, such as the elderly, at the current price, the vaccine is economical compared to no vaccination. The math changes with a price increase, but for this subgroup, the vaccine would still be cost-effective and might even still be economical.
However, for people at low risk of hospitalization and death from infection, it’s a different story. Currently, the cost per QALY gained for this group is $94,000, which would increase dramatically with rising prices, making the vaccine unprofitable.
In short, at the higher price, there would always be an alignment of price and value for the particularly vulnerable people, but not for the others.
However, this in itself does not constitute a justification for a price increase. On the contrary, it indicates that there is a price range in which a vaccine is profitable for some, but not for others. This in turn suggests the need to stratify subpopulations when calculating the value of a product.
The story of the Covid-19 vaccine is one for the ages, particularly with regard to the public-private partnership that was established to accelerate further development and subsequent approval of vaccines. The US federal government has provided vaccine development resources to companies like Moderna, but it has also led supply and distribution efforts for several manufacturers. Now it is coming to an end. As the government abandons its role as the main purchaser of vaccines, Pfizer and Moderna are quadrupling list prices. Overall, their justification leaves much to be desired.