Dr Sheldon Jacobson, Professor and Director, Simulation and Optimization Laboratory at the University of Illinois, presented an overview of vaccine pricing challenges last week at the World Vaccine Congress
Dr. Jacobson runs the Simulation & Optimization Laboratory, at the University of Illinois at Urbana Champaign. They work on modeling a variety of scenarios such as pediatric vaccine formulary design, connections between obesity, energy and transportation, and predictions of presidential elections. He emphasized that the impact of "studying 0′s and 1′s" can lead you to many interesting and diverse places. With the World Technology Evaluation Center, Dr. Jacobson participated as a vaccine economist. Main issues in the vaccine field include resolving the discrepancies between interests in corporate profits versus the need for public goods. There are important questions of who will pay and of what the cost-benefit ratios and QALY estimates should be.
Within vaccine market dynamics, we have a "monopsonistic" entity, which is the government. The government interacts with vaccine producers and market segments. There is then a market dynamic between these that help us look at pricing issues. It’s very easy to manipulate 1′s and 0′s so that you myopically end up at the wrong conclusions. Dr. Jacobson noted that pediatric vaccines are an exciting sector of the vaccination marketplace. There are advantages and disadvantages of combination vaccines, and it is interesting and important to ask how we can create a formulary design, and to determine how this relates to price. He discusses three scenarios and his findings.
Scenario 1: Pricing solutions: Enforce price controls on vaccines, whenever possible. This keeps down costs, but it is not in the best interest of the public, and creates antagonism.
Scanario 2: Set prices based on sound economics (benefit and value). This method may not be optimal, but it is, in Dr. Jacobson’s opinion, better than first scenario.
Scenario 3: Cooperative game theory provides the opportunity to identify points of stability.
There are many different factors in addition to profitability which affect pricing dynamics. An optimization strategy he described is the "lowest overall cost formulary" (LOCF). This is the set of vaccines that satisfies the RCIS at the lowest overall cost, including purchase price, cost of administration, etc.
Dr. Jacobson discussed vaccine market observations in the model for Pediarix vs. Pentacel, based on US federal contract prices in 2009, 2010 and 2011. Defining the maximal price, although completely unrealistic, remains informative despite any flaws. Consistently, Pentacel is viewed as overpriced based on the model. Based on the direct competition between Pediarix vs. Pentacel, Pediarix is a winner with respect to LOCF. It seems, though, that the comparison is not appropriate. Because the model contradicted the actual real world uptake, it looks like there were problems in the comparison.
There is recombinatorial chaos when you try to structure an entire formulary, until you realize the actual interactions that are taking place. The market is sensitive to the HepB birth dose and that has an effect on the uptake of Pediarix. They identified an interesting effect in the marketplace. Sanofi Pasteur was fortunate because when they launched there was a public health need. They positioned themselves with lower pricing, and people overcame the differences in formulation. That situation helped them immensely, and the market is ignoring the benefit of Merck HiB. Pediarix and Pentacel cannot be present in the same vaccine formulary. The market tendency is to move toward combination vaccines. Cost controls on monovalent vaccines indirectly affect combination vaccine prices.
There was a precipitous drop in the number of pediatric vaccine makers in the US because of lack of profitability. Dr. Jacobson encouraged the creation of an incentive system so that vaccine makers will be energized to stay in the pediatric market. Price controls and price competition for a "public good" can destabilize the supply, while a focus on the vaccine formulary pricing rather than individual vaccine prices will tend to balance cost, profit, and value. He described the method of cooperative collusion as a potentially beneficial scenario. If stakeholders can all sit down at the table, there could be multiple formularies and price optimization, and the consumer could make choices based on the characteristics of the formulary rather than the prices of the individual vaccines.
Check back here in a couple of days for the presentation. Excellent presentation Sheldon!