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7 Recommendations The national immunization system, and the Vaccines for Children (VFC) program in particular, has been highly successful to date. But the system has yet to attain national immunization goals for children, and new challenges now threaten the accomplishments that have been made. Policy makers today face daunting challenges related to persistent dis- parities, missed opportunities in the administration of vaccines, recent vaccine shortages, higher costs of new vaccines, and the growing frag- mentation and complexity of public and private financing and delivery of vaccines. Developing a social policy for vaccine pricing and procurement re- quires consideration of multiple objectives, each of which sends different signals to the pharmaceutical industry, purchasers, providers, and the public. Different incentive structures influence the trade-offs involved among different purchasing or pricing strategies. To achieve high immu- nization rates, for example, government agencies frequently strive to re- duce financial barriers that inhibit the demand for or administration of vaccines. This goal has led to a pricing policy that seeks to limit public expenditures, in some cases through forceful negotiation of public prices for new vaccine products and through administrative and legislative price caps on certain older vaccines (Miller, 2002~. Similarly, public insurers, such as Medicaid and Medicare, have limited the vaccine administration fees paid to physicians and other health care providers. Assuring access to vaccines is therefore only one objective that shapes vaccine procurement policy. In recent years, several reports have directed attention to the effect of government pricing and purchasing practices on 183

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184 FINANCING VACCINES IN THE 21ST CENTURY the vaccine market and supply system (GAO, 2002; NVAC, 2003~. Some observers have indicated that current government purchasing policies are inadequate because the growing scope of the public-sector market and price controls discourages investments in vaccine development and pro- duction capacity (Miller, 2002; Rappuoli et al., 2002~. The challenge now is to develop financial strategies that can achieve multiple objectives rather than perpetuating incremental approaches that satisfy some limited interests at the expense of others. The objectives to be pursued include supplying vaccines to the children and adults who need them, compensating the industries that produce vaccines at rates that re- flect the social benefits of vaccines and also encourage the development of new vaccine products, and allowing the government greater discretion in determining the level of investment it is prepared to make in procuring new vaccines compared with other areas of disease prevention and treat- ment. The committee determined that achieving the dual objectives of as- suring high rates of immunization and encouraging innovation requires a rethinking of the current policies and practices by which federal and state agencies recommend, purchase, and administer vaccines. Incremental re- forms may help resolve a short-term crisis or strengthen an isolated com- ponent of this dynamic and interactive system, but piecemeal approaches will do little to foster a coherent strategy that can align national health policy goals with the desired outcomes. Even the VFC entitlement, which has been credited with achieving substantial gains in immunization rates, is now struggling with budgetary and contracting delays and eligibility requirements that interfere with its ability to provide a reliable and sus- tainable safety net for a growing number of new and expensive vaccine products. Mandating coverage for vaccines within all insurance plans without providing some mechanism for insurers, employers, and indi- viduals to recover escalating costs could lead to high numbers of unin- sured persons; it could also lead some individuals either to pay higher fees (in the form of premiums or deductibles) to obtain coverage or to forego vaccination. Such issues require close attention to the ways in which the immunization burden is shared between the public and private health sectors during periods of escalating health care costs. In framing its recommendations, the committee focused its analysis on the seven alternative approaches described in Chapter 6. Each ap- iA series of improvements in the financing of childhood vaccines announced by President Bush as part of the fiscal year 2004 budget (U.S. Department of Health and Human Services, 2003) occurred after the final meeting of this committee and were not considered during its deliberations. Although these budgetary proposals address some of the committee's con- cerns, they are short-term solutions that do not resolve key systemic problems addressed by the committee's proposed financing strategy.

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RECOMMENDATIONS 185 proach was considered in terms of its impact on the twin goals outlined earlier in this report: (1) assuring access to current vaccines for all chil- dren and adults and (2) assuring the availability of future vaccines by encouraging private investment in the continued production of current vaccines, as well as the development of new vaccine products. In addi- tion, the committee sought to design a strategy that would maintain a reasonable budget for vaccine purchases for children and adults in the public and private health sectors. RECOMMENDATIONS Chapter 6 describes the advantages and disadvantages of seven alterna- tive vaccine finance strategies that represent a broad menu of choices for policy makers. Although each approach has advantages and disadvantages, the committee ultimately adopted one of these seven strategies as its princi- pal recommendation, supported by two additional recommendations. Recommendation 1: The committee recommends the implementa- tion of a new insurance mandate, combined with a government sub- sidy and voucher plan, for vaccines recommended by the Advisory Committee on Immunization Practices (ACIP). The proposed plan, referred to as the vaccine payment system, consists of five core components that should be considered an integrated strategy for achieving the key objectives of access and availability of vaccines: Federal legislation would be required to establish a vaccination coverage mandate for all public and private health plans. This mandate would apply to both state-regulated insurance plans and self-funded em- ployer plans (which are exempt from state regulation under the Employee Retirement Income Security Act [ERISA]), as well as Medicare, Medicaid, the State Children's Health Insurance Program (SCHIP), and government health plans for military personnel and civilian employees. The mandate would provide vaccine benefits for all insured children; adults aged 65 and older; and certain designated populations, such as adults aged 18-64 who have certain health disorders that place them at higher risk for vac- cine-preventable disease. The federal government would create a new federal subsidy to re- imburse public and private health plans and providers for mandated vac- cine costs and associated vaccine administration fees. The federal government would also create a voucher system for vaccines and vaccine administration fees for designated uninsured popu- lations.

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186 FINANCING VACCINES IN THE 21ST CENTURY The insurance mandate, subsidy, and voucher would apply princi- pally to vaccines that have substantial spillover effects as a result of their ability to prevent highly contagious diseases. Vaccines without substan- tial spillover effects, such as therapeutic vaccines, would be considered for inclusion only in cases of exceptional societal benefit. The amount of the subsidy and voucher would be determined both for vaccines currently on the immunization schedule and for vaccines that are not yet available. The subsidy for new vaccines would be based on an estimate of their societal benefit. The subsidy for vaccines already in use would be based on a formula that takes into account both current market price and their calculated societal benefit. The mandate would not apply to vaccines that are priced above the subsidy amount. Major Features. A government-funded insurance mandate for immu- nization represents a reformulation of a universal vaccine purchase pro- gram and would assure that clinically appropriate immunization services would become a basic and required feature of all public and private health insurance plans. This strategy changes the role of government from one of buying vaccines to one of assuring immunization by providing a fixed subsidy that is adequate to reimburse both vaccine costs and administra- tion fees for public and private insurers and clinicians. As a universal program, the government vaccine subsidy is extended to all persons within the designated populations. As a payment reimbursement pro- gram, it sustains the role of government in subsidizing the cost of immu- nization and enhances incentives for investment in vaccine products, but it reduces the impact of government purchases on the vaccine market rela- tive to other approaches (such as a universal purchase policy). The prospect of a guaranteed public subsidy for selected vaccines would provide economic incentives that would encourage manufacturers to invest in the clinical trial, licensing, and production processes neces- sary to move a vaccine product from the early stage of discovery to its use in routine medical care. Reducing the financial uncertainties associated with these processes would stimulate the market and encourage the de- velopment of new and effective vaccine products. At the same time, the federal subsidy for vaccines would not provide a blank check for a new vaccine product. The process of establishing a predetermined subsidy for vaccines not yet marketed would offer incen- tives for reliable and innovative vaccine product development, while also encouraging efficiency and competition in the production process. Spe- cific features of the recommended strategy are reviewed below, followed by a discussion of its advantages, disadvantages, and implementation is- sues. Figure 7-1 illustrates the process proposed by the committee.

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RECOMMENDATIONS 187 Mandate Requirements. If vaccines are to continue to be offered within settings for routine medical care, it is essential for all health plans that cover basic health care services to include all vaccines recommended for their enrolled populations. The proposed mandate would extend to popu- lations registered for services through contractual agreements with pub- lic health clinics. It would reduce the current administrative burden asso- ciated with screening for eligibility and the missed opportunities related to time-consuming referrals of underinsured populations to public health settings both of which create inefficiencies within the health care system and reduce immunization rates. The proposed mandate would also re- duce the variations existing among states that have adopted universal purchase, enhanced VFC, and VFC-only policies. Because most health plans already cover childhood vaccines, the in- clusion of vaccine benefits would not be unduly burdensome for most insurance plans and their purchasers. Nor would the mandate add an extra burden to government health plans such as Medicaid, SCHIP, or Medicare, which already cover recommended vaccines. The burden of the mandate would fall most heavily on insurers that do not currently pro- vide vaccine benefits because they would have to develop new programs to do so. Legislative action would be required to implement the proposed man- date and to authorize reimbursement payments. Such legislation should include both ERISA and ERISA-exempt plans to achieve a universal stan- dard of vaccine coverage in all private health plans. Additional regula- tory action would be required to ensure that the mandate applied to those vaccines designated as high priority primarily on the basis of their spillover effects. The Subsidy Plan. The committee recommends that the government replace existing vaccine purchase programs with an insurance mandate funded by a new federal finance plan that includes a subsidy, reimburse- ment, and voucher arrangement. The subsidy amount for each vaccine in the program would be derived from a calculation of the societal benefit of the vaccine. The funded mandate would have the following features: All health insurers (both public and private) would purchase rec- ommended vaccines for children and adults or delegate that responsibil- ity to their participating providers. Insurers would be required to furnish recommended vaccines to their providers or reimburse their providers at least the purchase price they paid, up to the federal subsidy amount.

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190 FINANCING VACCINES IN THE 21ST CENTURY Insurers would bill the federal government for the vaccines pur- chased or reimbursed. The government would reimburse all public and private health plans for vaccine purchases and administration fees through a central billing office located within the U.S. Department of Health and Human Services. The payment office would ensure that fed- eral reimbursement fees were consistent with the level of subsidy and that the vaccines fell within the coverage mandates established by ACIP under recommendation 2 below. The Value of the Subsidy. Using a subsidy rather than an administered price has certain key advantages. The subsidy would shift discussion away from the costs of production (which are not known) and price, and focus attention on the societal benefits of selected vaccine products. Thus, when policy makers determined health budgets for vaccines, they could compare the benefits of one product against those of another in terms of the public health goals they wished to achieve. The subsidy approach would also encourage policy makers to ask whether existing resources are adequate to achieve immunization goals. Second, the subsidy ap- proach would make more transparent the implicit assumptions that al- ready guide vaccine recommendations and purchasing negotiations. Third, a subsidy strategy could cause the vaccine industry to become more productive by creating incentives to invest in vaccines that have higher societal benefits than others. Finally, the subsidy approach would offer companies greater certitude that their investments in the development and production of vaccines having significant societal benefits will be ad- equately compensated. If instead of a subsidy approach the government purchased all vac- cines for a negotiated price, there would be no market basis for determin- ing an appropriate price in the long run, and prices could become subject to political influence. The subsidy approach preserves some aspects of the market. It uses a formula method for setting the subsidy that is constant across all vaccines and is less subject to political manipulation. As a result, it reduces the uncertainty regarding future government-set prices that constrains industry investment in R&D. The prospect of a guaranteed market for selected vaccines would pro- duce incentives for manufacturers to invest in the clinical trial, licensing, and production processes that are necessary to move a vaccine product from the early stage of discovery to its use in routine medical care. In the past, private investments in vaccine production have been influenced not only by the regulatory costs of bringing a new product to market but also by uncertainties about the size of the public market and the discounts to be negotiated by the government. Therefore, the Secretary of Health and Human Services should estab-

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RECOMMENDATIONS 191 fish a fixed dollar subsidy that the government is willing to support based on an assessment of each vaccine's efficacy and value, and guarantee that the government will be willing to pay that subsidy as soon as one or more vaccines are available for use. The committee offers the following guide- lines for determining the formula to be used in setting the subsidy amount: ACIP (or some other independent advisory body) should conduct an analysis to determine the monetary value to society of each vaccine. Definitions and estimates of societal benefit should be comprehensive and include a broad range of costs that extend beyond direct health care sav- ings, such as longevity, quality of life, and reductions in caregiver bur- den. Societal benefit, as defined by this committee, is a measure of the total benefits provided by a vaccine, including both private benefits ac- cruing to individuals who are immunized and benefits to others from a reduced likelihood of contracting a disease. Box 7-1 describes a generic process for calculating the societal benefit of a vaccine. Vaccines traditionally have been recognized as having substantial spillover effects since immunization protects not just the individual, but also others in society, from contagious diseases. This is not equally true of all vaccines, however. For example, tetanus vaccine, while highly benefi- cial, is mainly a private good. Tetanus is not easily transmitted and there- fore does not substantially affect the health of others. Some new vaccines currently in development, such as therapeutic cancer vaccines, share this characteristic. The subsidy should apply principally only to vaccines that have strong spillover effects, that is, vaccines that protect against highly contagious infectious diseases and meet other criteria established by ACIP (see recommendation 2 below). The federal subsidy should be some percentage (no more than 100 percent) of the monetary value of the societal benefit of the vaccines that meet these criteria. This percentage should be based on a formula that is applied consistently across all such vaccines for some fixed period of years. A subsidy of less than 100 percent of societal benefit is justified in that some of that benefit accrues to the individual receiving a vaccine. On the other hand, low subsidies coupled with a mandate for vaccine ben- efits could lead to higher numbers of uninsured persons. The fixed-price subsidy would function as an incentive for successful development of future vaccines. An incentive, though smaller, may also be desirable to maintain producer interest in currently licensed vaccines and to encourage improvements in their manufacture, efficacy, safety, storage, and administration. The subsidy for currently licensed vaccines would be set in a different manner. The committee is not prepared to recommend a specific formula but advises that the subsidy be based on recent private-sector prices, be no higher than the calculated societal

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92 FINANCING VACCINES IN THE 21ST CENTURY

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RECOMMENDATIONS 193 benefit, and include an annual adjustment based on inflation and signifi- cant production cost factors (such as changes in regulatory requirements). Under the proposed approach, the federal subsidy includes a clini- cian fee for the administration of vaccines. The committee suggests that the Centers for Medicare and Medicaid Services (CMS) determine differ- ential clinician fees for childhood and adult vaccines, as well as for other significant cost-related categories, through the Resource-Based Relative Value Scale (RBRVS) process, and that these rates be included in the total amount of the subsidy. The Voucher Plan. Under the proposed strategy, uninsured children and high-risk adults would be enrolled within a national vaccination voucher program. The committee considered two options for the voucher payment. Under one option, each child and adult would be provided with an electronic card certifying, for each specified vaccine, the amount the clinician will be reimbursed for the vaccine cost and administration fee. The voucher card would be presented to the clinician, who would bill the government for those amounts. The creation of a central or community- based registry for vouchers and immunization records would allow clini- cians to update records and assist in the replacement of lost cards. This option would create an administrative expense for the government but would relieve the physician of the burden of verifying eligibility at the point of service. This approach would also reduce missed opportunities and referrals and encourage greater participation by physicians in the national immunization system. The eligibility determination component could be tied to existing programs, such as Medicaid, to reduce the ad- ministrative burden. A second option is to allow each clinician to bill the government for reimbursement of uninsured persons without requiring individual docu- mentation. The central billing office would determine eligibility and draw the reimbursement from the appropriate fund (e.g., if the patient were insured, the payment to that insurer would be debited). This approach would be feasible under a universal coverage approach, since the govern- ment would ultimately pay every claim. It would be more problematic for the adult component of the committee's proposal, which applies only to the high-risk subset of the adult population. Advantages. The committee's proposed strategy has several clear ad- vantages. It would: Improve incentives for the development of new vaccines by pro- viding manufacturers with assurance of adequate pricing and returns for those vaccines that confer substantial public benefit.

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200 FINANCING VACCINES IN THE 21ST CENTURY benefit assessment, and vaccine manufacturing. The representation of these perspectives is essential to inform ACIP decision making with re- spect to the impact of vaccine price and coverage on population groups, providers, payers, and other key stakeholders. At the same time, it is im- portant to maintain the independence and balance that have traditionally guided ACIP recommendation procedures through a rigorous and trans- parent conflict and bias screening process for voting members. Current employees or agents of firms within the insurance and vaccine manufac- turing industries should not participate as voting members, although ac- cess to their expertise is necessary to inform committee deliberations. With respect to general vaccine recommendations, ACIP should con- tinue its present practice of recommending current and new vaccines for universal or selected populations within the immunization schedule. These determinations should be based on a vaccine's efficacy, safety, cost- effectiveness (reflecting current price information), feasibility, supply, and other considerations. With regard to mandate and subsidy determinations, ACIP should carry out an additional process to determine whether a vaccine has suffi- cient spillover effects to warrant its inclusion in the new insurance man- date and subsidy category. The mandate determination for new vaccines would require a judgment about the extent to which a vaccine offers soci- etal benefits beyond its value to the vaccinated individual. An important criterion in determining societal benefits should be the extent to which immunization conveys herd immunity, whereby immunization of some individuals offers protection to others who have not been vaccinated or have insufficient immunity to prevent transmission. The mandate would apply principally to vaccines with substantial spillover effects. However, other vaccines, such as therapeutic vaccines, would be considered for in- clusion in cases of exceptional societal benefit, particularly when dispari- ties in immunization rates between insured and uninsured persons per- sisted for a substantial time after licensure of the vaccine. Once a vaccine had been selected for inclusion under the insurance mandate as discussed in recommendation 1 above, ACIP would calculate the monetary value of the federal subsidy for reimbursement to public and private insurers. This calculation would be based on a methodology that would assign values to such factors as reduced health expenditures, enhanced quality of life, and increased labor productivity. The mandate and subsidy process would apply to both current and future vaccines. Future vaccines should receive primary consideration to stimulate the development of new vaccine products. Current ACIP- recommended vaccine components, such as tetanus, could be "grand- fathered" into the mandate and subsidy category to avoid confusion and disruptions to the current vaccine schedule and immunization system.

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RECOMMENDATIONS 201 Staff support for these new functions and the redesigned ACIP would require expansion of the supporting responsibilities of the National Vac- cine Policy Office and the National Immunization Program within CDC. Table 7-2 illustrates the existing ACIP procedure and contrasts it with the new, enhanced procedure that is recommended by the committee. The existing procedure is represented by blocks A and B (current). ACIP de- cides whether to recommend each vaccine for universal use (block A) or use by a targeted subset of the population (block B). Its recommendations are based on a range of factors, including cost-effectiveness. ACIP also makes permissive recommendations, which means that providers should use their judgment in deciding whether to vaccinate based on individual patients' risk factors. A separate vote determines whether the vaccine will be included in the VFC entitlement program. Under the committee's proposed procedure blocks A and B (new)- ACIP would continue to make Tier 1 recommendations. But in addition to considering a vaccine's cost-effectiveness, ACIP would conduct (or com- mission) an analysis to calculate the monetary value of the societal benefit of the vaccine, providing a pricing benchmark to be included among the factors considered by ACIP in determining its recommendation. Also, ACIP would no longer vote on inclusion in the VFC entitlement program since the new system would replace that program. If a vaccine received a Tier 1 recommendation, ACIP would make a separate Tier 2 determination as to whether the vaccine should be in- cluded in the mandate and subsidy categories (blocks C and D). A new vaccine might be recommended for addition to the schedule (Tier 1) but not be included in the government mandate and subsidy program be- cause it lacked significant spillover effects so that its benefits accrue pri- marily to the individual rather than to society as a whole (an example would be a vaccine that prevents diabetes or cancer). Individual health care providers could still purchase and administer the vaccine, and health plans could voluntarily include it as a benefit. But health plans would not be required to include the vaccine in their benefits package, and a govern- ment subsidy would not be available to reimburse the cost of the vaccine to health care providers. A vaccine might also receive a restricted recom- mendation to the mandate and subsidy program, for example, limiting a high-priced or less cost-effective vaccine to selected high-risk populations (block D). Under the committee's proposed approach, ACIP would also consider future vaccines that were not yet available but could be beneficial to the public's health. Such vaccines would bypass the usual schedule recom- mendation process (until they had actually been developed and licensed) and go directly to the Tier 2 mandate recommendation process. Vaccines

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RECOMMENDATIONS 203 currently recommended would be included automatically i.e., grancr- fathered in the mandate and subsidy program. Once an existing or future vaccine had been recommended for the mandate and subsidy program, ACIP would determine and publish a sub- sidy amount (blocks E and F) that the government would agree to pro- vide as described in recommendation 1. Recommendation 3: As part of the implementation of recommen- dations 1 and 2, the National Vaccine Program Office should con- vene a series of stakeholder deliberations on the administrative, technical, and legislative issues associated with a shift from vaccine purchase to a vaccine mandate, subsidy, and voucher finance strat- egy. In addition, the Centers for Disease Control and Prevention (CDC) should sponsor a postimplementation evaluation study (in 5 years, for example). CDC should also initiate a research program aimed at improving the measurement of the societal value of vac- cines, addressing methodological challenges, and providing a basis for comparing the impact of different measurement approaches in achieving national immunization goals. Recommendations 1 and 2 represent a significant departure from cur- rent law and practice. A change of this magnitude is warranted to address the fundamental and systemic problems that confront the national immu- nization system. Piecemeal changes are unlikely to solve these problems. Incremental reforms also are incapable of achieving an appropriate bal- ance between access and availability in vaccine financing. In formulating its recommendations, the committee has sketched the broad outlines of long-term strategic reforms. These recommendations do not address all aspects of the shift from the existing vaccine purchase pro- grams to a mandate, subsidy, and voucher plan; nor do they incorporate the comprehensive legislative agenda that would be necessary to achieve these reforms. A major national debate and examination of the committee's proposals among diverse stakeholders is necessary prior to full implementation of these recommendations, The magnitude and complexity of the mandate, voucher, and subsidy recommendations presented above are significant, and the recommenda- tions would be difficult to implement. A financing strategy designed both to achieve higher levels of access to vaccines and to encourage the process of innovation would introduce a greater level of administrative complex- ity into the national immunization system. The National Vaccine Program Office, in collaboration with CDC, should foster a sustained dialogue re- garding the best methods for estimating the societal value of new vac- cines and for achieving a balance between access and innovation through vaccine financing strategies.

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204 FINANCING VACCINES IN THE 21ST CENTURY The committee recommends that the National Vaccine Program Office convene a series of regional and national meetings on vaccine finance as part of the implementation process. These meetings should highlight ar- eas of administrative uncertainty (such as the treatment of therapeutic vaccines or the handling of copayments under an insurance mandate for vaccines) and methodological challenges (such as the treatment of labor market activity in the assessment of social value), as well as identify strat- egies that can inform the implementation of the recommended vaccine mandate, subsidy, and voucher system. The meetings should include rep- resentation from all sectors affected by the proposed shifts in policies and practices: public health agencies, health insurers (both public and private), health care providers, employers, industry, and consumers. Implementation Plan. The deliberations convened by the National Vaccine Program Office could examine more fully the administrative com- plexity of individual components of the committee's recommendations and explore strategies that could help reduce areas of uncertainty or po- tential unintended consequences. These deliberations should address how the proposed arrangements might be implemented through a staged roll- out that would be informed by further data and analysis. Topics to be addressed within these discussions include the following: What populations should be included in the vaccine payment plan ? The fed- eral vaccine payment plan is envisioned primarily as a means of address- ing the immunization needs of young children, older adults, and high- risk adults between the ages of 18 and 65. The inclusion of other populations such as all adolescents (under age 21) and all adults, re- gardless of their health condition should be considered as well. The ini- tial purpose of the expanded coverage is to target public finance toward those who are currently underserved. A second goal, which supports the proposal for universal coverage of all children and adults, is to reduce the current fragmentation in vaccine coverage that leads to gaps and admin- istrative burdens in determining eligibility and to foster efficiency in pro- viding access to vaccines that are delivered primarily in private health care settings. The means by which vaccines would be delivered to and reimbursed for different groups might differ by age, employment circum- stances, and access to health care services. How would the insurance mandate and subsidy system operate? The insur- ance mandate would apply to all public and private insurers, including Medicaid, SCHIP, Medicare, and other public insurance (such as CHAMPUS) and public health programs (such as that of the Indian Health Service), as well as both state-regulated insurance plans and self-funded employer plans (which are exempt from state regulation under the Em- ployee Retirement Income Security Act [ERISA]~. The mandate would

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RECOMMENDATIONS 205 extend to all insured persons within these health plans. The voucher sys- tem would provide access to vaccines for all uninsured people in these categories. For most public programs, current program funding for vac- cine purchases and vaccine administration would be replaced by the vac- cine payment system dollars. For example, vaccines administered through Medicaid and SCHIP would no longer be funded through those programs' federal-state matching funds but through the new centralized vaccine system. In contrast, Medicare would be included in the mandate but would pay for immunizations through its own program funds for pur- poses of administrative efficiency. How should societal value be calculated? The committee defines the soci- etal value of a vaccine as its total benefits, including both the private ben- efits to the person receiving it and the benefits to others. Using this ap- proach, a monetary value is assigned to all benefits associated with a new vaccine that can be determined and measured (for example, future medi- cal costs that are averted, as well as additional life-years and enhanced quality of life). The sum of these values represents the vaccine's societal benefit. As noted above in the discussion of disadvantages, this calcula- tion involves certain technical challenges. Developing a consistent meth- odology and making assumptions explicit for all vaccines would be of value in the decision-making process not only for vaccines but in other spheres of health care as well. The committee recognizes that the subsidy amount for vaccines would be sensitive to key assumptions about what should be included in societal benefit calculations. Cost-effectiveness analyses (CEAs) and cost-benefit analyses (CBAs) have been conducted on vaccines and in other areas of medicine for decades, utilizing a range of methodologies. The costs and benefits included in these studies, and the methodologies for measuring them and incorporating them into the analyses, vary widely from study to study and involve some fundamental disagreements about what should and should not be included. In 1993, a nonfederal panel of experts in CEA and CBA the Panel on Cost-Effectiveness in Health and Medicine was convened by the U.S. Public Health Service to consider issues related to the definition and mea- surement of costs, benefits, and levels of effectiveness in CEA and CBA studies. The panel's report, which was released in 1996 (Gold et al., 1996), enumerates a wide range of issues on which disagreements exist regard- ing the design of these studies. The list of issues on which further consen- sus needs to be achieved includes the following: Should costs include only health care costs for the drug and "related" medical services? Should costs include all changes in subsequent medical costs, including the additional health care costs of patients who will now live longer? Should they in- clude future consumption of any good or service? If so, should future

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206 FINANCING VACCINES IN THE 21ST CENTURY productivity or work effort be netted out of that amount? Which time and labor costs to patients and employers should be included time spent seeking care, absenteeism, withdrawal from the labor force due to the employee's own health or the need to address problems of family mem- bers? Should loss of productivity of coworkers due to team efforts, fric- tion costs associated with temporary substitution of workers with less firm- and task-specific skills, and shifts in on-thejob productivity be in- cluded? If such time or labor market effects are included, which wage rates should be used? Should market wages be adjusted for gender, racial, and ethnic disparities? How should time costs be valued for children, the disabled, or the retired, who have no wage to use as a benchmark? This is only a partial list of the issues raised by the panel. The mandate and subsidy approach recommended by the committee requires that benefits and costs be calculated to determine the total soci- etal benefit, which becomes the basis for a monetary subsidy. To establish vaccine subsidy amounts in a consistent manner, it is essential that a stan- dard methodology for measuring costs and benefits be established and followed. Currently, every CEA or CBA study incorporates assumptions, either implicitly or explicitly, regarding each of these issues. While con- sistency within the literature may be increasing, there is still substantial variation in the assumptions applied. The Panel on Cost-Effectiveness in Health and Medicine established the notion that each analysis should for- mulate a "reference case" using a common set of assumptions on some of these key issues, but the panel stopped short of recommending what the standard assumptions should be. To establish a consistent approach to the determination of societal benefit across the range of current and fu- ture vaccines, these assumptions will have to be made and be applied consistently. The committee envisions that ACIP or some other independent body, or an office within CDC, would make these determinations, with expert guidance from leading researchers in the field of CEA and CBA. Some of these decisions may be controversial, such as the methodologies used to assign monetary value to life-years or improvements in quality of life, especially among different age or disability groups, and differences be- tween the social and individual valuations of preventive versus critical care. Decisions regarding the methodologies that should be employed are too technical for this committee to have addressed them in this report. But the committee does suggest that in resolving these issues, the determin- ing body strongly weight current accepted practice among leading, main- stream practitioners in the field of medical CEA and CBA, rather than rely on novel approaches and measurement methodologies. In addition, rec- ognizing that the field is evolving, this body should consider changes in assumptions, the inclusion of additional economic variables, and changes

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RECOMMENDATIONS 207 in measurement methodologies over time. As changes in the standard methodology were adopted, however, they would have to be incorpo- rated retroactively into all studies to maintain consistency across all vac- cines. How would the calculated societal benefit be used to determine the subsidy amount? For not-yet-licensed vaccines, the creation of a predetermined subsidy is intended to be an incentive to stimulate private-sector invest- ment in vaccine development. Determining the amount of the subsidy would require a calculation of the societal benefit of each future vaccine, but the value of the subsidy would not necessarily equal the full value of the societal benefit. While the subsidy should not exceed the societal value of the vaccine product, it should also not be so low that it fails to serve as an adequate incentive for research and development. Different ap- proaches might be considered, such as adopting a fixed standard (for ex- ample, 90 percent of the societal value) or limiting the range of new vac- cine prices to some multiple of current prices. How would the subsidy for current vaccines be determined ? For current or newly licensed vaccines, the subsidy calculation would require consider- ation of both the societal value of the vaccine product and recent market prices. Some vaccines might receive a subsidy significantly higher than current prices if judged to be undervalued in terms of their societal ben- efit. Adjustments in the value of the subsidy might also be warranted to account for inflation, as well as changes in the costs of production or regu- latory compliance. Who would administer the subsidy and voucher system? The vaccine pay- ment system is designed to serve multiple objectives: to address the vac- cine needs of vulnerable populations, to assure a reliable supply of cur- rent and future vaccines by diversifying the vaccine purchasing market, and to relieve clinicians of the administrative burden of determining indi- vidual eligibility for vaccines. Ideally, one federal agency within DHHS would be responsible for administering both the subsidy and the voucher system, as well as regulating compliance with the insurance mandate for vaccine coverage. Certain responsibilities might be delegated to state agencies (in such areas as insurance regulation and administration of the voucher plan), but a central coordinating strategy would be required to assure consistent eligibility criteria and practices throughout the states. How would the proposed mandate treat deductibles and copayments ? While many states have mandated first-dollar coverage for vaccines, immuniza- tion costs might apply toward the general deductible that is customary practice for health plans. While many current vaccines are inexpensive, significant price increases can be expected in the future. Cost sharing could encourage consumers to shop for efficient providers and help con- trol inflationary pressures; however, it could adversely affect immuniza-

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208 FINANCING VACCINES IN THE 21ST CENTURY lion rates should financial factors become burdensome for the consumer. The extent to which cost sharing should be included in the vaccine pay- ment plan would require further consideration in the implementation pro- cess. Evaluation Plan. The positive and negative effects of replacing cur- rent safety net programs with the proposed government-funded mandate cannot be predicted with any degree of certainty. The VFC entitlement and Section 317 vaccine purchase program have been productive tools in improving immunization levels within the public sector. These programs have a history of strong bipartisan support and effective delivery of vac- cines for disadvantaged populations, especially during difficult fiscal times, but are associated with disruptions in supply and a decrease in the number of vaccine manufacturers. Similarly, state-supported vaccine pur- chase programs are often the foundation for safety net immunization ef- forts in certain jurisdictions. Strategies need to be developed to assure that the payment system advocated here will at least sustain, and ideally improve, current immunization rates among disadvantaged populations. Given the uncertainties associated with the introduction of a new vaccine payment system, an evaluation study should be designed as part of the system's implementation. In addition, the committee recommends that CDC organize an evalu- ation study 5 years following implementation to inform the new vaccine mandate, subsidy, and voucher system. Evaluation criteria should include the system's effects on government expenditures, access to vaccines within disadvantaged populations, and innovation within the vaccine industry. Its findings would form the basis for midcourse corrections in program design. Specifically, this study should include an analysis of the impact of the mandate and subsidy in two distinct areas: access to vaccines and the availability of the vaccine supply. In the first area, data should be gathered on how the payment system affects the delivery of vaccines to selected population groups (insured, uninsured, and underinsured), age cohorts (young children and high-risk adults), and geographic settings (rural and urban), possibly through dem- onstration studies aimed at identifying key challenges involved in the implementation process in selected states. The costs of implementation, outreach, education, reimbursement, and oversight should be measured to determine how to gain greater efficiencies in administering the pro- gram. In the second area, the impact of the diversified market and predeter- mined subsidy plan should be examined in light of their relationship to

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RECOMMENDATIONS 209 private investments in the production and licensing of new vaccine prod- ucts. The evaluation study should consider the assumptions that guide the calculations of societal benefit, as well as other data that influence the level of vaccine subsidy and voucher payments. Demonstration projects are often used to test a new approach prior to full implementation. In this case, however, it would be difficult or impos- sible to conduct a demonstration that could address a change in the struc- ture of the national vaccine market, which is a central feature of the committee's proposal. Major programs are often implemented without empirical evidence indicating that they will succeed (as was indeed the case with VFC, Medicare, and Medicaid); rather, to the extent that such evidence is available, it typically only supports the need for the program. Research Agenda. CDC should develop an ongoing research pro- gram to examine interactions among vaccine finance strategies, immuni- zation rates in the public and private health sectors, and the pace of inno- vation in the vaccine industry. Addressing many of the issues raised in this report will require further understanding of the ways in which basic market forces interact with access to and the delivery of vaccines to chil- dren, adolescents, and adults. Limited data are available to support rigor- ous examination of such empirical questions as the relationship of insur- ance benefits to immunization status. More funding is needed to support research studies that can monitor the extent to which pricing, supply, mandates, and other health policy and health finance factors influence the performance and outcomes of immunization efforts. Suggested topics for an initial set of research studies include the following: The numbers and characteristics of children and adults having pub- lic or private insurance benefits that include immunization and the types of restrictions on their immunization benefits. The impact of insurance status (both public and private) and cost- sharing arrangements on the timing and setting of vaccine administration and immunization status. The impact of alternative vaccine payment arrangements on clini- cian behavior and referral rates for immunization. The effect of full or partial subsidies on the supply and delivery of childhood and adult vaccines. The relationship between vaccine prices and supplier investments in research and development. The relationship between U.S. and global vaccine production, sup- ply, regulation, and prices.

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210 FINANCING VACCINES IN THE 21ST CENTURY FINAL OBSERVATIONS The findings, alternative strategies, and recommendations set forth in this report provide a strategic blueprint to guide the nation's public and private health sectors in adapting to foreseeable changes in vaccine devel- opment in the decades ahead. The public and private partnership that supports the immunization of children and adults in the United States requires vigilance and flexibility in assuring that the social benefits of vac- cines will continue to be available to all, regardless of ability to pay or health care setting. Assuring access and sustaining incentives that con- tribute to the availability of safe and effective vaccines are the twin goals that must guide vaccine finance strategies in the 21st century.