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CDC VACCINE DISCOUNT PRICES SHOULD BE AVAILABLE TO ALL STATE MEDICAID AGENCIES, SMITHKLINE BEECHAM URGES; "APPORTIONED BIDDING SYSTEM" ALSO RECOMMENDED

Executive Summary

Federal childhood immunization legislation should "allow state Medicaid programs the right to purchase vaccines at the CDC bid price," SmithKline Beecham North American Pharmaceuticals President Jean-Pierre Garnier recommended at an April 21 joint hearing of the Senate Labor & Human Resources Committee and House Energy & Commerce/Health Subcommittee. The recommendation is included in a four-part proposal that Garnier offered as an alternative to the Clinton Administration's childhood immunization initiative. The hearing examined that initiative and the three congressional bills introduced to authorize it -- Labor Committee Chairman Kennedy's (D-Mass.) S 732, Senate Finance/Health for Families Subcommittee Chairman Riegle's (D-Mich.) S 733 and Commerce/Health Subcommittee Chairman Waxman's (D-Calif.) HR 1640. SmithKline Beecham's overall proposal would cost the government $240 mil. annually, Garnier estimated, 65% less than the $695 mil. which would be required to immunize 95% of children under a universal federal vaccine purchase plan that is contained in the Clinton initiative. A recent General Accounting Office report concluded that Medicaid programs could make better use of CDC discount prices ("The Pink Sheet" April 12, T&G-1). Nine states purchase vaccines from the Centers for Disease Control and Prevention's program for use by their Medicaid agencies and 11 more provide the vaccines to Medicaid under a state-wide universal purchase program. However, Medicaid programs face both administrative and cost barriers to using the CDC prices. Most importantly, a Medicaid agency cannot directly obtain the CDC prices. Instead, the state health department must purchase the vaccines from CDC, footing the up-front costs of the products, then handle actual distribution to the Medicaid agency or its providers. SmithKline Beecham estimates that if these barriers were removed and the remaining 30 state Medicaid agencies obtained CDC prices, these states might reduce their vaccine acquisition costs by as much as 50%. The figure is based on calculations that CDC prices on average are about half of prices to the private market. Garnier also recommended that Medicaid immunization coverage should be expanded to all children whose family incomes are 185% of poverty and should include physician fees for follow-up visits to complete immunizations. More broadly, Garnier urged that private insurance should be required to cover all American Academy of Pediatrics-recommended childhood immunizations and preventive care services should be made part of any basic health care benefit. In addition, SmithKline Beecham is proposing that CDC's vaccine "winner-take-all system" should be replaced by "an apportioned bidding system, allocating a share of the bid to all bidders that meet the lowest price." Garnier warned that any system involving a sole-source supplier "could lead to a shortage of essential vaccines if that supplier encounters production or quality control problems." A winner-take-all bidding approach coupled with universal purchase would also "create a major barrier to entry for new players in the vaccine market, such as SmithKline Beecham," Garnier added. Currently, SmithKline Beecham has just one vaccine product, the recombinant hepatitis B vaccine Engerix B, but it will market Pasteur Merieux' just-approved Haemophilus b conjugate vaccine ActHIB ("The Pink Sheet" April 5, T&G-5). SmithKline Beecham is working on a combination vaccine and has deals with Connaught and the Michigan Health Department, which produces vaccines in a state lab. SmithKline Beecham's vaccine counterproposal could help stave off the universal vaccine purchase plan by demonstrating flexibility on discounts for the smaller Medicaid market. The pending legislation does authorize HHS to award multiple contracts for a vaccine but should include "greater certainty in order to ensure enough volume to justify investment in manufacturing and research," Garnier also suggested. "Without these assurances," he remarked, "SmithKline Beecham will have difficulty entering a winner-take-all system where there is universal purchase." Sen. Kennedy acknowledged Garnier's suggestions as "constructive." Extension of Medicaid immunization coverage to children in families with incomes up to 185% of federal poverty guidelines is expected to be included in immunization legislation that Labor Committee Ranking Republican Kassebaum (Kan.) and Sens. Danforth (R-Mo.) and Durenberger (R-Minn.) are drafting ("The Pink Sheet" April 12, T&G-1). The provision would provide increased federal matching of state Medicaid funds for immunization. Danforth, appearing as a witness at the hearing, estimated that this expansion of coverage would result in 50% of children having Medicaid coverage for immunizations, versus the current 35%. The senators are also looking at ways to give Medicaid agencies more direct access to CDC discount prices. The Republican draft bill would replace the Clinton Administration's universal purchase plan with strategies such as Medicaid expansion but otherwise contains many similar provisions for education, outreach and public clinic funding that are contained in the Democrats' bill. The Missouri senator emphasized the possibilities for "bipartisan cooperation" to get some sort of immunization bill enacted quickly. Separately, the $300 mil. for vaccine funding in the blocked Economic Stimulus package may be introduced as a separate bill, Rep. Stenholm (D-Tex.) predicted at an April 22 conference sponsored by the American Enterprise Institute. Representatives of Merck, Connaught, and Lederle-Praxis joined SmithKline Beecham in supporting the outreach, tracking and infrastructure provisions of the Kennedy/Riegle/Waxman legislation but argued against the universal purchase program as an unnecessary entitlement for the wealthy, a disincentive to new R&D, and an ineffective remedy based upon a flawed diagnosis of the causes of low immunization rates. Merck Vaccine Division President Gordon Douglas and Lederle President Ronald Saldarini challenged a suggestion made by HHS Secretary Shalala that universal purchase would provide a stable environment for long-term R&D investment. Douglas said that the budget pressure, evidenced by what he viewed as a small increase for research at the National Institutes of Health in Clinton's FY 1994 budget request, "gives us great cause for concern." Waxman responded that he was "skeptical" about the R&D argument. "So you like everything [in the Clinton immunization plan] but government buying, because you're afraid you're going to get less money," Waxman declared. Secretary Shalala portrayed the universal vaccine purchase plan as building on the private health care delivery system and strengthening children's link with primary care physicians, not as creating a vaccine "bureaucracy." This is because physicians, who now often refer private-pay patients to clinics for immunizations, would have a ready store of vaccines on hand and would not need to determine which of their patients were eligible for free vaccines, she explained. Because of the shift in patients to public clinics, Shalala said, "we already are providing free vaccines to families that can afford them. The American Academy of Pediatrics reports that 50% of practicing pediatricians refer some or all children with health insurance to clinics for immunizations," Shalala reported. "Universal provision of vaccines could stop this flow of private patient-shifting to public clinics and free up needed resources for the truly needy." Additionally, she said, "providing vaccines based on family income would require means-testing, another barrier which could be enforced only by the physicians." Sen. Gregg (R-N.H.) suggested that requiring parents to obtain recommended immunizations for their children as a condition of receiving federal benefits would enforce parental responsibility and more directly address the cause of lack of immunizations than would a federal universal vaccine purchase. He cited Aid to Families with Dependent Children or the Women Infants and Children (WIC) supplemental nutrition program as programs where such a requirement might be imposed. The New Hampshire senator said his approach would address the lower immunization rates for preschool children. Noting that almost all school-age children are immunized and that this is generally a requirement of school entrance, Gregg concluded: "So it's not an issue of a lack of availability of the drugs or the price of the drugs that's driving the problem." Gregg continued: "There are a number of instances where parents come into activities in which the government has the legitimate right to require them to take certain actions." When the parent is receiving a federal program benefit and has a two- year-old child, "possibly a pre-condition of obtaining that benefit should be some sort of a recognition that the parent has immunized that two-year-old," he suggested. Moreover, Gregg maintained that "it's a legitimate request of moderate income [parents] to pay $500 over a two-year period" for immunizations, a cost which might be less than their car payments or cable television bills. For low-income parents, the government could pick up the cost "without any great need to wipe out the incentive of the drug industry to produce new and more vibrant types of drugs," he added. Gregg's suggestion drew interest from other members of the two committees, including Commerce/Health Subcommittee Ranking Republican Bliley (Va.) and Reps. Upton (R-Mich.) and Klug (R- Wis.). Klug reported that Georgia began requiring this year that parents show verification of immunization before receiving full AFDC benefits; Maryland reduces AFDC if appropriate immunizations are not obtained but gives a bonus if parents seek full primary care for their children; and South Carolina this month began requiring proof of immunizations before children attend day care. The idea appears to have percolated beyond the hearing. Rep. Roukema (R-N.J.), who is not a committee member, introduced legislation (HR 1840) on April 22 to require proof of appropriate immunizations as a condition for AFDC enrollment and for enrollment in federally-funded daycare. Secretary Shalala commented during her testimony that she would like to consider all options to increase immunization rates but indicated that she would be more receptive to approaches linking benefit programs to immunization through "positive incentives" rather than making immunization an initial requirement of receiving benefits. As one example of a "positive incentive," Shalala pointed to pilot projects where WIC recipients receive benefits for a longer period if their children are immunized. Shalala also emphasized that the Clinton vaccine initiative is envisioned as a "national program," not a "poverty program." It "does us no good" she said, if only poor children are immunized and an infectious disease breaks out. She reported that 60% of children above the federally defined poverty line are not immunized with the vaccinations recommended for two-year-olds. The committees also heard testimony from state and county health officials, who expressed support for most aspects of the proposed immunization plan while differing on the universal purchase provision. Mississippi Bureau of Preventive Health Services Chief Fred Thompson, MD, argued: "The universal federal purchase of vaccines is not a good use of resources and will not contribute significantly to raising childhood immunization levels." Mississippi has achieved a 72.2% child immunization rate without giving vaccine to private providers, and the state anticipates reaching 90% by 1994. Thompson explained that nearly 80% of children receive all or most of their immunizations in health department clinics at $5 per dose for those who can afford it and no charge for those who cannot. Thompson suggested that vaccine availability and cost are not a real barrier because states are willing to provide much of the funding for needed vaccines. "It's easier to get state support for vaccine than for infrastructure," he maintained. State money covers roughly half of the cost of vaccines in Mississippi. Texas Commissioner of Health David Smith, MD, testified that vaccine cost, while only one of the reasons for Texas' 30% two- year-old immunization rate, does pose a significant barrier. "The trends that we've seen from other parts of my own state -- where we talk to families or we see that the trend where a larger burden is being placed on the public sector is being created in large part by cost -- the information there leads us to believe it is part of the problem," Smith advised. While supporting universal federal vaccine purchase, Smith also advocated giving states flexibility to "shift and emphasize" funds among different immunization-related activities "according to the need." The American Academy of Pediatrics, represented by Ed Marcuse, MD, president of the academy's Washington State chapter and a former member of the National Vaccines Advisory Committee, expressed strong support for the legislation under consideration. Marcuse commended the bill for what he described as an approach of fixing all four "flat tires" at once by addressing cost, accessibility, tracking and demand. The next congressional debate on the issue will probably occur in the Senate Finance/Health for Families Subcommittee, which tentatively has scheduled hearings on the bills for the first week in May.
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