October 27, 2004

The Wrong Diagnosis

The Tennessean blames the flu vaccine shortage on the pharmaceutical industry's desire for higher profits, in an editorial today that claims there's no link between liability lawsuits and the dwindling number of companies that produce the flu shots. Predictably, the editorial calls for "solving" the problem by a large dose of government spending to subsidize flue shots.

But the truth is liability lawsuits have played a very large role in reducing the number of flue vaccine makers for the U.S., and government intervention of the kind The Tennessean is calling for more of has also played a role,, according to this comprehensive and fact-filled report from William Tucker

Why is it that 100 percent of our flu vaccines are now made by two companies in Europe? The answer is simple. Trial lawyers drove the American manufacturers out of the business.

In 1967 there were 26 companies making vaccines in the United States. Today there are only four that make any type of vaccine and none making flu vaccine. Wyeth was the last to fall, dropping flu shots after 2002. For recently emerging illnesses such as Lyme disease, there is no commercial vaccine, even though one has been approved by the Food and Drug Administration.

All this is the result of a legal concept called "liability without fault" that emerged from the hothouse atmosphere of the law schools in the 1960s and became the law of the land. Under the old "negligence" regime, you had to prove a product manufacturer had done something wrong in order to hold it liable for damages. Under liability without fault, on the other hand, the manufacturer can be held responsible for harm from its products, whether blameworthy or not. Add to that the jackpot awards that come from pain-and-suffering and punitive damages, and you have a legal climate that no manufacturer wants to risk.

In theory, prices might have been jacked up enough to make vaccine production profitable even with the lawsuit risk, but federal intervention made vaccines a low-margin business. Before 1993, manufacturers sold vaccines to doctors, doctors prescribed them to patients, and there was some markup. Then Congress adopted the Vaccine for Children Act, which made the government a monopsony buyer. The feds now purchase over half of all vaccines at a low fixed price and distribute them to doctors. This has essentially finished off the private market.

Government intervention could drive down the price by making government the sole buyer and at a very low price fixed by the government. But at such a low price the profit would be negligible and few if any vaccine makers would agree to produce the vaccine.

If you're without a flu shot this year, ask yourself which you'd rather have: flu shots that cost $50 and are plentiful, or a flu shots that cost $20 or even $10 but aren't available.

Government intervention of the kind called for by The Tennessean today, would only increase the risk of the latter.