Hillary's Vaccine Shortage
By The Wall Street Journal
August 15, 2003
Everyone knows America's vaccine industry is in serious trouble, with an ever dwindling number of producers and recent severe vaccine shortages. What everyone also should know is that the National Academy of Science's Institute of Medicine has now pinned much of the blame on Hillary Rodham Clinton.
Well, not in so many words. The panel of doctors and economists issuing a report on vaccines last week was too polite to mention the former First Lady by name. But they identify as a fundamental cause of the problem the fact that the government purchases 55% of the childhood vaccine market at forced discount prices. The result has been "declining financial incentives to develop and produce vaccines."
The root of this government role goes back to August 1993, when Congress passed Mrs. Clinton's Vaccines for Children program. A dream of Hillary's friends at the Children's Defense Fund, her vaccines plan was to use federal power to ensure universal immunization. So the government agreed to purchase a third of the national vaccine supply (the Clintons had pushed for 100%) at a forced discount of half price, then distribute it to doctors to deliver to the poor and the un- and under-insured.
The result is a cautionary tale for anyone who favors national health care. Already very high in 1993, childhood vaccination rates barely budged. A General Accounting Office report at the time noted that "vaccines are already free" for the truly needy through programs like Medicaid. Meanwhile, however, the Hillary project dealt the vaccine industry another financial body blow.
Thirty years ago, the Institute report notes, 25 companies produced vaccines for the U.S. market. Today only five remain, and a number of critical shots have only one producer. Recent years have brought shortages of numerous vaccines, including those for whooping cough, diphtheria and chicken pox.
The Institute of Medicine panel seems to assume -- probably correctly -- that it's not politically feasible simply to kill something called Vaccines for Children. But it does suggest that removing the government as a direct purchaser would allow for adequate reimbursement and help the industry to get back on its feet. So it recommends replacing existing vaccination programs with a subsidized insurance mandate for children and seniors, and with vouchers for those who lack coverage.
In the short run, this might marginally improve on the existing system. But insurers rightly worry that future budget pressures would cause the subsidy to dry up, leaving them with yet another costly coverage mandate. An even greater risk is that it would put the government in position to determine which vaccines to subsidize, and to determine the subsidy level based on nebulous estimates of "the societal value of the vaccine." This seems like an indirect price control, and we can't think of any other industry in which a government policy of picking winners has been conducive to innovation.
The better answer is a return to a freer market. Private companies are willing to innovate if they can get an adequate return. Vaccines are a predictable cost, not a variable insurable risk, and so are affordable for even the poorest Americans. Jack Calfee of the American Enterprise Institute estimates that vaccines account for less than 2% of the pharmaceutical market or less than two-tenths of one percent of total U.S. health costs. The $400-$600 cost of the recommended round of childhood vaccines is spread out over 16 years, and the truly needy qualify for Medicaid or the federally funded State Children's Health Insurance Program.
Apart from price controls, the other great threat to vaccine makers has been tort lawyers. Congress took a significant step to solve this problem in 1986, creating the Vaccine Injury Compensation Program, and requiring the injured parties to seek redress there before they can sue in regular courts. But plaintiffs' lawyers have been crafty in finding ways around the VICP, most notoriously by claiming damages due to the discontinued but harmless vaccine additive thimerosal. There's still work to be done here.
The Institute of Medicine panel deserves credit for highlighting the threat to vaccine makers from government price controls. Mrs. Clinton is a powerful Senator now with Presidential ambitions. It took some guts for the Institute panel to say in effect that one of her pet projects is a bust. As Congress considers Medicare legislation that could do similar harm to prescription drug makers, the vaccine tale is a timely alarm.
discoverthenetworks.org
Remember Hillary Clinton’s Vaccine Fiasco?
From “The First Partner – Hillary Rodham Clinton,” by Joyce Milton, pp 278-280:
Reclaiming America
Hillary believed that every cause needed a villain, and the pharmaceutical companies had been chosen as the designated enemy of the day. On February 12 [1993], Hillary traveled to a health care conference in Harrisburg, Pennsylvania, with Tipper Gore to deliver a speech lambasting drug manufacturers for profiteering at the expense of America’s children. Charging that the cost of immunizing a child had risen from $6.69 in 1981 to $90.43 in 1991, an increase of 1,250 percent, Hillary told the audience, “Unless you are willing to take on those who profited from that kind of increase and are continuing to do so, you cannot provide the kind of universal immunization system that this country needs to have.”
Whether drug companies actually priced their products too high was a matter of opinion. With many new drugs in development, the pharmaceutical business is becoming more competitive than it was in the past. Investors in start-up biotech companies, in particular, regularly risk — and lose — millions in the hopes of backing a breakthrough drug. High-tech drugs developed through free-market investments hold the best hope for conquering scourges like cancer and Alzheimer’s disease. Moreover, they are often highly cost effective compared to alternative treatments such as surgery. On the other hand, millions of Americans who obtain health care through their employers or the government have no idea what it actually costs. Many of them do pay out of pocket for drugs, and therefore they are ripe for the argument that their prescriptions cost too much.
At any rate, the charge that drug companies were responsible for low vaccination rates was as bogus as Hillary’s statistics, which did not take into account the addition of new shots to the recommended vaccination program. Manufacturers already donated free vaccines for needy children, and public health specialists, including Dr. Joycelyn Elders, who had supervised childhood vaccination programs during the Clinton era in Arkansas, agreed that the problem was educating parents to bring their children in for shots, not the cost of the vaccines.
Nevertheless, free childhood vaccinations had long been part of the Children’s Defense Fund agenda, and the Clintons used the momentum created by Hillary’s speeches to push a bill through Congress that gave Health and Human Services the power to bypass the established distribution system by buying up stocks of vaccines at cut-rate prices and storing them in a central warehouse. Government involvement threatened to create a bottleneck in the supply of vaccines and to discourage pharmaceutical companies from developing new ones.
Senator Dale Bumpers, whose wife had long been a volunteer in pediatric vaccination programs in Arkansas, denounced the administration’s actions as creating a “bureaucratic nightmare.” Public health experts agreed, and the administration, faced with overwhelming criticism, abandoned the distribution plan.
Judging from a 1995 report by the General Accounting Office, the pediatric vaccination program that existed in 1993 had been generally on target in meeting its goals. Based on Hillary Clinton’s proclamation of a nonexistent crisis, Congress had been stampeded into passing unnecessary legislation. And even though the worst features of the administration plan had been dropped, the country was still stuck with a program that was more costly, cumbersome and wasteful than the one it replaced.
What’s more, the alarming statistics Hillary had cited on the rise in prices of prescription drugs were another myth. It turned out that the Labor Department statisticians had gotten the numbers wrong.
This news came too late for investors. The threat of price controls had caused the blue chip pharmaceutical stocks to decline as much as 40 percent, wiping out over $1 billion worth of market capitalization. Some smaller biotech companies were put out of business permanently.
Only short sellers profited, among them a private hedge fund called ValuePartners I, run by Smith Capital Management of Little Rock, Arkansas. Hillary Clinton held an $87,000 stake in Value Partners I, which also owned a block of stock in United Healthcare, an HMO that stood to benefit under the Clinton reform plan. Lois Quam, a United Healthcare vice president, was a member of the task force.
Unlike the Carters, Bushes and Reagans, the Clintons failed to put their assets into a blind trust when they moved into the White House. Hillary resisted the notion that her financial affairs were anybody’s business but her own, and she reasoned that since she was not a government employee and the money was in her name, she didn’t have to resort to a trust. Vince Foster wasn’t sure this was so. After seeing the financial disclosure statement filed by the Clintons the previous December, Foster worried that Hillary’s interest in Value Partners I might pose a conflict of interest…
Just a little taste of the Hillarycare to come.
sweetness-light.com
Why Hillary Clinton’s plan to impose price controls on the drug industry will fail
Gerard Jackson
BrookesNews.Com
Monday 26 February 2007
Hillary Clinton and her fellow band of economic illiterates in congress have come up with a super-duper plan to bring cheap drugs to the American people. They are going to control drug prices. Yep, the same female genius whose brilliance created a vaccine shortage is going to do the same thing for all drugs. The question, and one Democrats refuse to ask, is why price controls have always failed? There is not a single historical example of them having worked.
Price controls are usually imposed in response to rising prices. Now there are basically only two ways in which a general increase in prices can come about*. Either through a general fall in output (akin to a famine situation) or a rise in monetary demand. Clearly it is the latter that concerns us. The notion that increasing costs are the real cause of inflation is demolished by the easily observable fact that unanticipated inflation tends to bring about increased output, a low level of unemployment and shortages of skilled labour.
Therefore, a situation of rising unemployment and falling output can usually be eliminated by expanding money and credit. This reduces the cost of labour relative to the price of its product thus inducing companies to employ more labour. (This is what the Keynesian unemployment ‘cure’ really amounts to). Moreover, costs in a free market are determined by the prices of consumer’ goods. Prices paid for consumers’ goods are imputed backwards to the factors of production. In short, it is consumers that determines the costs of production.
Prices are exchange ratios that are the products of reverse evaluations and are determined by the interplay of the valuations of all individuals in the market place. Each participant in the market contributes to the formation of prices by selling, buying or not selling or buying. This process is illustrated by supply and demand curves, the shapes of which are entirely determined by the subjective evaluations of individuals.
It should be clear that prices are not a datum nor are they arbitrarily set. Hence, it becomes clear that an “excessive price” can only be one that does not clear the market, i.e., one that is set above the market clearing price. Such a price would create a surplus which would be rapidly eliminated by competitive forces. The only real exception to this rule in our society is union enforced wage rates.
Without market prices it is impossible to make meaningful economic calculations and thus have a rational allocation of resources. Now the market is a coordinating process that assembles fragments of continuously changing information from millions of people; information that can only be known to them personally and expressed as preferences. The market transforms these preferences into prices which then act as signals to producers and consumers. It is this process that enables consumers to achieve the best possible outcome. If a socialist had invented the market it would have been hailed as one of man’s greatest achievements.
At any time there is always a configuration of prices determined by market data each price is closely interrelated with the others. No price is independent or exists in isolation. It therefore follows that to interfere with one price means interfering with others. Another fact the significance of which ardent price controllers and their supporters cannot seem to grasp.
The primary function of the market is to direct factors of production into those lines of production most favoured by consumers. It does this by using prices as signals to producers. There is no other way it can be done. If the government applies an effective maximum price, i.e., one set below the market price, to a limited range of consumer goods the production of those goods must fall and marginal producers will be forced to cease operations.
This means that non-specific factors will be directed into lines of production not subject to price controls thereby rendering increasing numbers of specific factors idle. (At which point some half-witted socialist will claim that idle capacity is evidence of monopoly). Therefore, instead of price controls producing an ample supply of affordable goods they actually make consumers worse off by reducing the supply of controlled goods. What good does it do the consumer to have money and no goods to spend it on, a situation familiar to the inhabitants of the former Soviet Union?
If, for example, an effective (meaning that it was strictly enforced) maximum price was slapped on new houses the effects would be dramatic: demand would increase and supply fall as marginal builders were forced out of the industry; non-specific factors would enter alternative lines of production not subject to price control, causing a disproportionate drop in the prices of specific factors of production.
In a free market these specific factors would have been utilised to a point determined by the absence of a more profitable opportunity to combine them with complementary factors in other lines of production, i.e., the specific factor is used to a limit set by the opportunity cost (which is purely subjective) of non-specific factors.
A black market would emerge as sellers and buyers sought to evade the controls bringing forth an expanding bureaucracy to police the controls. Builders, their profit margins increasingly squeezed between rising costs and fixed prices, would call on the government to either lift prices or control costs. If maximum prices were then set for factors, these factors in turn would also leave the industry. Clearly, the more elastic (more sensitive to price) the supply the more resources will be shifted out of the industry. In fact, fixing factor prices could only work if the factors were absolutely specific. An utter impossibility. But even then, the supply of fixed factors would eventually dry up.
Carried to its logical conclusion, price control means that the government would have to control the price and direction of every factor of production, especially labour, at every stage of production. It would mean the regimentation of the economy: no line of production could be exempted: the entrepreneurial function would cease and capitalists would become what the Nazis called betriebsfuhrers. And the incredible coordinating function performed by the market — and for which there is no substitute — in integrating the capital structure would be abolished, resulting in economic chaos.
*It is not quit so straightforward. The value of money is ultimately subjective. If people believe its value will fall, they will offer more in exchange; and if sellers think the value of money will decline, they will demand more in exchange.
Gerard Jackson is Brookes’ economics editor
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