Free Markets and Flu - A Deadly Combo

[Mordoch]

Originally posted by Berzerker


In case you haven't noticed, there are only 3 people debating this and Ned and I are two of them. I've only seen maybe 1 person claim you are right and they didn't offer evidence. But I guess popularity counts more than facts now, that should ensure leftist victories at Apolyton for perpetuity.

I see you are still ignoring the law cited by Ned. Pointing to vaccines that are outside the domain of the price controls as proof there are no price controls at all is illogical.

How many are trully in the government's realm of price controls? From the same article the following key passage is stated. The facts are definately your problem and Ned's. Ned's trying to claim that the states can't buy vaccine for a higher price than what the price controls are set at when they are buying for children, a point that is directly contradicted by the article I just cited.

Furthermore, here's evidence that the FEDERAL GOVERNMENT also is paying twice the usual amount of it pays for flu vaccine. This presumably means the price control doesn't apply in this case. Its either that or the price control level is so high that ordinarily the government can negotiate a much lower rate than the price control and the flu vaccine companies can still make a profit at this much lower price.

The hunt for flu vaccine has become so difficult that the U.S. government was forced to look overseas to England, where on Monday it bought 375,000 doses of flu shots made for the European market - at $74 a vial, twice what it normally pays.

http://www.denverpost.com/Stories/0,1413,36~53~1840354,00.html

[Berzerker]

I just can't help myself when you keep posting contradictory information:

The first 375 vials came from a Los Angeles company, FFF Enterprises, that charged the state only $70 each - likely cheaper than what the supplier paid, according to manufacturer's sales figures.

HOW CAN THAT BE? CHEAPER THAN WHAT THE SUPPLIER PAID?
Does that smell like a price control? You keep asking me why a supplier would take a loss as if this is proof there are no price controls and that if there are, suppliers would simply avoid selling to the government. So what do you offer us now? A link showing a company selling vaccine to the government for less than what they paid!!! Thanks, I knew you'd come through.

When that supplier ran out, the state paid a Houston company $165 a vial, the cheapest price available anywhere, said Benevento of the state health department.

You're forgetting that your link to the CDC specifically said that other government agencies can buy vaccines on their own. We don't know the parameters of the law, it may destinate a certain amount to be bought early on at the reduced (price controlled) costs while the remainder is left for the market. If the government needs more, the law may allow distributors to charge more when the government is grabbing up vaccines destined for the market.

[Mordoch]

Originally posted by Berzerker
I just can't help myself when you keep posting contradictory information:



HOW CAN THAT BE? CHEAPER THAN WHAT THE SUPPLIER PAID?
Does that smell like a price control? You keep asking me why a supplier would take a loss as if this is proof there are no price controls and that if there are, suppliers would simply avoid selling to the government. So what do you offer us now? A link showing a company selling vaccine to the government for less than what they paid!!! Thanks, I knew you'd come through.

JUST HOW SILLY CAN YOU ACT??? The same article mentions how the state then bought vaccine at 165$ a vial for the exact same purpose. Clearly a price control does not apply. Its like you don't remember what the point you were originally trying to advocate actually was. Clearly the supplier would not charge less than it cost them unless they couldn't get rid of it any other way. My guess would be that FFF Entereprises got a deal on the vaccine and wanted to get rid of it.

[Mordoch]

Originally posted by Berzerker
IWe don't know the parameters of the law, it may destinate a certain amount to be bought early on at the reduced (price controlled) costs while the remainder is left for the market. If the government needs more, the law may allow distributors to charge more when the government is grabbing up vaccines destined for the market.

Basicly the more the percentage bough under price controls drops out of the total market share, the less the possible effect on the flu market could be. In fact, if over a certain number they can make more money, that would offer producers and INCENTIVE to make more vaccine. Its certainly a vastly smaller percentage than 56% with regards to flu vaccines.

[Berzerker]

How many are trully in the government's realm of price controls?

I don't know, I'd have to look at the legislation.

From the same article the following key passage is stated. The facts are definately your problem and Ned's. Ned's trying to claim that the states can't buy vaccine for a higher price than what the price controls are set at when they are buying for children, a point that is directly contradicted by the article I just cited.

That would be Ned's problem, not mine. I never said the states can't buy vaccines outside of the CDC program, the link you provided claims states can make their own deals. Perhaps Ned is talking about the prices the states have to pay as part of the CDC program.

Furthermore, here's evidence that the FEDERAL GOVERNMENT also is paying twice the usual amount of it pays for flu vaccine. This presumably means the price control doesn't apply in this case. Its either that or the price control level is so high that ordinarily the government can negotiate a much lower rate than the price control and the flu vaccine companies can still make a profit at this much lower price.

That was the feds buying from Europe, I highly doubt US price controls obligate Europeans to charge what the Feds want to pay for vaccine made here in the US.

Now, even that link supports what Ned and I have been saying. It says $74 is twice what the feds normally pay, true? What did your last link (Denver Post too?) say? That FFF Enterprises charged $70 a vial which is less than what they paid? If FFF Enterprises took a loss on that batch, and the feds normally pay ~$37 a vial, doesn't that mean the feds are getting vaccines for less than the manufacterer's cost? How can the feds buy up vaccines at $37 a vial when the cost to produce the vials is higher? Maybe there are mistakes in the Post's reporting, but that sounds like the feds have an awfully nice deal there... a price controlled deal...

[Berzerker]

JUST HOW SILLY CAN YOU ACT??? The same article mentions how the state then bought vaccine at 165$ a vial for the exact same purpose. Clearly a price control does not apply.

I didn't say the $165 was price controlled, I said what the program probably allows for is the government to buy vaccine early in the season at price controlled rates while the rest of the supply is destined for the market. If the government then runs out and needs to grab vaccine destined for the market, the government then has to pay the market rate. I suspect this is what the legislation says since vaccine makers would have even less incentive to produce vaccines if the government could walk in at any time and grab what it wanted at the price it wanted. That way the producers have a better idea of the amount of vaccine to be sold at market rates.

Its like you don't remember what the point you were originally trying to advocate actually was. Clearly the supplier would not charge less than it cost them unless they couldn't get rid of it any other way. My guess would be that FFF Entereprises got a deal on the vaccine and wanted to get rid of it.

*Sigh* According to your link, the manufacturer took a loss on the sale.

Here is proof of price controls:

SB 1038 (Polanco) would take advantage of a federal option permitting California to purchase vaccines at approximately half the commercial price for children enrolled in Healthy Families

Vaccines for children enrolled in the Healthy Families Program are currently purchased at commercially available prices, up to 50% more than the price the federal government has secured for its bulk buy of vaccines for Medi-Cal and uninsured children.

http://www.aapca3.org/legislative_update.htm

Now, what does "half the commercial price" say to you? PRICE CONTROLS!

[Berzerker]

Basicly the more the percentage bough under price controls drops out of the total market share, the less the possible effect on the flu market could be. In fact, if over a certain number they can make more money, that would offer producers and INCENTIVE to make more vaccine. Its certainly a vastly smaller percentage than 56% with regards to flu vaccines.

I don't know that and neither do you. I've already established from your CDC link that the CDC bought ~%14 of the supply in 2000-1 and that the percentage has been increasing according to the CDC. That does not include every other gov't agency and there are plenty of google links showing the states but alot of flu vaccine.

[Berzerker]

More

Recognizing the need for increases in vaccination rates, the Vaccines for Children (VFC) program was established. The VFC allows the federal government to buy vaccines at a discount and distribute them to states, which then distribute them free to private physician's offices and public clinics to administer to children who are uninsured or enrolled in Medicaid, as well as to Native American and Alaskan Native children.

http://www.house.gov/payne/priorities/children.html

[Mordoch]

Originally posted by Berzerker
Now, what does "half the commercial price" say to you? PRICE CONTROLS!

You are not currently arguing a point that I am actually disputing, nor does it undermine my argument. What I am disputing is that the amount of the market that is under price controlls is stasticly significant, and I'm also disagreeing with the claim that for the Flu market comapnies selling the vaccine to the government is unprofitable.

An important point to make here is that we have no clue what "half the commercial price" actually means. This may be the price for a very small buyer who orders the vaccine at the last moment. With a large buyer who orders well in advance as the government might, the manufacturing and business costs may go down for the supplier, possibly accounting for virtually all the cost. Generally when selling on a mass scale, a smaller profit can be compensated for by sheer volume. A VERY important point to make is that it doesn't say that they buy from the companies at half price, just that the states buy from the government at that rate. It may be the feds are the oneswho eat the cost difference.

[Mordoch]

Originally posted by Berzerker
That was the feds buying from Europe, I highly doubt US price controls obligate Europeans to charge what the Feds want to pay for vaccine made here in the US.

Now, even that link supports what Ned and I have been saying. It says $74 is twice what the feds normally pay, true? What did your last link (Denver Post too?) say? That charged $70 a vial which is less than what they paid? If FFF Enterprises took a loss on that batch, and the feds normally pay ~$37 a vial, doesn't that mean the feds are getting vaccines for less than the manufacterer's cost? How can the feds buy up vaccines at $37 a vial when the cost to produce the vials is higher? Maybe there are mistakes in the Post's reporting, but that sounds like the feds have an awfully nice deal there... a price controlled deal...

You're not helping your case here. Logically if flu companies in the US were losing 33$ on every vial they sell to the government, but European companies can charge whatever they want when they sell to the US government, the companies would have to be crazy to not all relocate to Europe or elsewhere. At this point they would avoid the cumbersome US price controls, but the government would be compelled to buy from them first anyways since there are no sources in the US. Its not even that difficult to relocate to Europe since not all parts of the business would need to relocate there for the US government to consider them a European company. The basic problem with most of your arguments in the last few pages has been that the companies would have to be entirely staffed by incompetents who can't figure out what would make basic business sense for the arguments to actually work in real life.

(For the record, FFF Enterprises is a middleman, not a manufacturer, the government was buying directly from the manufacturer when they bought the vaccine. A major difference probably was that the feds bought the vaccine much earlier and the vaccine makers marked up the price by the time FFF Enterprises came around since they knew there would be a shortage.)

[Mordoch]

Originally posted by Berzerker
More
"Recognizing the need for increases in vaccination rates, the Vaccines for Children (VFC) program was established. The VFC allows the federal government to buy vaccines at a discount and distribute them to states, which then distribute them free to private physician's offices and public clinics to administer to children who are uninsured or enrolled in Medicaid, as well as to Native American and Alaskan Native children."
http://www.house.gov/payne/priorities/children.html

Great! Thanks for helping my case! According to the link, the states CAN'T buy them at a discount, only the Federal Government can. The Federal Government purchases at a substancial discount seem exclusively dedicated towards distributing them for this program to the states. The states don't actually buy the vaccine. Your evidence just refuted the claim that part of the market under price controls was hidden by the federal statistics.

The bit about "SB 1038 (Polanco) would take advantage of a federal option permitting California to purchase vaccines at approximately half the commercial price for children enrolled in Healthy Families" seems to be something that only comes up rarely. More importantly, statisticly that would fall under federal government purchases, and you've shown no evidence to the contrary. I've shown that the 14% only is partially under this price control at most, and I also have demonstrated that only under very rare circumstances would companies ever agree to sell under a price control for a loss. (Its actually a matter of getting rid of excess vacine in that scenario.) You need to offer some evidence that the statistics are incorrect, something you and Ned have still utterly and completely failed to do.

[Ned]

Mordoch, I just reread the statute and appears that you are right to an extent. The states have a right to purchase at the controlled price only to the extent they estimate the number of doses they want prior to the negotiation between the federal government and the suppliers. To the extent that they need more than what they estimated, they are not protected by the statute's price control provisions and must pay market prices which are substantially higher than the controlled price. But assuming that the kid vaccinations are 40% of all vaccinations and that the states and the federal government together accurately the estimate the number of kids that will receive vaccinations, approximately 40% of all of doses are purchased under price controls and given to clinics so that they may provide flu shots for free to kids. Of course, if a kid's parents want to pay full market price for vaccinations, they can probably get them at a clinic without standing in line.

[Mordoch]

Originally posted by Ned
But assuming that the kid vaccinations are 40% of all vaccinations and that the states and the federal government together accurately the estimate the number of kids that will receive vaccinations, approximately 40% of all of doses are purchased under price controls and given to clinics so that they may provide flu shots for free to kids. Of course, if a kid's parents want to pay full market price for vaccinations, they can probably get them at a clinic without standing in line.

This is where you go horribly wrong. Until this year, it was not recommeded by most government agencies that most kids should get flu vaccines, and until recently there was not much emphesis on vacinating children. The CDC had some recommendations which I already posted a link to earlier in this thread that suggested that only kids 6 months to 2 years old would be ordinarily eligable for flu shots under the vaccines for children program. Only kids with immune deficiencies and the like would be eligable if they were older. The Vaccines for Children Program also apparently only applies to children whose parents are uninsured or who are on medicare or medicaid. While others may sometimes get free flu shots, these are under different arrangements.

A key issue is that unlike most vaccines, a large number of adults and even more elderly are vaccinated for the flu. Since its something you need to do yearly due to mutations, its not case where once you are vacinated you don't need to do so again. All these factors make is so the Vaccines for Children program is far less that 40% of the total market, and its safe to say that the percentage bought under price controlls has consistantly remained under 10% of the total market. (This year obviously some had to be bought not under price controls.) Note, the companies are willing to sell the vaccine early at these prices, because the government is a group with a reliable amount already ordered, and they get the efficiencies of large volume and not having to distributed small batches to a large variety of locations with the order, all of this reduces the manufacturer's costs and makes doing this profitable.

[Mr. Harley]

Actually, there're four people here, but Mordoch is making my argument for me much more eloquently than I can. Just remember, I COULD NOT order ahead and/or pay extra, the option was not available - however, in fairness to Ned that may be due to market structure (the medical field) versus true free market issues. I still need to get her second dose, so this is not moot to me (however, after the initial dose I'm much less worried about morbidity and/or brain damage). I expect to stand in line again if I'm lucky, but this time I'm hoping it won't be 34 degree rain. Oh, and we had to pay $15 for the 1/2 dose we got the first time (infants get a 1/2 dose, than a full dose).

Mordoch, Berzerker does that to everyone. Ignore him until he learns some courtesy. It comes to him intermittantly. Ned is a good barometer of your argument convincing a reasonable conservative - does that make Ned a moderate . Getting Ned to grant your point means that you're good. (love you too, Ned - I still owe you on Hiroshima, haven't forgotten).

Just a couple of points - nobody has come up with figures for consolidation between 1986 and 1993. I know they are going to be a pain to find, I've searched several times now. Why aren't the numbers available? Hmmm.

Plus, it seems the issues of the loss of international markets reducing efficiency of scale at home, mature markets with lower profit margins, and the pure market mechanics of six month production cycle versus a necessary response time of under three months have been lost in the CDC/government purchase issue. I still state the free market, with low profit margins, will always underproduce, given the inability of the market to respond in sufficient time to changing market forces (due to technical reasons).

Ned, your comment about the 1993 law contributing could factor in, and you could end up with a convergence of forces - the roughly 10% controlled sale market, loss of international markets, loss of patent protection, lack of return for investment due to a mature market, even further reducing profit. I like the idea of the government purchasing a reserve, maybe the size of the at-risk population, so there is always a cushion. Of course that needs to be paid for, and since we're running a deficit.... taxes, anyone. SHHH.

[Ned]

Shawn and Mordoch, thanks for the compliments on being "rational."

Shawn, in reading the fine print of the statute, they clinics can charge "handling" costs. They just cannot charge for the vaccine itself for "covered" children. If they wanted to spend the time weeding out "covered" from non convered, they could charge more for the non convered kids. But that would turn clinics into welfare agencies. One can understand why all kids are treated equally. The get the vaccine for free.

But that is why clinics cannot affort to buy does at $200 per and give them away for free to kids.