Institute of Medicine Report on Financing Vaccines in the 21st Century: National Vaccine Advisory Committee/National Vaccine Program Office Follow-up

Alan R. Hinman 1, Bruce G. Gellin 1, and the National Vaccine Advisory Committee

In 2000, an Institute of Medicine (IOM) report "Calling the Shots" examined the infrastructure and financing of the immunization system in the United States and recommended a substantial increase in the federal immunization grant program as well as increases in state support to strengthen the infrastructure.1 There have been some increases in the federal grant program but there has been little increase in state support.

The pneumococcal conjugate vaccine, introduced in 2000, had a considerably higher price than previous vaccines and local, state, and federal governments had difficulties identifying funds to purchase the vaccine. In addition, temporary shortages of several vaccines occurred beginning in late 2000. Consequently, in 2002, the National Immunization Program of the Centers for Disease Control and Prevention (CDC/NIP) asked the Institute of Medicine (IOM) to carry out a study to:

"identify financial strategies designed to achieve an appropriate balance of roles and responsibilities in the public and private health sectors, integrate federal and state roles in supporting the purchase and administration of recommended vaccines for vulnerable populations, and develop a framework for identifying pricing strategies that can contribute to achieving current and future national immunization goals for children and adults."2

In response, IOM formed an 11-member committee including economists as well as medical, nursing, and public health experts. Over a 12-month period, the committee met four times and heard testimony from a variety of perspectives, including CDC, the vaccine industry, public and private health plans, clinicians, and employee benefit managers. The committee also commissioned a national survey and eight background papers. The committee released its report in August 2003; the report was officially published in 2004.

Conclusions of the IOM Committee

  1. "Current public and private financing strategies for immunization have had substantial success, especially in improving immunization rates for young children. However, significant disparities remain in assuring access to recommended vaccines across geographic and demographic populations.

  2. "Substantial increases can be expected to occur in public and private health expenditures as new vaccine products become available. While these cost increases will be offset by the health and other social benefits associated with theses advances in vaccine development, the growing costs of vaccines will be increasingly burdensome to all health sectors. Alternatives to current vaccine pricing and purchasing programs are required to sustain stable investment in the development of new vaccine products and attain their social benefits for all.

  3. "Many young children, adolescents, and high-risk adults have no or limited insurance for recommended vaccines. Gaps and fragmentation in insurance benefits create barriers for both vulnerable populations and clinicians that can contribute to lower immunization rates.

  4. "Current government strategies for purchasing and assuring access to recommended vaccines have not addressed the relationships between the financing of vaccine purchases and the stability of the U.S. vaccine supply. Financial incentives are necessary to protect the existing supply of vaccine products, as well as to encourage the development of new vaccine products.

  5. "The vaccine recommendation process does not adequately incorporate consideration of a vaccine's price and societal benefits."

The Committee identified two overall goals of financing strategies - assuring access to recommended vaccines and sustaining the availability of vaccines in the future. Specific goals for the funding strategy were to:

Alternatives considered by the IOM Committee

  1. "Maintain the current system.
  2. "Expand the VFC [Vaccines for Children] program to include additional eligibility categories.
  3. "Provide universal coverage through federal purchase and supply of all recommended vaccines.
  4. "Provide a federal block grant to the states for vaccine purchase.
  5. "Use public vouchers to purchase recommended vaccines for disadvantaged populations.
  6. "Create an insurance mandate that would require public and private health plans to cover all recommended vaccines.
  7. "Combine features of the insurance mandate and voucher alternatives into a new funded mandate system."

Recommendations of the IOM Committee

  1. "The committee recommends the implementation of a new insurance mandate [requiring all health insurance policies to cover immunizations], combined with a government subsidy and voucher plan, for vaccines recommended by the Advisory Committee on Immunization Practices (ACIP). [The subsidy/price of a vaccine would be set in advance of its development based on its estimated societal value.]

  2. "The Secretary of the Department of Health and Human Services should propose changes in the procedures and membership of ACIP so that its recommendations can associate vaccine coverage decisions with societal benefits and costs, including consideration of the impact of the price of a vaccine on recommendations for its use."

  3. "As part of the implementation of recommendations 1 and 2, the National Vaccine Program Office should convene 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 strategy. 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 vaccines, addressing methodological challenges, and providing a basis for comparing the impact of different measurement approaches in achieving national immunization goals."

Response to the IOM Committee Report

The response to the IOM Report has been varied. Editorials in the Wall Street Journal3 and the New York Times4 helped raise awareness of the complexities of the vaccine industry. In addition, several organizations have held discussions to further examine the options raised in the report. A briefing was held at the American Enterprise Institute at which reservations were expressed by many stakeholders about the Committee's recommendations. 5 The Winter Immunization Forum of the National Partnership for Immunization discussed the report at some length and also raised questions about the recommendations. 6The past president of the American Academy of Pediatrics (AAP) wrote an editorial comment in Pediatrics discussing the issues. 7The American College of Preventive Medicine has issued a policy statement endorsing the recommendations of the IOM Committee.8

The National Vaccine Program Office (NVPO) and the National Vaccine Advisory Committee (NVAC) formed a Workgroup to develop a response to the IOM Report. The authors co-chaired the Workgroup. Other Workgroup members are listed below. 3 Prior to hosting a stakeholders meeting, NVPO and NVAC conducted a series of stakeholder interviews in late September-early October, 2003, after the release of the Executive Summary of the report but before the final printed version was released. Bruce Gellin (NVPO), Alan Hinman (NVAC), and Nicole Smith (CDC/NIP) conducted informal telephonic interviews that were not for attribution. Stakeholders interviewed included representatives of vaccine companies (Aventis, Baxter, Chiron, GlaxoSmithKline, Merck, Wyeth), federal government agencies (Centers for Medicare and Medicaid Services, Health Resources and Services Administration), public health agency organizations (Association of Immunization Managers, Association of State and Territorial Health Officials, National Association of County and City Health Officials), provider organizations (American Academy of Family Physicians, American Academy of Pediatrics, American College of Physicians), and payers/insurers (American Association of Health Plans).

Given that the full report had not yet been published, the results of the interviews represented initial reactions, rather than formal positions. The stakeholders' initial overall reactions were presented to NVAC at its meeting October 7-8, 2003. In summary, there was universal commendation to IOM for highlighting the value of vaccines; highlighting the need to vaccinate adults as well as children; attempting to ensure access to vaccines by all children; and identifying factors contributing to instability in vaccine research, development, production, and supply. However, stakeholders were concerned about some of the sweeping changes recommended by IOM. There was skepticism that the recommended approaches would provide incentives to manufacturers or improve immunization levels in children and adults. There was also concern about undertaking a dramatic shift from the present system to an unproven new system; concern about the lack of detail about how the proposed new system would operate; and concern about the cost of the new system. Stakeholders questioned whether the system was sufficiently broken to require this level of "fix." They also felt that improvements in the current system might go a long way to achieving the goals. These incremental changes might include expanding VFC to all underinsured children; removing price caps; giving providers a choice of vaccines; harmonizing the regulatory process with other countries; and encouraging the expansion of health plan benefits.

June 28-29, 2004, NVPO/NVAC meeting

On June 28-29, NVPO and the NVAC Working Group hosted a meeting of stakeholders in Washington, DC. The purpose of the meeting was to obtain a fuller understanding of the perspectives of stakeholders now that there had been sufficient time to consider the implications of the IOM recommendations. The Agenda for the meeting is Attachment 1 and the list of participants is Attachment 2. Unfortunately the representative from America's Health Insurance Plans and the representative from the American College of Preventive Medicine were unable to attend, as scheduled.

At the beginning of the meeting, Dr. Mark Pauley, a member of the IOM committee, presented the major findings and some of the philosophical issues that the committee considered in developing their conclusions and recommendations.

On behalf of the Pharmaceutical Research and Manufacturers of America (PhRMA), representatives of two major vaccine manufacturers summarized PhRMA's views on the IOM Report. There was agreement with IOM on the value of vaccines and their public health benefit, the need to improve immunization coverage in adolescents and adults, and the desirability of extending insurance coverage for vaccines. However, the PhRMA representatives were not convinced that the recommendations address the real reasons why some individuals are not immunized appropriately. In addition, they were concerned that the recommendations for a subsidized insurance mandate and voucher system would make the vaccine business an even less attractive market to manufacturers than it is now. They noted that achieving the necessary legislative and regulatory changes to implement the recommendations would be extremely difficult, as it would require legislative changes in all 50 states as well as national legislation amending the Employee Retirement Income Security Act (ERISA).

They questioned the IOM premise that financial barriers are the major reason people are not immunized. They recommended encouragement of "first dollar" insurance coverage and including coverage of immunization as a quality measure, tax incentives to employers to cover immunizations, coverage for poor children through expanded VFC entitlement; more aggressive public and professional education approaches; adequate reimbursement of providers for administering vaccines; regulatory harmonization; and improved liability protection through changes in the Vaccine Injury Compensation Program (VICP). Manufacturers do not support universal purchase of vaccine by the federal government.

With respect to the feasibility of establishing a subsidy in advance of vaccine development and production, representatives of individual vaccine manufacturers, representing both established firms and those seeking to enter the market, commented on the increasing challenges in assessing candidate vaccines - for example, phase III trials for hepatitis B vaccine involved approximately 1,500 subjects whereas Phase III trials for pneumococcal conjugate vaccine involved 36,000 subjects and the new rotavirus vaccine trials may involve 75,000 subjects. It was also pointed out that private coverage for new vaccines generally occurs before government funding (particularly through Section 317 or state appropriations) whereas IOM recommends going to a fully government funded program. Anticipatory pricing of vaccines by establishing the level of federal subsidies, as called for by IOM, would, in effect, set price caps on vaccines and these have proven detrimental in the past. The manufacturer representatives also highlighted the continuing need for support of the public health infrastructure through Section 317 grant funds.

Representatives of CDC/NIP, the Association of Immunization Managers (state/territorial health departments), and the National Association of County and City Health Officials presented their perspectives. Although coverage for new vaccines through VFC is rapid and keeps pace with the introduction of new vaccines, support through Section 317 and state appropriations has lagged significantly in recent years. This gap in funding has led to a "two-tier" system in 19 states in which public health clinics provide pneumococcal conjugate vaccine to VFC-eligible children but not to non-VFC-eligible children coming to the same facilities; a similar situation may occur with implementation of the new ACIP recommendations for routine influenza vaccination of children 6-23 months of age. The introduction of new vaccines such as meningococcal conjugate and tetanus-diphtheria-acellular pertussis vaccines for adolescents will further challenge the ability of state and local health departments to provide all recommended vaccines.

In 1999, funding through Section 317 was adequate to purchase vaccines to fully immunize 747,000 children; however, in 2004, Section 317 funding is only sufficient to purchase vaccines for 467,000 children. The importance of immunization registries and infrastructure to assure delivery and improve immunization coverage in both public and private sectors was also stressed. State and local health department representatives agreed that radical financing changes are infeasible in the near term and recommended that existing policies and delivery systems be employed to address these current pressing problems.

A representative of CDC/NIP described CDC's involvement in vaccine purchase and distribution, as exemplified by the very successful VFC program. There are more than 40,000 VFC provider sites and VFC has helped to privatize the delivery of childhood vaccines - 70-80% of children now receive immunizations in their medical home. There are several key elements of VFC. For example, it is a vaccine replacement program rather than a reimbursement program, so health care providers have no vaccine purchasing costs. VFC has fostered strong public-private relationships, in part through annual visits to private providers to assure that quality control standards for refrigeration and handling of vaccines are met. The current inability of Section 317 to handle pneumococcal conjugate vaccine indicates that, without some changes, it will not be able to accommodate other new vaccines in the future. Discussion brought out the problem that the current proposed expansion of VFC would be accompanied by concomitant reductions in Section 3174. The point was also made that expansion of VFC to cover underinsured children only in public health clinics would undermine the concept of the medical home.

Presentations were made by representatives of the American Academy of Family Physicians (AAFP), the American Academy of Pediatrics (AAP), the American College of Physicians (ACP), and the Infectious Diseases Society of America (IDSA), as well as individual practitioners. None of the associations had official positions on the IOM report overall but each had specific points to make. The AAFP endorses the concept that all children and adults, regardless of economic and insurance status, should be able to receive AAFP recommended or approved vaccines without cost at their own clinician's office. The vaccines could be provided through government purchase or paid for by other payers. Administration of vaccines involves personnel time, overhead costs, and systems to promote vaccination. Clinicians should be reimbursed a reasonable fee for these administration costs. Requiring clinicians to stock separate supplies of vaccines for VFC-eligible persons and for persons covered by other payers can be burdensome. Therefore, AAFP recommends that states allow intermingling of VFC and other vaccine supplies, with appropriate cost accounting. AAFP's representative would like to see the VICP expanded to cover vaccination of adults, especially pregnant women, as well as prospective therapeutic vaccines. ACP is concerned about the limitation of proposed coverage for influenza and hepatitis B vaccines to adults with defined high-risk disorders - high-risk behaviors should also be included, although ACP recognizes that risk-based strategies have not been as successful as desired.

The AAP has three basic principles regarding childhood immunization: 1) all children should have access to immunizations in their medical home, 2) all pediatricians should provide the highest quality care possible, and 3) every child health care professional should receive fair and equitable reimbursement for providing health care, including immunizations. The AAP supports federal subsidies for vaccine production and delivery to assure a system that does not have shortages or disparities and does not leave children at risk. AAP supports an insurance mandate for all recommended vaccines but has concerns about the cost and complexity of the proposed voucher system for the uninsured and the process of determining the societal benefits of a vaccine. The AAP is concerned that implementation of the IOM recommendations could lead to loss of the gains achieved by VFC, both in terms of provision of vaccines and quality assurance. The tenuous public health infrastructure will not be helped by the IOM recommendations and might be further damaged. AAP is also concerned about adequacy of reimbursement for administering vaccines - although the IOM report calls for fair and equitable reimbursement from third party payers, this is not the current practice. In many circumstances, physicians lose money on each dose of vaccine administered.

The IDSA has no formal position on the IOM recommendations themselves but feels that the solutions proposed are not achievable in the near term. IDSA recommends expanded access to VFC vaccines (but not at the expense of Section 317 funding); improving adult and adolescent access to vaccines and funding for immunization; provider and consumer education; adequate physician reimbursement; regulatory harmonization; and consideration of financial incentives for development of new vaccines and introduction of foreign vaccines.

A family physician/local health officer described the difficulties of maintaining dual vaccine systems (for VFC and non-VFC vaccines) and the difficulties in determining whether insured individuals have coverage for vaccines. He stated that practitioners currently lose money administering vaccines and described how helpful immunization registries would be in dealing with children affected by current shortages of the pneumococcal conjugate vaccine. Three pediatricians described individual perspectives, including the need to expand VFC and increase support for Section 317 to accommodate new vaccines on the horizon (e.g., meningococcal conjugate vaccine). Tax credits for insurance companies and employers who cover immunizations were also recommended along with adequate reimbursement for administration of vaccines. Information was presented indicating that, in some instances, providers lose money on vaccine purchase as well as administration. The prospect was raised of a system in which the government would pay for all "mandated" vaccines (i.e., those required by state law for school entry), an insurance mandate would cover the other recommended vaccines, and individuals or their insurance would pay for elective vaccines.

Representatives of the Children's Defense Fund (CDF), Every Child By Two (ECBT), the Immunization Action Coalition (IAC), the Partnership for Prevention (PFP), and the Albert B. Sabin Vaccine Institute (SVI) presented some consumer perspectives. They noted that vaccines have provided great health and economic benefits for society and reinforced the need to maintain and improve on those benefits. Concerns were voiced about whether the IOM recommendations would solve current problems as well as the feasibility of getting the necessary legislation passed to implement the recommendations. Given the success of VFC, the proposal to legislatively disband it for an untested and more expensive program was questioned. Another concern was the potential for fraud and abuse should government issue vouchers for reimbursement of vaccination services. It was also pointed out that having the government influence, if not determine, vaccine prices through subsidies is not really a market-oriented approach and that it might be difficult to reach consensus about the societal benefits of a vaccine. The prospect of a Vaccines For Adults (VFA) program was supported by several speakers as a means of providing adult vaccines to those who cannot afford them. Several examples were cited of pending legislation that would remedy some of the issues raised by IOM without calling for sweeping changes to the healthcare system. Other cost saving methods, including full implementation of immunization registries and economizing the current vaccine distribution system, were suggested as partial remedies to the funding shortfalls experienced in recent years.

Summary of the June 28-29, 2004, Meeting

Among stakeholders who attended the meeting, there was widespread agreement on:

No one who spoke at the meeting felt that the IOM proposal for mandate, subsidy, and voucher is currently practicable. Many who spoke did not feel that, even if implemented, it would solve current problems. For example, many participants did not feel setting vaccine prices in advance would stimulate research and development; in fact it might even be counterproductive. There was also concern about how, and by whom, societal benefits would be calculated.

Most of those who spoke at the meeting favored improvements in the current system, specifically:


The Institute of Medicine Committee on Financing Vaccines in the 21st Century made a number of important observations about the situation in the United States and made recommendations for major changes in the approach to financing immunizations in this country. The National Vaccine Advisory Committee agrees with many of the observations made, particularly about the fact that society undervalues vaccines, that actions are necessary to assure easy access to vaccines in a variety of settings by all for whom they are recommended (particularly adolescents and adults), and that actions are necessary to stabilize the vaccine market and make it attractive for manufacturers to remain in, or enter, the field. However, NVAC does not feel it is advisable to adopt the IOM recommendation to replace the current system with an insurance mandate and system of subsidies and vouchers. The approach recommended by the IOM does not take into account the peculiarities of research, development, and manufacture of biological agents. Furthermore, the IOM recommendations do not sufficiently acknowledge the progress made under the current system, the potential feasibility and impact of incremental changes, and the growth in the vaccine market that has occurred since the inception of VFC. NVAC is not convinced that the recommended approaches would have the desired effects of increasing vaccine research, development and production capacity; reducing provider burden; and maintaining existing community and provider relationships. In addition, bringing about the legislative changes needed would be extremely complicated and difficult to achieve. NVAC also does not support the recommended changes in composition or charter of the ACIP, as they would not be necessary in the absence of the proposed mandate/subsidy/voucher approach and the ACIP currently incorporates economic considerations of new vaccines in its deliberations.

NVAC believes that changes in the current system would go a long way towards stabilizing the financing of immunizations in the United States. Therefore, NVAC recommends:

Next steps

These recommendations address the approaches that NVAC believes should be taken to stabilize the financing of immunizations in the United States but do not provide the specificity necessary for implementation. Consequently, NVAC requests that NVPO work with CDC and other federal agencies, ASTHO, NACCHO, and other stakeholders to develop specific proposals for legislation to expand Section 317 and VFC, assure adequate reimbursement for administration of vaccines, and achieve regulatory harmonization. In addition, NVPO should coordinate implementation of the other recommendations.

1Task Force for Child Survival and Development, Decatur GA; Member, National Vaccine Advisory Committee.
2Director, National Vaccine Program Office, Department of Health and Human Services.
3Other members of the workgroup: Anne Arvin, Steven Black, Ronan Gannon, Bronwen Kaye, Jerome Klein, David Neumann, Lance Rodewald, Una Ryan, Patricia Whitley-Williams, Don Williamson.
4Section 317 of the Public Health Service Act provides support (through CDC) for health department immunization programs and vaccine purchases.


1Institute of Medicine. Calling the Shots. National Academy Press; Washington DC. 2000

2Institute of Medicine. Financing vaccines in the 21st century: Assuring access and availability. National Academy Press; Washington DC. 2004

3 _____. Hillary's vaccine shortage. Review & Outlook in the Wall Street Journal, August 15, 2003.

4____. Preventive Medicine. Editorial in the New York Times, August 18, 2003.

5American Enterprise Institute. A new approach to vaccine development. Available at http://www.aei.org/news/newsID.19641,filter./news_detail.asp . Accessed July 8, 2004.

6National Partnership for Immunization. IOM Vaccine Finance Report. Summary of a stakeholder discussion. Available at http://www.partnersforimmunization.org/winterforumsummary.html. Accessed July 8, 2004.

7Berman S. Do we need a structural engineer to redesign our vaccine infrastructure. Pediatrics. 2003; 112:671-2.

8Kurian S, Blog DS, Sherin KM. Optimizing vaccine availability and utilization. Position statement of the American College of Preventive Medicine. Am J Prev Med 2004: 26:372-4.