Dr. Banafsheh Behzad is an Assistant Professor of Information Systems who studies the application of optimization and game theory techniques in public health and social networks. Below is a brief summary of her recent research study.
The Centers for Disease Control and Prevention (CDC) is the primary public health organization in the United States charged with the responsibility for research, analysis and fulfillment of pediatric immunization programs. To ensure adequate societal immunization coverage levels, the CDC launched the Vaccines for Children (VFC) program in 1994, which protects eligible children against vaccine-preventable diseases at no cost. The volume of the vaccines administered through the VFC program is more than half of all pediatric vaccines administered in the United States (57% of the total pediatric vaccines). Furthermore, the VFC program has expanded the market for the vaccine manufacturers by immunizing the children who would normally have not been vaccinated, resulting in higher dose sales of pediatric vaccines. These efforts give the CDC some leverage to negotiate vaccine prices, sold through the VFC program, with the vaccine manufacturers. During negotiations with vaccine manufacturers, the CDC is seeking effective pricing strategies to stay within the federal budget allocated to the VFC program, while providing financial incentives for the vaccine manufacturers to maintain the current supply of vaccines and remain engaged in the market. This 57% of all pediatric vaccines administered to children at no cost through state and local government health agencies, is referred to the public sector of the market. The rest of the vaccines are sold through the private sector to the children who are able afford the vaccines at much higher cost. The crucial role of the CDC as a rational player in this market is neglected in the pediatric vaccine pricing literature.
This study uses optimization and game theoretic approaches to capture cost effective immunization of all children in the United States. Our model acknowledges the CDC’s goals of ensuring that all children are vaccinated and vaccine manufacturers do not leave the market, at minimum cost to the government. This study contributes to existing work by directly including the CDC as a decision maker and a rational player in the market. Furthermore, unlike other studies in the literature, this study captures dynamics in both public and private sectors.
Our main findings are as follows: (1) The actual contract prices in the public sector are higher than the prices calculated by our model. One reason could be the financial incentives given by the CDC to the vaccine manufacturers to keep them in the market; (2) manufacturers have a lower chance of leaving the market when they have high production capacities and moderate target profits; and (3) highly differentiated vaccines (in terms of packaging, side effects and etc.) advantageously segment the market. Our model indicates that the CDC might save money if it renegotiates vaccine prices more than just once a year in the public sector in the event of vaccine shortages. In other words, updating the contract prices once a shortage occurs, rather than using one set of prices for the whole year (the approach the CDC has at this point), can protect the stability of the market while reducing total public sector procurement costs.
The following recommendations can be made using our model.
- Financial incentives: To fulfill the market demand, the CDC is required to give some financial incentives to the vaccine manufacturer to maintain the market stability. These financial incentives can be interpreted as the price that the CDC pays to prevent a monopoly, whose costs can become much harder to manage in the long term.
- Product differentiation: The market is more stable when vaccines are more differentiated. While factors like side effects are harder to control, vaccine manufacturers can control packaging, administration method and branding, thereby preventing the public from viewing one vaccine as an “off-brand” of the other.
- Ongoing negotiations: When a shortage occurs in the middle of a contract season, manufacturers currently must continue to sell public sector vaccines at the contract price. A paradigm shift from annual price contracts to ongoing negotiations may allow the CDC to reduce cost.
These results indicate that capturing the public and private sectors into one optimization model provides realistic and valuable insights for the CDC to use during negotiations. This research establishes a theoretical approach for the CDC to influence pediatric vaccine prices via the public sector contracts.
Cummings, K., Behzad, B., Martonosi, S. (2019) Centers for Disease Control and Prevention as a Strategic Agent in the Pediatric Vaccine Market: An Analytical Approach.