Improving access to vaccines through tiered pricing

The Lancet
Jun 28, 2014 Volume 383 Number 9936 p2185 – 2268

Improving access to vaccines through tiered pricing
Dr Seth Berkley MD a

Immunisation is now widely recognised as one of the most efficient, successful, and cost-effective health investments in history, but despite a substantial effort over the past 50 years, nearly one in five deaths of children younger than 5 years is still caused by a vaccine-preventable disease. With more than 22 million children in the world still unimmunised against common but life-threatening diseases (as measured by a vaccine containing a third dose of diphtheria-tetanus-pertussis [DTP]), almost all in developing countries, there is clearly still a long way to go.
In addition to the traditional and inexpensive vaccines included in the expanded programme on immunisation, nowadays new, more expensive, and complex vaccines are available. Mainly manufactured by a few research-based vaccine companies, these vaccines target the most common causes of the diseases that kill children, such as diarrhoea and pneumonia. In 2000, the GAVI Alliance was created to help to reduce the delay in the introduction of these types of new vaccines in low-income countries. Since GAVI’s inception, about 440 million of the world’s poorest children will have been immunised with its support by the end of 2013, with 6 million future deaths averted in the process.1 And the latest estimates predict that in the period up to 2020, the vaccines that GAVI are supporting will help to avert a further 8 million deaths.2

GAVI has a simple business model. It supports countries with a gross national income (GNI) per head less than US$1550 (which is adjusted annually for inflation, and due to increase to $1570 in 2014) and negotiates reduced pricing from vaccine manufacturers to be able to supply them with vaccines.3 Because GAVI serves only the lowest-income countries, it has been able to negotiate the lowest prices from manufacturers. As part of the model, GAVI countries pay a small proportion of the vaccine costs—so that there is some form of cost sharing. As countries become wealthier, they pay an increasing copayment until their GNI exceeds the GAVI GNI threshold, and they graduate.4 After a transition period, countries must take on financing the full cost of the vaccines. Graduation is a way for GAVI and its financial supporters to focus their resources on the poorest countries, while enabling governments with growing economies to take increasing responsibility and ownership for vaccination programmes over time.

GAVI uses several means to reduce the price of the vaccines that it procures. GAVI’s ordering and purchasing on behalf of countries is backed by financial commitments from donors. These commitments give manufacturers predictability for their production planning. GAVI pools demand so that it can leverage economies of scale (at present GAVI serves 58% of the global birth cohort) while companies deal mainly with only one purchaser, procured by GAVI through UNICEF Supply Division. This process reduces transaction costs, allowing for even further savings. To give a sense of the scale of procurement, in 2012 UNICEF procured more than $790 million worth of vaccines from ten manufacturers on behalf of GAVI countries. GAVI and its Alliance partners also use push and pull mechanisms to incentivise manufacturers. For example, the Bill & Melinda Gates Foundation has provided developing-country manufacturers with investments to support product development and manufacturing scale-up in return for lower vaccine prices when they begin supplying.5 And the pneumococcal Advance Market Commitment (AMC) uses donor commitments and long-term contracts to incentivise manufacturers to accelerate and expand the supply of this vaccine.

The problem, however, is that countries with GNI greater than the GAVI threshold face much higher prices for these new, more technologically advanced vaccines. In many of these countries, governments cannot afford to pay, while private sector prices are unaffordable for most families. As a result, many children living in non-GAVI-eligible middle-income countries are not being vaccinated, and uptake of new vaccines risks lagging behind many GAVI-eligible countries. Although some of GAVI’s and the Alliance partners’ interventions can indirectly support non-GAVI-eligible middle-income countries—eg, incentivising new manufacturers increases competition and benefits all markets that they serve—GAVI’s focus has been on the poorest countries. However, as countries pass the threshold and graduate from GAVI support, there is concern that they could be at risk of suspending vaccination programmes because they face a so-called pricing cliff, with steep increases when they no longer have access to GAVI prices.

In view of the latest population trends, this situation is particularly worrying. In 1990, more than 90% of the world’s poorest people lived in countries classified as low-income countries;6 nowadays 70% of the world’s poorest people live in middle-income countries.7 Consequently the burden of vaccine-preventable disease is now about twice as great in middle-income countries as in low-income countries, with just four countries accounting for around half of the vaccine-preventable deaths in the world, or 75% of those occurring in all middle-income countries: India, Indonesia, Nigeria, and Pakistan. Although these countries still receive GAVI support, all but Pakistan are expected to graduate in the coming years.

So, what we need is a way to ensure that children who are not living in GAVI-eligible countries also have access to affordable life-saving vaccines that will ultimately increase their chances of living healthy and productive lives. And for GAVI-eligible countries, as their incomes grow we need to find a way to ensure that their immunisation coverage achievements do not stop when they graduate from GAVI support because of unsustainable prices.

A solution is transparent and consistent tiered pricing for vaccines. The idea is simple enough: to have countries pay prices according to their ability to pay, as determined by their varying level of national income. To some extent tiered pricing for vaccines already exists, with GAVI countries paying the lowest price and non-GAVI, lower middle-income and middle-income countries representing a middle tier.8 For example, the price of pneumococcal vaccines for GAVI countries, $3•30—3•50 per dose, is less than 5% of the $102 price that is paid for pneumococcal conjugate vaccines in the USA. However, prices in these slightly higher-income countries can vary substantially on the basis of the country’s size, region, and predictability of financing, and there is a lack of transparency about who is paying what because most of these countries negotiate individually with manufacturers. There is also the vaccine revolving fund of the Pan American Health Organization (PAHO) that bands together the PAHO countries in a buying group and requires companies to provide them with one offer for all countries at the lowest worldwide price. PAHO includes some low-income countries such as Haiti, which has a GNI as low as $760, but 70% of its members are middle-income or high-income countries with a GNI of more than $4085 and ranging up to $106 000. Yet, although it cuts across tiers PAHO has nevertheless achieved large discounts through this regional buying model. Indeed GAVI has benefited from lessons learned from this fund and from their granting of a waiver to the least price clause such that the poorest countries, including those within PAHO, can receive vaccines at the lowest prices. But given that this pooling cuts across a very broad range of GNIs and because of the single price principle, middle-income countries both within the PAHO region and outside might not obtain the best possible price.

Instead, I believe that country access and ultimately company interests would be better served by a more structured global framework of price tiers, each based on country income (with use, for example, of World Bank income groupings: low income, lower-middle income, upper-middle income, and high income).4 Because growth in GNI does not always represent country investment in social development and local risk situations can vary, criteria beyond GNI could additionally be used to tier countries (eg, burden of disease, immunisation coverage, etc). Furthermore, this approach could include banding within price tiers on the basis of factors such as volumes and certainty of demand. Public markets would of course be treated differently than private markets.8 To help graduating countries to transition from the GAVI environment to the wider tiered model, graduating countries could have a so-called grandfathering clause, which would allow them to keep the GAVI price for up to 5 years, following the end of GAVI support, before moving to the cost structure of their new income tier.

Tiered pricing is particularly relevant for vaccines. Technically challenging product development and high fixed costs contribute to high barriers to entry. For many vaccines, to sustain more than three or four manufacturers is difficult. This factor limits competition, which ordinarily would alone be an effective lever to drive down prices. Thus, tiered pricing could apply for all GAVI vaccines but would be most crucial for new vaccines when there are particularly few manufacturers.

Because giving industry visibility on demand is crucial to help to plan production, achieve appropriate scale-up, and ultimately secure lower prices, an instrument could also be put in place to support non-GAVI, lower middle-income countries through pooled procurement mechanisms to achieve the lowest available prices within a given tier. This approach would need to be supported by careful demand forecasting, and potentially some demand guarantees, to enable countries to procure at a GAVI price plus a fixed step premium for each tier.

So although it is for manufacturers to set the prices of vaccines, the tiers would act as a guide irrespective of whether they are multinational corporations or developing country vaccine manufacturers. Most countries, rich or poor, already tend to base the decision on whether to publicly fund the introduction of a new vaccine on some form of cost-effectiveness model, so to set the price in the tier according to that equation would make sense.9 The challenge is having reliable data to make such an assessment, so in the absence of such data GNI usually serves as a reasonable proxy.

For many middle-income countries, prices are often still too high to finance vaccines for their national programmes. Furthermore, the lack of demand predictability and transaction costs that come with dealing with countries on an individual basis, together with the fear of eroding profit margins in high-income countries because of price (and therefore implied cost) transparency, have historically resulted in keeping prices high.

But since GAVI’s inception much has changed. GAVI has shown how it is possible to provide demand predictability for low-income countries and a subset of lower-middle-income countries, and to use this information to secure lower prices. There have also been significant efforts by the vaccine industry to make new vaccines more affordable, as shown by the price reductions for rotavirus, pentavalent, and human papillomavirus vaccines,10 the latter going from open market prices in excess of $100 and lowest public sector price of $13 a dose, to a GAVI price of $4•50. With expanded and more predictably stable demand, new companies—particularly from developing countries—have begun to serve these markets, thus creating supply security and healthy competition.
A balance between fair access and fair profit levels can be struck.11 Moreover, the global health community should not be opposed to manufacturers making a profit, after all vaccines are not a commodity market. Indeed we should be mindful that to some extent overcapacity is needed for supply security, and that in view of the public health benefit we should be willing to pay for it. By giving countries prices for vaccines that reflect their ability to pay, this type of approach would give countries the ability to plan programmatically and financially, which should ultimately create better predictability. In return, vaccine companies will be able to access wider markets, increase their production volumes (which will reduce their manufacturing costs),5 and have the opportunity to do the right thing for people who need but cannot afford their vaccines today.

Declaration of interests
I declare that I have no competing interest.

1 GAVI Alliance. Global level indicators. (accessed Jan 7, 2014).
2 Lee LA, Franzel F, Atwell J, et al. The estimated mortality impact of vaccinations forecast to be administered during 2011-2020 in 73 countries supported by the GAVI Alliance. Vaccine 2013; 31S: B61-B72. PubMed
3 GAVI Alliance. Country eligibility policy. (accessed Jan 7, 2014).
4 GAVI Alliance. GAVI Alliance graduation policy. (accessed Jan 7, 2014).
5 Plahte J. Tiered pricing of vaccines: a win-win-win situation, not a subsidy. Lancet Infect Dis 2005; 5: 58-63. Summary | Full Text | PDF(82KB) | PubMed
6 The World Bank. How we classify countries. (accessed Jan 7, 2014).
7 Glassman A, Duran D, Sumner A. Global Health and the new bottom billion: how funders should respond to shifts in global poverty and disease burden. Washington, DC: Center for Global Development, 2012. (accessed July 29, 2013).
8 Yadav P. Differential pricing for pharmaceuticals: review of current knowledge, new findings and ideas for action. London: Department for International Development, 2010. August, 2010 (accessed Jan 7, 2014).
9 Lopert R, Lang DL, Hill SR, Henry DA. Differential pricing of drugs: a role for cost-effectiveness analysis?. Lancet 2002; 359: 2105-2107. Summary | Full Text | PDF(74KB) | PubMed
10 Cutts F, Franceschi S, Goldie S, et al. Human papillomavirus and HPV vaccines: a review. Bull World Health Organ 2007; 85: 719-726. PubMed
11 Danzon P, Towse A. Differential pricing for pharmaceuticals: reconciling access, R&D and patents. Brookings working paper 03-7. (accessed July 19, 2013).