Meeting the challenge of rising vaccine costs
Negotiate well, buy smart, and store wisely are 3 steps to keeping immunizations a fiscally viable service offering for your patients.
The high cost of purchasing and administering vaccines has been a topic of discussion by pediatricians for some time. New vaccines cost much more than the older ones, and even the old vaccines have consistently increased in cost over the years. This has caused some pediatricians to consider dropping vaccines from their practices altogether.
“The problem is biggest for physicians who are in small private practice. It is even worse for solo practitioners because that means that they have to purchase the vaccines themselves,” says Ruth Macklin, PhD, professor in the department of epidemiology and population health at Albert Einstein College of Medicine in the Bronx, New York.
Geoffrey Simon, MD, a pediatrician in practice in Wilmington, Delaware, agrees. “My fear is that pediatricians will say that this is too much of a headache and that they are going to get out of this business. I think that’s shortsighted. Many of the services that we do and that we want to do, such as developmental surveillance and growth and nutrition, happen during checkups. A lot of parents just focus on the shots. The immunizations are almost the lead-in to all these other services that are very important for children,” he says.
While there is no refuting the fact that offering vaccines to children is expensive, there are some steps that practices can take to understand and lower their costs.
There are 2 costs for practices that provide vaccines to their patients: payment for vaccine purchase and payment for vaccine administration. A recent study published in Pediatrics has found that many physicians are dissatisfied with payment for both vaccine purchase and administration from third-party payers.1 Additionally, the study found that physicians have a variety of strategies for handling the uncertainty of insurance coverage for new vaccines, which tend to cost physicians more up front than older vaccines because of the expensive trials required to bring a new vaccine to the marketplace.
This national survey included 190 private-practice pediatricians and 181 family physicians.1 Interestingly, physicians’ level of dissatisfaction varied significantly by payer type for payment for vaccine administration, but not for payment for vaccine purchase. With regard to insurance payment for vaccine administration, the lowest reported level of satisfaction was Medicaid payers (63% of physicians were dissatisfied), followed by the Children’s Health Insurance Program (CHIP; 56% dissatisfied) and managed care organization/health maintenance organization (MCO/HMO; 48% dissatisfied). There were no significant differences among the specialties in level of satisfaction with insurance payment for vaccine administration. On average, Medicaid pays doctors $9.45 for vaccine administration, compared with $16.62 for private insurance companies.
Many physicians were mostly dissatisfied or very dissatisfied with every payer with regard to vaccine purchase.1 More than half (52%) were dissatisfied with MCO/HMO payers; 47% were dissatisfied with CHIP; 45% were dissatisfied with preferred provider organization (PPO) payers; and 41% were dissatisfied with fee-for-service payers.
This dissatisfaction can have a significant impact on vaccine delivery. In this survey, 10% of physicians said that they had seriously considered discontinuing the provision of childhood vaccines to privately insured patients because of the cost.1 Additionally, 24% had considered the possibility, but not seriously, and 66% had never considered it. Those who considered discontinuing vaccines had higher scores on the dissatisfaction scale of insurance payment for vaccines than those who had never considered discontinuing vaccines.
The survey asked about the following vaccines: human papillomavirus (HPV) vaccine, quadrivalent meningococcal conjugate vaccine; tetanus-diphtheria-acellular pertussis vaccine, and rotavirus vaccine.1 The most common strategy that physicians used for dealing with uncertainty about insurance payment when new vaccines were first made available was to inform patients and their parents that their health insurance might not cover the vaccine and that they might be billed for it. Other common strategies included the following:
Ask patients to determine whether their health plan will cover the vaccine before administering the vaccine.
Delay offering the vaccine to any patients until most health plans are covering it.
Ask patients to sign a statement indicating that they will pay for the vaccine if their health plan denies coverage.
Ensure that each patient’s health plan will cover the vaccine before offering it to the patient.
Most (95%) physicians reported using at least 1 strategy, while 67% reported using 3 or more strategies.1 Higher percentages of physicians reported using each strategy for HPV compared with the other vaccines. Pediatricians were more likely than family physicians to delay offering all 4 vaccines surveyed when insurance coverage was uncertain. More than half (60%) of physicians reported that at least some of the parents in their practices had deferred or refused a vaccine because of cost or insurance coverage.
According to the American Academy of Pediatrics (AAP) 2012 Business Case for Pricing Vaccines and Business Case for Pricing Vaccine Administration, these are 2 separately reportable expenses and need to be appropriately covered by payers.2
Direct and indirect costs of vaccines typically range from 17% to 28% of practice costs, depending on the practice. “After personnel, this can be a practice’s biggest expense, and we are having to deal with the cost of product rather than just the cost of providing professional services. The price for giving the vaccine tends to vary a lot,” Simon says.
Complete vaccinations through 18 years of age for 1 child cost approximately $2500 in 2012 and required 35 separate appointments for patients to be vaccinated.1 “In 2001, the introduction of Prevnar 13 doubled the cost of immunizing a child over the course of his or her life,” Simon says.
The AAP has developed a helpful tool for calculating vaccine costs in your practice.
Increasing your bottom line
Now that you know your costs, how can you lower them? Simon says that there are 3 things that pediatricians can do: buy wisely, protect your investment, and charge appropriately for your services.
There are 2 well-known options for buying wisely: group purchasing organizations (GPOs) and physician buying groups (PBGs).3 Group purchasing organizations tend to be operated by hospital-affiliated purchasing programs and are able to combine orders from practices, hospitals, nursing homes, and other medical facilities to receive volume discounts from specific vendors. Pricing with this type of organization is typically not as low as with PBGs, but these groups often offer vaccines from all 3 manufacturers, and there is usually no requirement to use a specific manufacturer’s products.
“The concept of a group purchasing contract is like Sam’s Club or Costco. If you buy a certain amount of vaccines and also are a loyal customer, you receive a discount of an additional 5% to 12% off the list price. For the group purchasing organization, if they can meet certain numbers, then they get a rebate from the vaccine manufacturer for moving that many lots,” Simon says.
In contrast, PBGs offer the option of obtaining the most favorable pricing.3 However, participating physicians can use only vaccines produced by the contracted manufacturers. These groups typically offer up-front discounts based on their respective contract terms with manufacturers.
One example of a PBG is PediaFed’s Vaccine Purchasing Program. It is a free service designed for participating practices to obtain vaccines at the lowest possible cost. The program negotiates directly with vaccine manufacturers to obtain reduced prices. It gives medical practices the opportunity to purchase vaccines at a substantially lower price by joining together to form a large negotiating entity. Managed by physicians and medical professionals, participating practices vote on which contracts to accept. Also, almost every vaccine earns a rebate in addition to the already low contracted price.
The AAP recommends evaluating both GPOs and PBGs to assess which program is right for your practice before making the commitment to join. In addition, the Academy has compiled a list of purchasing groups, which can be found on its immunization website.
Simon says that, in his opinion, it makes no sense to buy off contract and it makes even less sense to go through a middleman. “Sanofi will sell Merck’s products and other manufacturers’ products, but they take a markup. It is cheaper to buy directly from the manufacturer’s site. You really must have well-trained staff or a well-trained purchaser to know what the contract is and what the pricing is and to keep an eye on that, and also know how much to buy. The second thing in terms of your acquisition is that you want to buy just enough so that you don’t miss any opportunities, but you don’t want to sit on a whole bunch of vaccine that ties up capital and ties up space in your fridge,” he adds.
Once you have purchased vaccines, it is important to protect your investment. According to Simon, practices typically have $8000 to $12,000 of vaccine per provider in the refrigerator at any given time, so they want to have a plan in place for power outages. Also, they will need insurance. “That’s a lot of money in the fridge! There has been a lot of talk about the quality of vaccine storage. Many physicians still use dorm-style refrigerators and freezers. The freezer compartment [can] ice up, and there is no way to exactly control the temperature. Vaccines need to stay in a certain range of temperature. If they freeze, it will destroy them. If it gets too hot for too long, it also makes them ineffective,” he says.
While he contends that a dorm-style refrigerator is inadequate, Simon notes that practices can typically purchase a high-enough quality refrigerator for less than $1,000. In addition to purchasing the right equipment, he adds, it needs to be constantly monitored to look for temperature variations.
The last step is to make sure that you are getting paid enough and to negotiate appropriately, Simon explains.
1. O’Leary ST, Allison MA, Lindley MC, et al. Vaccine financing from the perspective of primary care physicians. Pediatrics. 2014;133(3):367-374.
2. American Academy of Pediatrics. The business case for pricing vaccines. The business case for pricing immunization administration. Available at: www2.aap.org/immunization/pediatricians/pdf/thebusinesscase.pdf. Revised March 2012. Accessed August 1, 2014.
3. American Academy of Pediatrics. Immunization. Vaccine purchasing groups. Available at: www2.aap.org/immunization/pediatricians/GPO.html. Updated June 30, 2014. Accessed August 1, 2014.