My biggest challenge writing this blog entry is trying to stay on topic.  I want to discuss and argue about every element of vaccination and the pediatric motivation to vaccinate.  I want to explain the difference between "making money" and being profitable (revenue != financial gain).  I want to question the fallacious argument that Big Pharma is both incredibly greedy and allows independent pediatricians to make money on their vaccines.  But that's not why I am here.  I want to directly inject some facts into the discussion, at least as much as I can muster.  And I do have some glorious facts.

For years, I've shared and discussed the data and experiences of our clients related to the business of vaccines.  In addition to a presentation obviously entitled, "The Business of Vaccines" given across the country (the AAP used to have me do it at the NCE but, sadly, has dropped the topic), I've posted things here, here, here, and even here last week (for example).  We know a lot about vaccine costs and payments and this work is very important to our clients.  So, how can we contribute factually to the public discussion? 

By sharing the data, of course.  There are two pieces of this puzzle: the cost of the vaccines paid by independent pediatricians and the payment received for those vaccines.  Some - most - of this data is public.  We're going to gather, organize, and calculate it for you!

Vaccine Costs

There is one primary public source for vaccine costs, and that is the CDC's Average Sale Price data (ASP or Public Sector Price - PSP).  This differs from another, commonly used value - Average Wholesale Price (AWP) - in that it reflects the actual net costs to the purchaser, including things like bulk discounts, rebates, etc.  It took me a while to understand the non-intuitive labels (doesn't "wholesale" mean that it's cheaper?) but ASP is less than AWP and generally reflects a more realistic purchase of vaccines directly from the manufacturer.  Further, ASP data is freely available, and backdated, on the CDC website above.   AWP often has different values and is hard to pin down, in my experience.

There is a second source for vaccine costs, and that comes from our many friends in the GPO business.  Those numbers are trade secrets and although there are differences among the GPOs, the results are broadly similar.   You'll see what that looks like below.

Vaccine Payments

This is something we have.  We grabbed a year's worth of non-Medicaid vaccine product payments from across the country.  We broke them down by product and compared our clients' payments to the known vaccine costs.

And now, in a collaboration between PMI and the AAP, we can much more easily access fee schedules from any payor/practice/state in the country.  I wrote about it here, yesterday.  Paul's data differs from ours for a couple reasons, which I'll explain below.

Results: Vaccine Revenue and Margin

With a few hundred million dollars' worth of vaccine product payments, here's what we learned:

• Vaccine product revenue makes up just under 25% of the revenue in our clients' practices.  
• If you compare our clients' real payments to the ASP of the products, the margin is negative 4%.  I'll say that again: practices have a negative gross margin on vaccine product using public prices.
• Most (nearly all) practices purchase vaccines through a GPO (noted above), which provides pricing better than ASP.  If we use the pricing of one of the best-in-class GPOs, the practices' gross margins improve to 20%.
• If we compare the best-in-class GPO costs to PMI's fee schedules, the practices improve their gross margin to 24%.  

Conclusions

• Unlike assertions by HHS, pediatric vaccine revenue is not 50% of their businesses.  Still, 25% is a lot!
• There is a difference between gross margin and net margin.  In standard retail sales, gross margins range from 30% (grocery stores) to 300%+ (furniture, jewelry).  Google it!  Pediatric vaccine product margins approach the lowest end of retail sales gross margins.
• The gross profit difference between ASP and GPO pricing is substantial and tells us that without GPOs, some practices would be out of business.
• Once you include the direct additional costs of carrying vaccines (which are significant), the AAP has measured a need to be paid 17-28% more than cost in order to break even.
• PMI's data differs from ours for a few reasons:
  • First, his data includes contracts from health care systems, hospitals, etc.  Accurate, but not reflective of most independent practice fee schedules.
  • Second, his data reflects the best-case scenario, which doesn't include a 5% wastage and non-payment understanding, which aligns with what we're actually seeing.

So, what do you think?  What did I forget?