Moderna’s CEO Bancel Suggests That Lower Demand For The Covid-19 Vaccine Is A Justification For Quadrupling Of The Price

Last month, during a Senate hearing in which Moderna CEO Stéphane Bancel testified regarding the quadrupling in list price of the company’s Covid-19 vaccine, he cited lower consumer demand as one of several reasons for the need to raise the price. To an economist like myself, but also to the general public that’s an extraordinarily odd justification. Higher prices don’t reflect lower demand. Rather, they’re a function of a sub-optimal market.

Throughout the pandemic, the federal government has provided Americans with Covid-19 tests, vaccines, and treatments free of charge, but this will soon change. On May 11th, the U.S. public health emergency for Covid-19 will end. The Biden Administration says it’s “transitioning” Covid-19-related costs to public and private markets, including health insurers and pharmacies.

Late last year, the White House Covid-19 Response Team Coordinator Ashish Jha said his “hope is that in 2023, you’re going to see the commercialization of almost all of these products.” Of course, this does beg the question, aren’t all these products being commercialized now? Commercialization is simply the process of doing something principally for financial gain. Moderna and Pfizer-BioNTech are definitely in this to make a profit, even when the federal government is the main purchaser.

As part of the “transition,” Moderna is jacking up the price of its Covid-19 vaccine by more than 400%; from $26 a dose to $130. Moderna has promised a patient assistance program to provide its vaccine for free for approximately 30 million uninsured Americans, though it is unclear if this would also include covering the costs of administering the shots.

While the bump in price will not directly affect the vast majority of Americans, as most will not pay anything out-of-pocket for their vaccine (booster), purchasers such as insurers and pharmacy benefit managers in the supply chain will pay for it. And when payers spend more for healthcare services and technologies, they eventually pass this on to their customers in the form of higher premiums.

In his testimony, Bancel said that an increased price was necessary to account for setting up distribution systems once the federal government is no longer involved, undisclosed “supply chain issues,” and a reduction in the number of orders as demand decreases. Moderna is expecting a 90% reduction in demand for its vaccine this autumn, when the next Covid-19 booster campaign commences. But since when does a reduction in demand lead to a price increase? In a normally functioning market, the converse is true: Lower demand leads to a price decrease. Because Moderna (and Pfizer) appear so sure that the price will increase drastically there’s something off about the market forces at play here.

At the hearing, Senators tacitly accepted the existence of a far from optimal commercial vaccine market. In the U.S., when a product transitions to the commercial market its price can somehow go up fourfold. This should have raised questions, first and foremost about the apparently limited bargaining skills of payers. Granted, the $130 a dose is a list price and there will be some discounts and rebates negotiated off of that number. But the important point is that a dramatic price increase will occur, dictated by the drug and vaccine makers, and that payers will mostly accept it.

To be sure, the patchwork of private payers in the U.S. has something to do with it. Such fragmentation implies payers have less negotiating leverage than the federal government. Yet even so, against the backdrop of a significant drop in demand, the dramatic price increase seems quite problematic.

Bancel also stated that the higher price is a reflection of value. Here, he was on somewhat more solid ground. As he pointed out, vaccines have saved many lives and prevented many more hospitalizations.

Certainly at the current price a Covid-19 vaccine is good value for money by any metric, including the cost-per-Quality-Adjusted-Life-Year (QALY). The incremental cost per QALY gained for the U.S. adult population is $8,200 versus no vaccination. This would increase to over $30,000 with the price increase, but still qualifies as cost-effective, if we assume a cost-per-QALY threshold of $50,000 to $100,000. And for the sub-populations at highest risk of complications from Covid-19, such as the elderly, at the current price the vaccine is cost-saving compared to no vaccination. The calculus changes with a price increase, but for this sub-group the vaccine would still be cost-effective and may even still be cost-saving.

However, for those at low risk of hospitalization and death following an infection, it’s a different story. Presently, cost per QALY gained for this group is $94,000, which would increase substantially with a rise in price, making the vaccine not cost-effective.

In sum, at the higher price there would still be alignment of price and value for the especially vulnerable, but not for others.

Nonetheless, this doesn’t constitute a justification for a price increase per se. Rather, it points to there being a price range within which a vaccine is cost-effective for some, but not for others. In turn, this suggests the need to stratify sub-populations when calculating a product’s value.

The Covid-19 vaccine story is one for the ages, particularly in regard to the public-private partnership that was established to accelerate the further development and subsequent approval of vaccines. The U.S. federal government provided the requisite resources for vaccine development to companies like Moderna, but it also led the procurement and distribution efforts for several manufacturers. Now that’s coming to a close. As the government relinquishes its role as the main purchaser of vaccines, Pfizer and Moderna are quadrupling the list prices. On the whole, their justification for doing so leaves much to be desired.