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'Price Caps Limit Private Sector COVID-19 Vaccinations To Cities'

Covishield and Covaxin aren't the only games in town; let private companies import COVID-19 vaccines with broad approval like Pfizer's and let market forces determine prices. This model is better for a large country like India, argues economist Ajay Shah of O.P. Jindal Global university.

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Mumbai: Over 26 million doses of COVID-19 vaccines have been administered across India by March 11, 2021, and daily doses are approaching 1.5 million. This total includes both first and second doses of one of two COVID-19 vaccines approved for use in India: Oxford University-AstraZeneca's Covishield and the indigenous Covaxin. Vaccine prices have been capped at Rs 250 per dose in private hospitals, while vaccinations in government health facilities are free of cost. Of the Rs 250, private hospitals earn Rs 100 as service charge, while Rs 150 goes to the vaccine maker.

Kiran Mazumdar Shaw, founder and executive chairperson of pharmaceutical and biotechnology company Biocon Limited, commenting on the pricing cap on February 28, said that "vaccine companies feel betrayed as price is too low to sustain", "we are crushing instead of incentivising vaccine industry". Earlier, on January 3, Adar Poonawalla, owner-CEO of the Pune-based Serum Institute of India that is manufacturing Covishield, said that once commercial sale of the vaccine is permitted, it will be priced at Rs 1,000 per dose. Meanwhile, citizens of Israel, the US, the UK, Australia and the European Union are getting vaccinated for free.

Should COVID-19 vaccine doses remain free or capped at Rs 250 in India, or should prices be deregulated to enable quicker immunisation of those who can afford it? How should COVID-19 vaccines be priced to ensure there is enough earning incentive for private healthcare providers at all points in the supply chain, while also ensuring that enough Indians get vaccinated to achieve the larger objective of herd immunity and a return to a normal life? To understand this, we spoke with Ajay Shah, economist and professor at O.P. Jindal Global university in Sonepat in the National Capital Region, who has written and lectured about price controls across several markets, including for COVID-19 vaccines.


Edited excerpts:

Your argument is that it's a basic tenet of economic policy that price controls work poorly, and price limits set for COVID-19 vaccine doses will limit the reach of private vaccinations to cities. Further, you argue that if India wants to expand the reach of COVID-19 vaccines, the vaccine process should be further opened up to private companies. What are the pluses and minuses of doing so?

India is a very diverse and large country, at 3.3 million sq km. It is difficult to operate in many parts of the country, in terms of ensuring a vaccine cold chain or enough trained people in order to conduct vaccinations, and that's a real economic cost. If a private company is going to buy or manufacture a vaccine, operate the cold chain and conduct vaccinations in remote places, this has a cost. Nobody is arguing against the government doing some amount of COVID-19 vaccinations for free. That's great. More power to the government if it wants to organise camps for free vaccination.

But, many people including myself have argued that the government should not limit the ability of private companies to do this business of COVID-19 vaccinations. If a private healthcare provider wishes to import a vaccine and offer vaccinations in India at the price of Rs 10,000, they should be free to do so. There's no harm. A private individual is paying for it. And every person in India who gets vaccinated protects everybody else, because disease transmission and disease burden go down. If somebody is willing to pay from their own pocket, how do they gain when the government comes in the middle and says, "No, I will control the price at which this transaction will take place." This is reducing the gains to society. The more people that get vaccinated, the more those individuals will venture out and live a social and economic life that will restore normalcy in the country.

I just feel that the cost and benefits don't add up and we're much better off having an unregulated environment. Take the contrast between the cost structure of providing vaccinations in a building in a city, as opposed to a remote location. If a private healthcare company offers vaccinations in a building which is able to organise 100 people to get vaccinated, that will generate a decent revenue stream there. But in more outlying places, mobilising 100 people is harder. So effectively, a price control limits private sector vaccinations to buildings in cities.

This argument could apply in many cases and different kinds of markets, but in the case of COVID-19 vaccines, almost all countries seem to be following a similar, if not identical government-administered vaccine roll-out and distribution system. What would you say to that?

Two things. First, this has to be located in the dimension of state capacity. In how many days do you believe a substantial proportion of the population will be vaccinated? That's why the statistics you mentioned at the start become so important. If India is currently at 2 million doses a day, then it will take 500 days (a year and four months) to cover 1 billion people with one vaccine dose, and 1,000 days (over 2.5 years) for two vaccine doses. Are we satisfied with taking 1,000 days to cover 1 billion people--and that's not even the entire population--or do you wish to move faster?

Second, Australia is a small country. Its entire population (25 million) is basically the population of Mumbai, and its government system is highly capable. Within a matter of two months, they will have covered the whole country. So that system works for them. But India is not in the same position. We should look at our conditions and solve our problems, regardless of what other people are doing. We should look at our Indian reality. So if we believe we can get up to 20 million doses a day with the government's present vaccination system, then this discussion would be moot, because we will get to two vaccine doses for one billion people in 100 days.

How will lifting COVID-19 vaccine price controls affect the period of time it takes to immunise the population?

The proposition that I would offer is that there are people all over the country who crave the vaccine. There are older people, people with comorbidities or immunological problems. We can debate whether it's 1 million people, or 10 million, or 100 million. But there are people out there who are keen to get the vaccine and, at present, they are just waiting. There is a government system that is not giving them the vaccine. So, there is demand for the vaccine; now let market forces work. I don't have a recipe for what the price will be. I don't pretend to be a central planner. Say, for instance, maybe a private healthcare facility in Jabalpur will say that we'll charge Rs 5,000 per dose to do the vaccinations, and maybe at that price there is no demand. But the point is, why should the government interfere with that process? Let markets work it out. This is what private firms do. They figure out, 'is there a customer?', 'can I make money getting this to them?'

But price is what people are concerned about. Let's say we do go from Rs 250 to Rs 1,000, the number that Adar Poonawala referred to, though in a slightly different context. What is the downstream effect of the price going up?

I see many things going on in the dynamics. The first is that we should note that Serum Institute of India is not the only game in town. We can import vaccines like the Pfizer vaccine. For some reason, the government blocked the import of the Pfizer vaccine into India. The Johnson & Johnson vaccine can also be imported, and so on. There are numerous vaccines coming up all over the world, and all of them should be used in India. We should have an approval system saying that if any Organisation for Economic Co-operation and Development country has approved a vaccine, it should be fair game for importing it into India and using it on a large scale. All over the world, there is a giant ramp-up of vaccine manufacturing under way. And there will be many, many price points at which various people in India will try to obtain certain vaccines. We have to let markets work it out and we will discover at what prices which vaccines are available. We don't know the answer. No civil servant knows the answer.

Then there is the question of managing the cold chain, or the temperature required to store a vaccine. The Pfizer vaccine requires a more careful cold chain, the Serum Institute's Covishield is less finicky, and so on. Here is one novel idea. The Johnson & Johnson vaccine [needs] one dose, not two. Maybe there are remote locations in India where, from an organisational and operational perspective, it is actually easier to just go to one place, deliver one shot and return. In principle, a private company will be willing to pay 2x the money for that one dose of the vaccine, because it greatly reduces their logistics of cold chain cost. I am just saying that private companies will discover what to do.

So in the specific case of COVID-19, you argue for both freeing up vaccine prices and freeing up imports?

I'm saying let markets work out these things. There are customers who want the vaccine, there are producers who want to sell a vaccine. There are numerous healthcare firms in India. Many employers will sign a bulk contract with a healthcare firm to vaccinate all of their employees and their family members. You can't predict these things. Let's not be a central planner. Let's not try to have a government that is driving this whole thing.

Another concern is the timing and the time period for vaccination. At this point, the approach that we have taken as a country is to vaccinate those who are older, aged 60 years-plus, and those between 45-59 with poor immunity. The next phase of COVID-19 vaccination could see the age group eligible to receive the vaccine extended to those between 50 and 60 years of age. If you were to bring in free pricing, or some other kind of freedom like importing vaccines, won't the people who need to receive it first be deprived of the public health approach of vaccinating sequentially and chronologically by age, and so on?

I'd like to respond in two parts. First, nobody is saying that the government system should scale back its vaccination programme. It should vaccinate more people. But please give freedom to people to pay for something from their own pocket and receive it. For an analogy, let the government run more schools, but don't ban private schools.

Also, I don't believe that anybody has an accurate understanding of the order in which people should be vaccinated. No central planner knows the correct answer. Let me explain. Each person has a different age and a different life design. Maybe I have more contact with people, maybe I have less contact. Maybe I'm a teacher and I interact with more students, thus I have high contact. Should I be a high or low priority to get the vaccine? No central planner knows everything and a correct answer for the whole country. People have their own threat perception based on their livelihood, their social life. Maybe you meet more people. Maybe I'm more of a recluse and sit at home. Based on our threat perception, we will each determine what is our willingness to pay. This is called market economics. We do this in everything. We should do it here as well.

Has the approach of having, or not having, price controls for medicine, in general, worked in previous pandemics or epidemics, such as with HIV/AIDS?

We've never really seen a situation like this before. For example, when the smallpox campaign was done in India, there was no private sector involvement. It was entirely a government-led mobilisation. If the government system was able to cover a billion people [with COVID-19 vaccination] in 100 days, there's nothing to talk about. But the thing is, that's not where we are. We are at 1.5-2 million doses a day. Also, under a certain distribution model where we are using certain large facilities and covering certain catchments, there are large parts of the country that are not being touched by the government's vaccination system. Every additional person who is vaccinated is a pure win for society. So why should the government come in the way of telling healthcare firms that 'you have a customer, but I will prevent you from doing a vaccination'. As I said, let the government run schools, but don't ban private persons from running schools.

You've looked at seroprevalence studies and said that it was your belief that COVID-19 has swept through the country. What's your sense now, given the pace at which India is vaccinating people, of where those two lines would intersect: those being vaccinated and those who are already immune or resistant because of seroprevalence?

It's become a little complicated. In some ideal world, we would have ample seroprevalence studies and be able to classify various bins of the population. For instance, if you are a school teacher aged 40, then this is the likelihood that you have COVID-19 antibodies, so here is the advice about whether you should take the vaccine, or not. We don't have those studies, which again is why we should have a more organised and decentralised market-based approach. It seems to me that in each neighbourhood, in each community, there will be a threat perception. Are people falling sick, or not? Seroprevalence numbers are varying across the country. In places where the disease is more active, more people will step forward to get vaccinated. And the market-based system will understand that, whereas the government-based system tends to be a fixed drill, a fixed programme, that we all get marching orders to obey. It tends to not be so flexible and responsive to local conditions.

When you advocate for freeing price controls and import of COVID-19 vaccines, you're placing trust in the private sector's ability to deliver in every sense, from manufacturing good quality vaccines to ensuring their distribution, and that no one gets ripped off or cheated along the way. Are you sure about that? After all, that is why the government is wary of handing out too much of the vaccination effort, and too soon to the private sector.

I would like to respond in two parts. First is that at every step of the COVID-19 story, the private sector has done reasonably well. It massively scaled up the production of personal protective equipment. Ultimately it was the private sector that scaled-up testing, and so on. The Indian private healthcare sector has considerable capabilities, and it's no different with vaccinations. It's actually not complicated. You buy the vaccine, maintain the cold chain and administer the shot. There's no reason why the private sector will particularly fumble in doing that.

Second, is that we should not assume that the government is so perfect in doing these things. We have ample evidence that the immunisation programmes run by the government don't work so well. The immunisation coverage of the government system is quite poor. We do not know that the cold chain as managed by the government works perfectly. So, I think there are flaws on both sides and we live in a country where both the private system and the public system work reasonably badly. But, on balance, if you think that about 20% of all vaccines in India are duds, the answer is still to get 1.2 billion people vaccinated for COVID-19, so that out of these, 1 billion vaccinations will be not duds. And then we'll be pretty much done with this epidemic.

We welcome feedback. Please write to respond@indiaspend.org. We reserve the right to edit responses for language and grammar.

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