Medical workers tend to a patient suffering from COVID-19 in Holy Family Hospital, New Delhi, April 29, 2021. Photo: Reuters/Danish Siddiqui
It is only because vaccination is a public good and the most cost effective way of reducing mortality and morbidity due to infectious diseases, that all Western countries are vaccinating their populations free of cost. These countries are not socialists and are market driven, like the US. They are doing so even when a majority of their populations have enough per capita incomes to afford a $20 shot. If that is so, why does our leadership in India think otherwise?
It is impossible to understand why a robust and faultlessly administered vaccine procurement policy is being set aside or why a public good has become a market commodity. Clearly, for the government their notions of free market ideology seem to be of greater import than saving lives and getting India out of the horrific mess we are in right now. Nothing else explains the differential and multiple pricing strategies of a product that is so critical for the country’s health security.
The public good argument may not cut ice with the market fundamentalists who only look at super profits. In that case, the government should at least be open to the concept of economic efficiencies and rational uses of resources. India’s economy has tanked to its lowest. The economic impact of COVID-19 has been disastrous at the macro level, with a dramatic shrinkage in revenues, and at the household level, with the loss of access to basic goods like food and minimum incomes, besides the need to rebuild the battered health infrastructure and broken lives.
This is, therefore, the moment when our vaccine companies ought to have provided the vaccine at the marginal cost of production or at least cost plus normal profit of 10%. Instead, what we see is price gouging.
Crunching the numbers
Some number crunching will help put the issues in perspective. There is an absence of advance purchase agreements or a national vaccination plan that could, for example, have comprehensively laid down strategies covering all aspects from production to delivery. We could have, for instance, planned to ramp up on a war footing the dozen-odd institutions having BSL 3 facility to scale up vaccine production, with other pharma companies to fill and finish so as to scale up the entire supply chain to meet our enormous demand and have states prepare micro plans to establish vaccination sites for maximising reach and so on. Instead, our strategy focused on just two companies to meet our needs.
The Serum Institute of India currently manufactures 60 million doses a month that they hope to expand to 100 million doses from July with the financial assistance of Rs 4,200 crore from the Government of India and GAVI. Starting May, they will be able to manufacture 1.2 billion doses per annum starting till July 22. Of this, it has contractual obligations to COVAX and other partners, leaving about 800 million for India.
The Bharat Biotech’s capacity is currently 10 million, to be ramped up. With assistance of Rs 1,500 crore given by the Government of India, bilateral agreements seem to have been forged with other companies to ramp up availability of 700 million doses by July 22.
Thus, as per such public announcements, India is likely to have its required doses by July 22, not counting entry of other vaccines like Sputnik as the supply and price is still unclear. As of now for the next two months, India has 122 million doses to be shared between external obligations and domestic demand.
Against the above, the government has been steadily expanding the eligibility criteria. It now covers all adults that number 964 million persons. Of this, the Central government appears to be committed to saturate 300 million persons consisting of healthcare providers, frontline workers, essential personnel like armed forces, and all those above the age of 45. Against its requirement of 600 million doses, they have already utilised about 120 million and have no stockpile, leaving a demand for about 500 million doses.
On April 20, an additional target of 634 million persons in age group 18-45 years have been added. If 70% of them are vaccinated for herd immunity to help transmission, 444 million persons will need to be vaccinated requiring one billion doses (including wastage). Assuming again about 20% of the vaccine will be privately marketed at about Rs 850-1,000 per dose of Covishield and Rs 1,750-2,000 of Covaxin, the state governments’ would require 800 million doses. So the total government demand for vaccines to cover 100% of 45+ and 70% of 18-45 ages comes to 1.3 billion doses.
The economics of procuring vaccines at Rs 150 per dose, after accounting for a decent profit, by the Central government as a single procurer for government requirement, comes to about Rs 19,500 crore. At Rs 200 per dose, the manufacturer makes a super profit and it will be the most expensive vaccine procured by governments under the Universal Immunisation Programme. Even so, it would still mean an outlay of Rs 26,000 crore against a provisioning of Rs 35,000 crore for vaccine procurement in the budget 2021-22.
The price advantage that one gets in bulk procuring is lost when the market is fragmented. As per the current vaccine policy, the total public spend for the Central government will be Rs 7,500 crores and Rs 34,400 crore for the states at an average cost of vaccine to be Rs 430 per dose – a total of about Rs 42,000 crore. Given the strained economy, surviving on loans, it is unclear and baffling why the Centre would not want to leverage its market power and persist on fragmenting the markets that will only bleed the states more and disproportionately benefit vaccine manufacturing companies. Besides, state governments juggling vaccines procured for multiple prices by multiple entities give ample scope to blackmarketing, leakages etc. creating avoidable chaotic conditions.
A deep dive of states left with the responsibility of vaccinating adults below 45 years gives interesting insights. Bihar, for example, would require 60 million doses (including 10% wastage) to cover 70% of its 40 million target population. Given its low purchasing power, about 10% may be able to buy vaccine in private markets necessitating a state spend of the about Rs 2,580 crore. Bihar already has one of the lowest public health spending, incurring a per capita expenditure of Rs 616 (2018-19) against the national average of Rs 1,148. In terms of proportion of revenue budget, Bihar continues to spend about 4.9%. The underfunding is substantial, given the negligible basic health infrastructure, necessitating massive capital investment to build primary care facilities, hospitals and diagnostic laboratories as observed by the 15th Finance Commission.
Bihar has a high maternal mortality rate of 139 per one lakh births; 40% percentage of children are stunted; and there is one government doctor per 37,288 people. It is also home to the highest number of migrants, who have experienced substantial income shocks due to COVID-19. Instead of Bihar being helped with additional resources to address basic needs, the Central model will be forcing it to spend Rs 2,580 crore to buy vaccines, including the entire cost of logistics. Given its low resource base, this will be achieved by diverting essential welfare expenditures, further exacerbating the already unforgivable situation.
Tamil Nadu is three time richer than Bihar and spends Rs 1,653 per capita on health. The state will be required to incur about Rs 1,489 crore to provide vaccination to 70% of its 30 million young adults, assuming 25% will afford the private sector and providing for 10% wastage. Given the COVID-19 impact, Tamil Nadu will also need to divert this money from other essential expenditures.
What emerges from the above is that under the current Government of India policy of differential pricing for the Centre and states, and pushing the states to the market for its vaccines, the poorer states will be paying more. So while states are penalised, the pharma companies are favoured. What is worrying is that besides interstate inequities, there will also be a divide between those with the ability to pay being totally protected against those who do not. It may also push several poorer classes to divert their own resources from essential needs to buy vaccines, inducing greater hardship. The Central government policy as it stands is clearly inequitable and harsh.
But the virus knows no boundaries and is unafraid. It will bounce back again even as public policy leaves out swathes of unprotected population groups for it to ravage. It’s a policy that needs to be urgently revised. The Central government needs to use its market power to procure vaccines the people need and provide it for free. That is the least the Central government can do to reassure a devastated people.
K. Sujatha Rao is a former Union health secretary.