Each state, hospital chain and pharmacy can now source its own vaccine. What is the price they’ll be forced to pay?
On 20 August last year, the National Expert Group on Vaccine Administration (NEGVAC) was constituted and met for the first time. It announced that all procurement will be done centrally and also issued a very clear directive to the states asking them “not to chart separate pathways to procurement". Since then, the NEGVAC has met 23 times but hasn’t ever discussed any changes to this directive on centralized procurement. However, in a meeting this week chaired by Prime Minister Narendra Modi, the Centre overturned this decision and has now allowed the private sector as well as the states to buy vaccines directly.
What this means is that our covid-19 vaccination programme will now transition from a tightly-controlled procurement and distribution model into a decentralized model, where each state, each hospital chain, and each pharmacy will get to decide the amount, the price, and the supplier of the vaccine.
This step towards decentralized procurement is, in some ways, a significant reform measure, even if it has come rather late in the day. After all, each state has a different demographic profile, level of disease prevalence and health system capability.
But what the states gain in manoeuvrability, they will lose in pricing power.
Already, the Serum Institute of India (SII), the country’s largest vaccine manufacturer, has indicated that the company would charge state governments at least twice the amount it charged the Centre (which was capped at ₹200 per dose).
It is not the first time that states in India will be buying vaccines from the open market. The pentavalent vaccine, the anti-rabies vaccine and the anti-snake venom serum are already procured by the states directly from the open market.
But it remains to be seen how the ensuing dash to procure vaccines will play out in the middle of a pandemic.
How much vaccine should a particular state procure, for instance? Give all the uncertainties, what level of inventory should it stock? Is there enough capacity in each state to determine what viral variant is most prevalent and then decide which vaccine would be most suitable?
We are in the middle of a second wave, which has hit the country really hard. Multiple new and more virulent strains of the virus have emerged, but the government dragged its feet on vaccinating the population. With the process now moving to a decentralized model, the implications are significant.
In the early stages of the pandemic, a similar situation arose in the United States where an acute shortage of personal protective equipment (PPE) and ventilators resulted in intense competition among states, which tried to outbid each other in order to procure critical supplies.
If something similar plays out in India in the coming months vis-a-vis vaccine procurement, the outcome might be highly inequitable since larger and wealthier states like Maharashtra will benefit while smaller states with less financial resources will lose out.
It is revealing that even in the ongoing vaccination drive, 60% of the cumulative doses as of 12 April were administered in just eight states—Maharashtra, Rajasthan, Gujarat, Uttar Pradesh, West Bengal, Karnataka, Madhya Pradesh and Kerala.
At least six states are in acute distress, as they currently contribute to more than 50% of the daily infection load. These states will not have the space to negotiate hard. They will have to pay a higher price than the states that can wait a bit and bargain harder. Will the distressed states therefore tend to pile up stock and buy whatever the market offers? Will this also not result in lesser supply to poorer states?
There are enough instances of drug and vaccine manufacturers putting down stiff pre-conditions whenever states have negotiated directly, especially when under stress due to short supplies. This does put a great deal of pressure on smaller states that tend to have a poorer drug handling infrastructure.
Procurement systems at the state level are amazingly diverse. The much-heralded Tamil Nadu model of a completely centralized pooled procurement mechanism is built upon an elaborate structure of warehouses, transportation facilities and an IT-based system that tracks all inventory. Kerala does this at an even bigger scale. Both these southern states have spent a significant amount of capital investment to build up their health infrastructure.
Maharashtra also has an existing decentralized procurement mechanism that buys nearly 2,000 drugs in the open market.
For these three states, buying directly will not be a problem, unlike many other states which suffer from poor physical and human resource capacity.
In the coming months, the prospect of large-scale vaccine wastage would also be a significant worry. Demand forecasting would be poor; inventory management would be inefficient. This is the reality in many of India’s states.
There is also the acute problem of delayed payments, harassment in the clearance of bills, and charges of corruption all around. These transaction charges would only push up the unit price of vaccines at the state level in particular states.
There is precedence for this. A most appropriate case in point is how medical devices are procured by various states under the National Health Mission. The device manufacturers would treat different states differently, based on scale, past relationships, available healthcare infrastructure, payment guarantees, levels of corruption and offset agreements.
For instance, it’s inevitable that the Maharashtra government will have tremendous influence over Serum Institute in the coming months, as the Telangana government will have over Bharat Biotech. In many ways, these state governments will have the first right of refusal.
Race to vaccinate
As different states buy different vaccines, will this also not lead to a confused citizenry? Amidst significant vaccine hesitancy that the country is already tackling, this plethora of suppliers will give rise to a fresh infusion of WhatsApp messages and rumours about people suffering side effects. Even with just two vaccine brands, we have seen enough scepticism.
With vaccine hesitancy playing a huge part in the low vaccination uptake, the most optimistic projections estimate that India will vaccinate 40-50% of its population by December 2021.
Current covid-19 vaccination coverage across states ranges between 4 to 25%, with Uttar Pradesh at the very bottom. At the current average rate of around 3.5 million doses per day, and assuming that the pace of vaccinations would remain stable, India would be able to vaccinate 60% of its population by May 2022. To reach herd immunity, three-fifths of the population needs to be vaccinated, which would require almost 1,450 million doses.
What options does this new mechanism leave the states with? Politically, does a state chief minister have a choice? The Uttar Pradesh supremo Adityanath was the first off the block, promising everyone above 18 free vaccines in his state. The Prime Minister himself had promised the same to everyone in Bihar recently. Each government will have to follow suit now. Or risk losing the next election.
Therefore, somehow or the other, each state will be committed to go for universal vaccination for free. The problem therefore will be with the capacity to deliver and the challenge in cajoling the sceptics to take the vaccine.
Uttar Pradesh particularly, with its burgeoning numbers, a broken health system and a ramshackle procurement policy will have a huge problem. Its cities are already gasping for breath, a grim reminder of the 2017 Gorakhpur tragedy where 60 children died due to oxygen deprivation.
A good indicator of the likely pace of covid-19 vaccination in any state is past performance in the routine immunization program. UP, Chhattisgarh, Assam and Gujarat are among the laggards in this area and the reason for their poor performance are a combination of poor health systems and exceptionally low vaccine offtake. Vaccines against covid-19 will need to surmount most of the same problems, apart from a new one: for the first time, these states are vaccinating adults.
Here, price will play a big role. Any price tag on the injection will further dampen demand. In times like these, where more than a 100 million workers have become impoverished during the lockdown last year, any further pressure on the wallet will drive most adults away from the vaccine.
The way forward
Having made a bold decision that goes totally against the centralization streak that characterizes our federal government, it will be important for the Centre to stick to this new system.
Let the health subject indeed be given back to states. Exactly one year ago, the central government wouldn’t even allow Kerala to ease the draconian lockdown even when the state had shown remarkable improvement in tackling the pandemic at that point. The Centre has finally given up its penchant for control and that is indeed welcome. The next step that our health system must take is to work on a long-term approach. The haste with which the Union government had proclaimed victory over covid-19 has proven to be such an embarrassment with tragic consequences.
This time around, we need to be ready for a third wave, which may or may not come. There is an urgent need to encourage and sponsor state expenditure in building oxygen capabilities, warehouses, cold chains and delivery mechanisms.
What we need is a long-term approach to handle emerging epidemics. The bird flu, or H5N1, is a deadly disease and has been lurking for at least 15 years. It kills nearly 60% of those infected, and we are saved till now because it has not come to India with the same ferocity as covid-19. We need to at least now develop a cohesive strategy that brings in the Centre, states, private sector, multilaterals and civil society.
Very importantly, we should not restrict our own options. By restricting our suppliers to two vaccine makers, we lost out on several vaccine manufacturers who could have delivered additional vaccines a long time ago. A duopoly such as this in a demand surge will do what it can and extract huge amounts of money from a hapless government that has no choice but to pay the ₹4,500 crore that it has now agreed to.
Finally, the government at all levels must get its communication strategy right. There are multiple messages going out. Most of our leadership is seen without masks, advocating home-based quack remedies and pushing fancy conspiracy theories leaving the common person confused and hesitant. We need clear, honest and transparent data that will inform everyone truthfully and build credibility in the health information system. That is what it will take to fight this deadly second wave, and a possible future third wave.
Amir Ullah Khan is professor of development economics at the MCRHRDI and Saleema Razvi is a senior research economist at the Copenhagen Consensus Centre