Vaccination is the primary method for preventing influenza and its more severe complications. Flu vaccine is produced and administered annually to provide protection against particular influenza strains expected to be prevalent that year. When the match between the vaccine and the circulating viruses is close, vaccination may prevent illness in about 70-90 percent of healthy people aged 64 or younger. It is somewhat less effective for the elderly and those with certain chronic diseases but, according to CDC, it can still prevent secondary complications and reduce the risk for influenza-related hospitalization and death. CDC estimates that during the average flu season, for every 1 million elderly persons that are vaccinated approximately 1,300 hospitalizations and 900 deaths are prevented. Information on which groups are at highest risk for medical complications associated with influenza and recommendations on who should receive a flu shot are issued by CDC’s Advisory Committee on Immunization Practices (ACIP). Because the flu season generally peaks between December and early March, and because immunity takes about 2 weeks to establish, most medical providers administer vaccinations between October and mid- November. CDC’s ACIP recommended this period as the best time to receive a flu shot. However, if flu activity peaks in February or March, as it has in 10 of the past 19 years, vaccination in January or later can still be beneficial. Producing the vaccine is a complex process that involves growing viruses in millions of fertilized chicken eggs. This process, which requires several steps, generally takes at least 6 to 8 months between January and August each year. Each year’s vaccine is made up of three different strains of influenza viruses, and typically each year, one or two of the strains is changed to better protect against the strains that are likely to be circulating during the next flu season. FDA decides which strains to include and also licenses and regulates the manufacturers that produce the vaccine. Three manufacturers—two in the United States and one in the United Kingdom—produced the vaccine used during the 2000-01 flu season. Much like other pharmaceutical products, flu vaccine is sold to thousands of purchasers by manufacturers, numerous medical supply distributors, and other resellers such as pharmacies. Purchasers then administer flu shots in medical offices, public health clinics, nursing homes and pharmacies, as well as in less traditional settings such as grocery stores and other retail outlets, senior centers, and places of employment. For the 1999-2000 flu season, about 77 million doses of vaccine were distributed nationwide. CDC estimates that about half of the vaccine was administered to people with high-risk conditions and to health care workers, and the balance was administered to healthy people younger than 65 years. Overall, manufacturing problems led to vaccine production and distribution delays of about 6-8 weeks in 2000-01. Although the eventual supply was about the same as the previous year’s, the delay limited the amount of vaccine available during October and early November, the period when most people normally receive their flu shot. While the effect of the delay and initial shortage in terms of the number of high-risk persons vaccinated will not be known for some time, other effects can be observed, particularly in terms of the price of the vaccine. Providers who decided to purchase vaccine from those distributors who had it available during the October and November period of limited supply and higher demand often found prices that were several times higher than expected. Many providers who decided to wait for their orders placed earlier eventually received them, and at the lower prices they had initially contracted for. By December, as vaccine supply increased and demand dropped, prices declined. For the 2000-01 flu season, manufacturers collectively took about 6-8 weeks longer than normally expected to produce and distribute all of the flu vaccine. This delay meant that the bulk of the vaccine was not ready for market during the period of October and early November that CDC recommended as the best time to receive flu shots. This is also the time when most practitioners are used to administering the vaccine and when most people are used to receiving it. In 1999, more than 70 million doses of vaccine were available by the end of October; in 2000, fewer than 28 million doses were available by that date. Two main factors contributed to the delay. The first was that two manufacturers had unanticipated problems growing one of the two new influenza strains introduced into the vaccine for 2000-01. Because manufacturers must produce a vaccine that includes all three strains selected for the year, delivery was delayed until sufficient quantities of this difficult strain could be produced. The second factor was that two of the four manufacturers that produced vaccine the previous season shut down part of their manufacturing facilities because of FDA concerns about compliance with good manufacturing practices. One manufacturer temporarily closed on its own initiative to make facility improvements and address quality control issues raised during an FDA inspection; the other was ordered by FDA to cease production until certain actions were taken to address a number of concerns, including issues related to safety and quality control. The former reopened its facilities but the other manufacturer, which had been expected to produce 12-14 million doses for the 2000-01 flu season, announced in September 2000 that it would cease production altogether and, as a result, supplied no vaccine for 2000-01. These problems did not affect every manufacturer to the same degree. In particular, the manufacturer that produced the smallest volume of vaccine did not experience production problems or delays in shipping its vaccine. By the end of October, this manufacturer had distributed nearly 85 percent of its vaccine, while the two other manufacturers had shipped only about 40 percent and less than 15 percent, respectively. Purchasers who ordered their vaccine from the manufacturer with no major production problems were far more likely to receive their vaccine on time. For example, the state of Alabama ordered vaccine directly from all three manufacturers before July 2000 at a similar price per dose. As table 1 shows, the state received its shipments at markedly different times, reflecting how soon each manufacturer was able to get its vaccine to market. Purchasers that contracted only with the late-shipping manufacturers were in particular difficulty. For example, health departments and other public entities in 36 states banded together under a group purchasing contract and ordered nearly 2.6 million doses from the manufacturer that ended up having the greatest delays from production difficulties. Some of these public entities, which ordered vaccine for high-risk people in nursing homes or clinics, did not receive most of their vaccine until December, according to state health officials. The 2000-01 experience illustrates the fragility of the vaccine supply. Because influenza virus strains take a certain period of time to grow, the process cannot be accelerated to make up for lost time. When manufacturers found that one strain for the vaccine was harder to produce than expected, they adjusted their procedures to achieve acceptable yields, but it still took months to produce. Because only three manufacturers remain, the difficulties associated with vaccine production, and the need to formulate a new vaccine involving one or more new strains each year, the future vaccine supply is uncertain. Problems at one or more manufacturers can significantly upset the traditional fall delivery of influenza vaccine. Because supply was limited during the usual vaccination period, distributors and others who had supplies of the vaccine had the ability— and the economic incentive—to sell their supplies to the highest bidder during this time rather than filling lower-priced orders they had already received. According to distributors, and purchasers, a vaccine order’s price, quantity, and delivery might not be guaranteed. When no guarantee or meaningful penalty applies, orders can be cancelled or cut and deliveries can be delayed when vaccine is in short supply. Because of the production delays, many purchasers found themselves with little or no vaccine when the peak time came for vaccinations. Many of these purchasers had ordered vaccine months earlier at agreed-upon prices, with delivery scheduled for early fall. While some orders were cancelled outright or cut substantially, many purchasers were told that the vaccine was still being produced and that their full order would be delayed but delivered as soon as possible. This left many purchasers with a choice: they could take a risk and wait for the vaccine they had ordered, or they could try to find vaccine immediately to better ensure that patients were vaccinated before the flu season struck. Most of the physician groups and state health departments that we contacted reported that they waited for delivery of their early orders. For example, of the 53 physician group practices we surveyed that ordered vaccine before the end of June 2000, 34 groups waited for delivery of these original orders. Those who purchased vaccine in the fall—because they did not want to wait for their early orders to be delivered later, had orders canceled or reduced, or just ordered later—found themselves paying much higher prices. The following examples illustrate the higher prices paid to make up for reduced orders or delayed delivery: The state of Hawaii initially ordered 12,000 doses of vaccine from one distributor in June at $2.80 per dose. When the distributor cut the order by one-third, the state purchased vaccine from another distributor in September at a price between $5.00 and $6.00 per dose. One physician practice ordered flu vaccine from a supplier in April 2000 at $2.87 per dose. When it received none of that vaccine by November 1, the practice placed three smaller orders in November with a different supplier at the escalating prices of $8.80, $10.80, and $12.80 per dose. By the first of December, the practice ordered more vaccine from a third supplier at $10.80 per dose. The four more expensive orders were delivered immediately, before any vaccine had been received from the original April order. The data we collected from 58 physician group practices around the country provide another indication of how prices spiked during the period of high demand in October and November. Overall, the price paid by these practices averaged $3.71 per dose. However, as table 2 shows, the average price paid for orders placed by these practices in October and November was about $7 per dose, compared with about $3 per dose for advance orders placed in June or before.