Big Retail's Flu Vaccine Dominance
Like much of the rest of the American public, Dr. Leonard Finn, a Needham (Mass.) family-practice physician, had been reading with relief pronouncements from the U.S. Centers for Disease Control (CDC) that the flu vaccine shortages of the past two years were over, that supplies would be adequate for this approaching flu season. So he was more than a bit surprised, and upset, when two distributors from which he had ordered 900 flu vaccine dosages last January informed him recently that his orders wouldn't be filled in full as he had requested, but rather would be dribbled out haphazardly in shipments of 20 or so doses at a time over the next few months.
Dr. Finn fears he'll have to revert to the ration mode of the previous two years. "We have 600 patients who require immunizations, and two-thirds of these have appointments between November and December," he says, along with a few hundred more who will likely request flu shots. If he doesn't have enough vaccine in stock, he will need to prioritize patients according to the urgency of their need for the vaccine, delaying vaccinations for patients who aren't as vulnerable to the complications of flu until later in the flu season. Some of those patients, he fears, will go elsewhere for their vaccines "and we won't know whether they've had it or not."
It's the "elsewhere" that is particularly galling to Dr. Finn. Among those elsewheres are Walgreens (WAG), Costco (COST), Wal-Mart (WMT), and Rite Aid (RAD)—huge organizations that, according to trade publication Pharmacy Times, are planning clinics to offer flu shots in October and November at their thousands of outlets. Walgreens, which is the largest of the bunch with more than 6,000 outlets, says it has experienced "no indication yet of any problem or shortage of vaccine" and will issue a press release the week of Sept. 25 announcing the availability of flu shots on a walk-in basis at $25 a pop beginning in early October.
DELAYED OR DIVERTED?
Is this another instance of smaller businesses being placed at a marketing disadvantage by the buying power of huge corporations? Afraid so, as much as we might wish that weren't the case, given that flu vaccination is a public health issue. Moreover, the phenomenon isn't limited to this season's flu vaccine.
Distributors that sell to physicians confirm that shipments of flu vaccine are being delayed, in part because of production challenges associated with countering new influenza strains, along with new regulations implemented by the Food and Drug Administration. "The flu vaccine shipments will be coming in a little later this year than in the past," says a spokeswoman with McKesson Medical Surgical, a business unit of McKesson Corp. (MCK). "If a manufacturer gives us 10% of our order, we give our customers 10% of their order." But, she emphasizes, "There isn't a shortage [of vaccine]. Manufacturers may be getting a little later start."
But major retail chains like Walgreens and Costco seem not to have the same problem, since they tend to buy directly from the manufacturers, or to engage large health-care service providers that buy directly from the manufacturers.
According to Mark Mlotek, an executive vice-president of Henry Schein Inc., another major distributor of flu vaccines, it's the strange economics of the flu vaccine that are creating the problem. He explains that flu vaccine manufacturers have geared up to produce more than 100 million doses this flu season, with the possibility that demand may well be less than that amount, since manufacturers have never before sold more than 90 million doses in a flu season. Moreover, flu vaccine is a generic-type product that doesn't provide the same huge margins as most Big Pharma proprietary drugs. "If you as a manufacturer are concerned about oversupply, your natural instinct is to take what you have and sell it," Mlotek says. "If you have Walgreens ordering 50,000 vials, you'll fill that before the order for 1,000 vials."
For small physician practices like Dr. Finn's, the problem of flu-shot competition from huge retail outlets is actually a symptom of a potentially more serious competitive challenge. These retail outlets are in some cases actively marketing a variety of medical offerings, including vaccinations, screenings, and basic treatments. Walgreens has been steadily expanding its so-called "Health Corner Clinic" to stores in Chicago, Atlanta, and Las Vegas via a partnership with a clinic operator through which it says it "can improve health-care delivery by making it more convenient and affordable for patients with common ailments." Services include screening for diabetes and high blood pressure and providing vaccines for hepatitis B, tetanus, and the flu (see BusinessWeek.com, 7/17/06, "Drugstore Clinics Are Bursting with Health").
Sounds like the big boys want to share in some of those high-volume, high-margin physician fee add-ons.