Cash talks: The need for incentives in vaccine delivery

Vaccines save lives, but not when they sit on shelves. If the Biden administration accelerates the health system’s delivery of vaccines, it will save lives, reduce COVID-19’s spread and hasten the pandemic’s end. The best way to expedite vaccinations is the simplest: dramatically increase payments for anyone who puts shots in arms.  

The United States has an enormous, world-class health care system. That infrastructure can be mobilized to distribute vaccines rapidly and widely across the population. And with the right incentives, it will mobilize itself.  

For a two-dose COVID-19 vaccine course, Medicare now pays providers $45, too stingy for this crucial service. The crisis calls for more. Even at $200 per course – over four times current rates – it would cost only $66 billion to fully vaccinate every American. For perspective, $66 billion is just 3 percent of President Biden’s proposed relief bill and less than half of a percent of the estimated cost of the pandemic.  

Medicare has years of experience setting payments based on cost. So why not trust its cost estimates? Because reimbursing costs is the wrong goal. The right goal is to encourage supply.  

Our research has shown that doctors provide more care when Medicare pays more generously. Events spanning U.S. history show how firms respond to the incentives created by federal health dollars by innovating and expanding supply. During the pandemic, we have also seen how higher pay can draw health care workers to areas of greatest need.  

Current incentives are failing to get vaccines administered. When reimbursements barely cover costs, pharmacies, doctors and hospitals have little incentive to act quickly. Through mid-January, the data on vaccine distribution reveal a widespread disregard for the urgency of this effort. Only half of the doses distributed to states have been administered — an appalling record.

Increased payments would motivate providers to pull out all the stops. When it’s lucrative to administer vaccines, providers will compete to find eligible patients and encourage vaccination. Because they know their local populations, they are better positioned than the federal government to overcome vaccine hesitancy and improve equity. They can operate longer hours, make the process more convenient and improve public outreach. For normal medical services, reasonable people can disagree about whether medical reimbursements have gone too far, leading to excessive medical costs. But in the case of COVID-19 vaccines, it is clear we have not gone far enough.  

The time to write a detailed distribution plan was last spring. New plans, however, cannot erase past failures or restore the lives we have lost. But President Biden can avoid compounding President Trump’s errors. A repeated cycle of logistically complicated, centralized planning would risk doing just that. Such a plan would take months to work out and, because of messes the Trump administration made, would risk sowing additional confusion. Further, a new wave of centralized logistics planning could introduce as many hurdles as it removes. Research has shown that complexity can, by itself, deter providers from participating. 

A key virtue of our proposal is its simplicity. Pay more for the outcome we want, namely vaccines in arms. Incentives can also explicitly reward speed. That is, we can pay more for vaccines administered promptly. How? One option is a simple declining schedule of payments: pay bonuses for vaccines administered sooner, following a simple and consistent schedule. Conveniently, bonuses for rapid delivery are payable without increasing the information providers already submit to insurers.

Paying providers to administer vaccines is not a panacea. By itself, it will not increase vaccine production, a key objective for which the Biden administration has already taken other steps. To the extent that vaccines are sitting in state warehouses, providers can’t solve that problem themselves. But they can pressure state governments to distribute the doses faster. This should be the goal: a plethora of providers clamoring for vaccines, competing for patients and racing to put shots in arms.

Until providers have incentives for speed, vaccines will continue to sit on shelves and risk waste. Each expedited dose translates into a life potentially saved and a potential super-spreader event avoided. When precious vaccines are discarded, human lives are discarded. President Biden can fix this by harnessing the power of simple economics.

Jeffrey Clemens is an associate professor at the University of California, San Diego. Joshua Gottlieb is an associate professor at the University of Chicago’s Harris School of Public Policy.