Immunizations: How to make this vital service financially viable

February 10, 2014

Experts offer best practices related to smart purchasing, inventory control, and reducing waste of vaccines.

Administering immunizations to patients in your practice is a service and a convenience. And for many primary care offices, it’s a huge part of their business-albeit one fraught with economic challenges. Nonetheless, physicians who spoke with Medical Economics say that ceasing to provide vaccines is not an option since immunizing patients is the right thing to do.

For practices to be able to serve patients, the business case for providing vaccines is as important as the moral one.

"In our five-physician office, we spend close to a half-million dollars a year buying vaccines. It is far and away our biggest expenditure, second only to physician salaries,” says Jesse Hackell, MD, FAAP, vice president and chief operating officer of Pomona Pediatrics, PC, in Pomona, New York. “If we were any other business, we would expect to make a 50% to 100% profit on that expenditure. But ‘profit’ is a word with dirty connotations when you’re dealing with children’s health and medical care. We don’t get treated the way other businesses do and yet our reporting requirements and safety requirements are probably a lot more intense than a whole lot of other businesses.”

“This is such an important service to patients-and without being too grandiose-to the country and the profession,” says Charles Cutler, MD, FACP, chair of the American College of Physicians’ Board of Regents and a practicing internist in Norristown, Pennsylvania. “If you get a vaccine, you’ll very likely prevent an illness down the road, and that is really one of the most important things that a doctor or medical profession can do.”





Making the numbers work

According to the American Academy of Pediatrics (AAP), viable payment for vaccine services accounts for not just practices’ cost of purchasing the products themselves, but also the overhead associated with stocking and properly administering immunizations.

In a position paper revised in March 2012, the AAP sets forth separate payment recommendations for the purchase and administration of vaccines.

As part of The Business Case for Pricing Vaccines, the AAP states: “When the direct and indirect expenses are totaled for the vaccine product, estimates range from 17% to 28% depending on the practice.” Therefore, appropriate payment for vaccine purchases should account for not just the purchase price of the vaccines, but also indirect expenses including personnel costs, storage costs, insurance against loss, allowance for waste and nonpayment, as well as the expense of having funds tied up in inventory. And by the AAP’s calculations, this means that practices should strive for vaccine-purchase payment of “at least 125% of the current CDC vaccine price list for the private sector.”

But while this is a helpful benchmark to guide practice negotiations with private payers, the advice is moot for vaccines practices receive at no cost as part of the Vaccines for Children (VFC) program, which is federally funded but controlled by individual states. “There are a lot of costs involved with the VFC that are not included [reimbursed] because the physician can’t mark up the vaccine,” notes Edward Zissman, MD, FAAP, of Altamonte Pediatric Associates in offices north of Orlando, Florida.

Both sets of vaccines-state provided and privately purchased-are eligible for separate payment for administration, however. This fee is intended to cover the expense of supplies such as syringes, cotton swabs, rubbing alcohol, etc., as well as the time required to educate patients/parents, follow safety procedures, calm the child if necessary, and complete required documentation for the patient’s chart and state vaccine registries. Although VFC administration fees used to vary greatly from state to state, Zissman notes, the Affordable Care Act mandates that it be equal to Medicare rates.

When it comes to practice-purchased vaccines, the AAP also states that administration payments need to “adequately cover those costs to the practice which are separate from the direct and indirect costs associated with the vaccine product” and “be at least 100% of the current Medicare Resource Based Relative Value Scale (RBRVS) physician fee schedule.”

But in reality, Zissman says that “the administration [payment] of a vaccine is whatever you can negotiate with the company, and negotiations are very difficult.”

Not all physicians paint quite so bleak a picture.

For example, James Loehr, MD, a family doctor in Ithaca, New York, who serves as the American Academy of Family Physicians’  liaison to the CDC’s Advisory Committee on Immunization Practices, says that while practices do have the potential to lose money on the purchase of vaccine product, he contradicts the idea that providing immunizations costs more than it pays. “The administration codes [for vaccines] are a huge revenue generator-absolutely huge,” he says.

This earning opportunity for practices expanded in 2012 with a rule change spearheaded by the AAP that increased the payment for each component of a combination vaccine, Loehr says. “So in 2011, if I was giving a combination vaccine with five components, I might get paid $40 for the administration plus the cost of the vaccine. After [the rule change], I might get paid over $100 for the same amount of work. That was huge in making immunization viable and cost-effective,” he adds.






Best practices for purchasing wisely and reducing waste

Others, such as Cutler, view vaccines as a break-even proposition. “Some of the newer ones can be very expensive, however, so we have to be careful to watch and be sure they don’t expire in a short timeframe,” he says.

 Indeed, Zissman says that in his six-physician pediatric practice, there’s at least $100,000 worth of vaccine product stocked in its refrigerators every day. To protect this investment, experts recommend the following best practices.

Smart purchasing. A common mistake among practices, according to Loehr, is ordering vaccines conveniently but not in the way that’s least expensive. Ordering vaccines from the same supplier from which a practice gets its speculums and tongue depressors may seem easier, for example, but could cost $2 to $4 more per vaccine than ordering it directly from the manufacturer, he says. “That might not seem like a lot, but Blue Cross Blue Shield only pays me $2 over the cost of the vaccine. There’s a really tight markup,” he says.

Practices can also consider joining group purchasing organizations to help obtain the best prices, Zissman adds.

Further, it’s easier for practices to avoid overpurchasing vaccine when they work with a distributor that can promise a fast delivery time if the practice needs to order more, Cutler says.

Accurate inventory. “There’s no question that the only way you can successfully deal with this mix of vaccines [VFC and privately purchased] is through a good inventory system,” says Mary Pat Whaley, FACMPE, CPC, healthcare consultant and president of

Although a growing number of electronic inventory products are available on the market, Whaley says that she has yet to see any products that truly close the loop on capturing all of the required information. Therefore, she says, a manual inventory system may still be best for many practices. A common problem in keeping up with tracking inventory, she notes, is accounting for product that needs to be unpacked and placed in the refrigerator or freezer right away.

While Whaley recommends one employee on the clinical side of a practice hold key responsibility for managing vaccines, there should be a contingency plan for times when a shipment is delivered while that person is busy elsewhere. A simple solution: Keep color-coded bins inside your refrigerator or freezer. Product placed in a yellow bin, for example, might indicate VFC items that have been unpacked but not inventoried, while privately purchased vaccines might go into a blue bin to await inventory.

Reduce waste. A wastage rate of around 5% is not uncommon for vaccines, and is usually due to accidental breakage that occurs when a vial gets dropped or knocked out of a clinician’s hand by an upset child. A more avoidable cause of waste, however, is that due to parent or patient refusal once the vaccine is already drawn up.

“Before I order a vaccine to be given, I always get confirmation from the parent,” Hackell says. The consequence of not being sure can be huge. For example, a dose of Gardasil costs a practice $120 to $140. “When I waste one of those doses, there goes my margin on the next 20,” he says.













Is there a case to stop offering vaccinations?

Because of these risks, Whaley says she’s seen a slight trend of practices outsourcing immunizations. However, the doctors we spoke with haven’t considered sending their patients elsewhere for vaccines.

“The playing field is not level in terms of the financing of vaccines, but in the end I’m still going to give the vaccines,” Hackell says, adding that his fear would be that patients he’d instruct to get immunized at the pharmacy or public health clinic wouldn’t follow through. “We’d see kids getting measles and pertussis and a whole host of other diseases I don’t ever want to see again. It’s not an ­option.”