Improving vaccine distribution

Private sector channel needs to be reworked

The government has told Parliament that, in the six-week period leading up to the middle of June, only about 7 per cent of the total vaccines delivered were done so through the private sector. This is in keeping with its own earlier data on the subject, and indicates the private sector channel is severely underperforming. The plan is for 25 per cent of the total vaccine production to be allotted to the private sector for distribution. Thus, the private sector distribution network is only operating at about 30 per cent of expectation. It is clearly necessary for the government to revisit the nature of private sector involvement in the national vaccination effort. The easiest way to do this, of course, would be to reduce the allotment to the private sector down to about 10 per cent, about the degree that is being lifted at the moment with little headroom for improved performance. The additional 15 per cent thus freed up can be used to increase the state’s allotment, since several of them are complaining about a shortage of supplies.

The larger question that must first be answered, however, is why the private sector channel is not working as expected. The simplistic answer would be that vaccines at the prices being charged are considered too expensive for the majority of the Indians. This may, however, be the wrong way of looking at it. The question is whether all those who can afford to pay are paying instead of waiting for the free slot that has now been promised to them. This does not seem to be the case. One reason why the market is not developing is the control imposed on service charges by hospitals and clinics. This has been capped at Rs 150 for some time. Hospitals are naturally not enthused enough by this to add value to the vaccination process as they would for other services. The private sector is best employed innovating new ways to distribute and to induce people to spend money — but they will devote resources to this only if they are incentivised to spend. Thus, another alternative is not to reduce the private sector allocation so drastically, but allow some freedom in pricing the service fee.

One major reason for a private sector share in procurement was to ensure that the supply response from the vaccine industry was sufficient. In other words, a private sector share at a higher procurement price than that given to the government would ensure that current manufacturers could scale up capacity, and that additional manufacturers saw a reason to invest in capacity as well. Here, again, the fact of price controls has restricted the efficiency of the supply response. It also means that the companies behind some other vaccine candidates, including the mRNA vaccines, are not as interested in supplying to India as they would otherwise have been. The current manufacturers, who are overstretched in terms of administrative capacity, prefer to deal with the large hospital chains rather than with all possible clinics. A proper distribution channel would be a hub and spoke model where the manufacturers sell to a wholesaler, and so on. Again, this has not been incentivised by the government.

Clearly, the government has some work to do on optimising the distribution chain. If it reduces the share of the private sector, it must also increase its own procurement price commensurately so that manufacturers are adequately compensated. It must also rework its regulation of the private sector share to ensure that the right incentives are put in place.