Why on earth does the U.S. get virtually all of its flu vaccine supply from just two manufacturers? Because only a handful of companies make vaccines for the U.S. market. And why is that? Because federal bulk purchase of vaccines at government-controlled prices has made the U.S. vaccine market a market that few drug companies want to be in.

Henry Miller said it well at a Manhattan Institute conference two years ago:

Why have we seen vaccine development fall into such disfavor? The short answer is low return on investment and exposure to legal liability. And the reason for those factors is a flawed public policy. For example, the U.S. Centers for Disease Control, the largest domestic purchaser of vaccines, uses its buying clout to extract deep discounts for purchases. If interference with market forces were warranted, arguably the government should be offering subsidies to enhance profitability and encourage more R&D rather than imposing what amounts to a punitive tax on vaccine manufacturers.

The result has been a cycle of shortages. And it’s not just flu shots. As Robert Klein recounted at the Manhattan Institute conference,

Concern for vaccine supply arose because of unprecedented and unanticipated shortages of a number of routinely administered vaccines beginning in 2001. These were significant, extended shortages of vaccines against eight of the eleven vaccine-preventable childhood infectious diseases, including DTaP, that is, diphtheria, tetanus toxoids and the acellular pertussis vaccine; MMR, the measles, mumps, rubella vaccine combination; varicella; and the pneumococcal conjugate vaccine. Adult tetanus and diphtheria toxoids were also in short supply.

Interesting: the flawed approach used by the CDC–that is, using its buying clout to extract deep discounts from manufacturers–is exactly the same approach that John Kerry thinks the Medicare program should use for all prescription drugs, not just vaccines (see below). Lord help us.

Update: Kerry has wasted no time trying to score political points off the flu shot fiasco. Ignoring the underlying problems in the vaccine market and the fact that his proposed policies would export similar problems to other sectors of the pharmceutical market, Kerry bloviated on the issue at a campaign speech in Ohio:

If you can’t plan to have enough of that vaccine, what are they doing with respect to other things that could potentially hurt America in terms of bioterrorism, chemical terrorism, other kinds of things?

Excuse me, I’m feeling a little sick.