House Ways and Means Committee
Testimony on the Committee Substitute to House Bill 1994
April 15, 2009
Presented by the Texas Medical Association, Texas Pediatric Society, and Texas Academy of Family Physicians

Mr. Chairman and members of the Committee, it is a privilege for me to speak with you today on behalf of the Texas Medical Association, the Texas Pediatric Society (TPS), and the Texas Academy of Family Physicians, collectively representing more than 48,000 physicians in the state of Texas. My name is Ari Brown, MD, and I am a pediatrician in private practice in Austin.

I am here today in support of the Committee Substitute to House Bill 1994, relating to a deduction under the franchise tax for physicians who administer vaccines. Vaccines are one of medicine's greatest achievements. Millions of Texans are alive and healthy today because of vaccines. Vaccines prevent disabilities and fatal diseases. Texas ranks 22 in the nation in our ability to fully vaccinate children 19 to 35 months of age. Even though this isa great improvement over past rankings ― there is still much work to be done.

A fully vaccinated population is critical to the prevention of disease.  It is only when all children are vaccinated that we ensure children twho can't be vaccinated because of a particular illness or treatment regiment stay well.  These children depend on those around them to provide a healthy, disease-free environment.  Additionally, in some instances, vaccine immunity may wane in among the elderly.  who  depend on those around them to be fully vaccinated in order to stay healthy.

Today, the number of vaccines available to children and the cost of those vaccines have never been higher.  In 1980, it cost only about $23, or $59 adjusted for inflation, for the seven shots and four oral doses needed to fully immunize a child according to data provided by Dr. Thomas Saari, a professor of pediatrics at the University of Wisconsin and chairman of the Wisconsin Council for Immunization Practices.  In contrast, today a child who receives all the recommended vaccines would receive as many as 37 shots and 3 oral doses by their 18th birthday at a cost exceeding $1,600.  

For my group of seven pediatricians (with a patient panel of 16,941, defined as active patients seen within the last three years), the annual budget for vaccines, not including syringes, needles, nursing time, refrigeration, or other related expenses has grown from $453,000 in 2000 to $1,063,000 in 2007.  Vaccines now represent 20 percent of the total budget for my practice. According to the Medical Group Management Association (MGMA), facility costs are the second largest expense after compensation for most physician practices.  For pediatricians and many family physicians who administer vaccines, the second largest expense is vaccines.

The state's current franchise tax allows physicians to deduct either compensation or the cost of goods sold.  In many cases, we choose to deduct compensation so in turn I pay a 1-percent tax on the cost of goods sold which includes vaccines.  Physicians must place vaccine orders 9 to 12 months before the vaccine will be used and pay the expense out of pocket not knowing if we will sell that product. Or if we do sell the product at what level insurance companies will reimburse us for the product.  This tax fairly allows most service companies to deduct compensation, benefits and sales or deduct the cost of goods sold but physicians providing vaccines are a combination of services and sales -- physician services and vaccination sales. 

For example, the typical influenza vaccine costs $15.  The labor cost incurred in administering the vaccine  is deductible but the vaccine cost is not.  Even if the insurer pays enough to cover the actual cost, a 1-percenttax means that a physician loses money every time he administers the vaccine.  Administering vaccines is one of the most critical services we can provide but one of the riskiest services from a business perspective.

Given the potentially large cost of vaccine administration as a proportion of a physician practice, this financial burden is not inconsequential.  Some Texas physicians are contemplating whether or not they can continue to provide vaccinations to their patients.   Fewer physicians providing immunization services will have an adverse effect on access.  Vaccines are the only medical service that a physician administers that actually impacts society as a whole and in absence of a network of physicians willing to administer vaccinations, the risk for outbreaks of vaccine-preventable diseases will be enhanced.

In closing, I would like to reiterate that vaccines are central to preserving public health.  Our membership believes in the importance of fully immunizing all Texans especially the most vulnerable, children.  We fully support efforts to ensure vaccines make good business sense and believe that providing a deduction within the margins tax will provide necessary relief.