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Swine Flu - Meeting with Secretary Mathews, Ted Cooper, Will Taft, and Paul O'Neill, July 20, 1976
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Swine Flu - Meeting with Secretary Mathews, Ted Cooper, Will Taft, and Paul O'Neill, July 20, 1976
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The original documents are located in Box 34, folder "Swine Flu - Meeting with Secretary
Mathews, Ted Cooper, Will Taft, and Paul O'Neill, July 20, 1976" of the James M. Cannon
Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
CC
HE
DEPARTMENT
ATION
OF
THE SECRETARY OF HEALTH EDUCATION, AND WELFARE
INVITIME DEPARTMENT ONE
WASHINGTON. D.C. 20201
July 20, 1976
MEMORANDUM FOR THE PRESIDENT
In light of your response to my report to you this morning on the
flu situation, I would propose that you invite the vaccine manu-
facturers along with their principal insurance carriers to meet
with you immediately to seek a solution to the current impasse
over liability coverage.
The insurance companies to be invited should include the following:
Aetna
Prudential Re-insurance
LeBoeuf, Lamb, Leiby & MacCrae (LLOYDS OF LONDON)
Crumm and Foster Insurance
Chubb & Son, Inc. (Federal Insurance)
American Home Assurance
Continental Insurance of New York
Alexander & Alexander Insurance Broker
Insurance Company of North America
American Re-insurance
Northbrook (of All-State Insurance)
Johnson & Higgins Insurance Broker
Home Insurance
FORD (TBRAST
Liberty Mutual
Davis-Dorland Insurance Broker
General Re-insurance
Fred S. James Insurance Broker
Patterson & Ross of Chicago (WEAVERS OF LONDON)
I would also suggest that you meet with the Congressional leadership
on this matter soon, particularly the health leadership.
Secretary
Digitized from Box 34 of the James M. Cannon Files at the Gerald R. Ford Presidential Library
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MEETING WITH SECY. MATHEWS,
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SERALD R. FORD
MEETING WITH JIM BAKER AT PFC
Monday, May 17, 1976
5:00 p.m.
En
NAME
THE SECRETARY OF HEALTH, EDUCATION, AND WELFARE
DEPARTMENT
WASHINGTON, D.C.20201
20
JUL 2 0 1976
{ 5
LIBRARY
MEMORANDUM FOR THE PRESIDENT
Recent notification by the four vaccine manufacturers that they will
be unable to obtain product liability insurance has created a crisis
for the National Influenza Immunization Program (NIIP). Without
resolution of the liability issue, manufacturers are expected to stop
vaccine production within a matter of days. Merrell-National has
notified us that they will not purchase any more eggs after Tuesday,
July 20, and, therefore, will be going out of influenza vaccine pro-
duction. Parke-Davis has also notified us that they will be making
an "imminent decision" within the next few days as to the termination
of their production. Finally, none of these manufacturers will enter
into contracts to sell existing stocks of 76 million doses to the
government for use in NIIP.
The liability problem, the underlying issue of the cost of baseless
suits for supposed government negligence, and the immediate problem
of keeping production going are the three issues we need to address.
As a result of meetings over the weekend, we have developed an
evaluative paper on the issue (a revised copy with the latest infor-
mation is attached). From that analysis and my sense of the situation
from being in the direct negotiations for the last week, I would offer
the following recommendations:
- That in our public statements we not minimize the seriousness
of the inability of the manufacturers to find liability sup-
port but announce that the government and manufacturers are
still in contract negotiations.
- That we take whatever steps are necessary to see that the
vaccine manufacturers continue producing influenza vaccine.
Unless there is a legal prohibition, the Department should,
from its recent appropriation, make an advance payment to
cover production costs while negotiations are in process.
The President
Page 2
- That you meet with the Congressional leadership as soon as
possible to capitalize on their recent expressions of support
and to urge reconsideration of our existing proposed legisla-
11
tion.
- That the Administration, under this legislation, make a new
proposal to set a limit on the liability for baseless suits
which imply government fault so that the liability is insur-
able. Under this proposal the government then pays the
attorneys' fees if the suits exceed reasonable projections.
(The government would, in most of these cases, already be a
party.) With this position we would then try to unlock the
impasse with the insurance companies, even though they are
now insisting on full coverage by the government, even for
the negligence of the manufacturers.
- That we begin now to prepare a long-range answer to a question
that we will get asked even before August on what we recommend
to solve this same liability problem which may now reappear
with all public immunization programs. This is one facet of
a form of national health insurance that will become more and
more central to the debate.
Secretary
Attachment
example of malpritize
FORD LIBRARY
National Influenza Immunization Program
Status Report
July 20, 1976
A. ISSUE: In view of the likelihood that insurance coverage will be
denied to vaccine manufacturers, where do we go from here?
B. BACKGROUND
1. Justification and Scientific Rationale for the National
Influenza Immunization Program (NIIP)
2. Delivery Aspects of NIIP
3. Clinical Trials and Vaccine Safety
4. Vaccine Production Capacity
C. MAJOR PROBLEMS
1. Contract Negotiations
2. Insurance Coverage
3. Other Liability Problems
D. OPTIONS
1. Modify or Abandon The Program
Option 1: Partial Program: Adopt a Federally-supported Influenza
Immunization Program of Limited Size--e.g. High-risk or
"First Come, First Serve"
Option 2: No Program: Abandon Current Attempts to have a Federal
Influenza Program of Any Size
2. Continue Negotiations Without Further Legislation
Option 3: Presidential Discussions with the Insurance Industry
Option 4: Indemnification Fund, from Current Program Appropriations
Option 5: Formal Contract with Two or Three of the Vaccine Manufacturers,
In an Effort to Effect Agreement With Hold-out Company (ies)
3. Seek New Legislation
Option 6: Consultation With Congressional Leadership by President and
Reconsideration of Existing Proposed Legislation
Option 7: Federal Indemnification to Provide "Top-dollar" Coverage
Option 8: Federal Compensation for Persons Injured as a Result of
Receiving Nationally Recommended, Licensed Vaccine
4. Other Options
Option 9: Government Manufacture of Vaccine Under the Authority of
Section 352 of the U.S. Public Health Service Act which
Presently Authorizes the Production of Vaccine,
Otherwise Unavailable.
Option 10: Miscellaneous Options
MEMORANDUM
DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE
OFFICE OF THE ASSISTANT SECRETARY FOR HEALTH
: The Secretary
DATE:
July 20, 1976
TO
FROM : Assistant Secretary for Health
SUBJECT: The National Influenza Immunization Program: Status Report,
July 20, 1976-ACTION
ISSUE:
Recent notification by vaccine manufacturers that they will be
unable to obtain product liability insurance has created a crisis
for the National Influenza Immunization Program (NIIP). Without
resolution of the liability issue, manufacturers are expected to
terminate vaccine production within a matter of days, and furthermore
not enter into contracts to sell existing stocks of vaccine to
the government. How should we proceed?
BACKGROUND
Program Justification: The original scientific rationale for NIIP
has not been seriously questioned, and remains sound:
-The infectiousness of the A/New Jersey/76 (swine
influenza-type) virus and its Human-to-Human spread
at Fort Dix, New Jersey, involved several hundred
military recruits, in February of this year.
-Since this virus is new to the majority of people,
the potential for pandemic spread exists.
-Influenza remains a serious public health and economic
problem.
-We have the capacity to produce quality vaccine in
sufficient quantities and deliver it to the public,
thereby thwarting the threat of an epidemic.
Page 2 - The Secretary
Delivery Aspects of NIIP: Organizational activities at the State and
local levels are well advanced. Voluntary groups have been identified,
briefed, and organized. Training of volunteers by health department
personnel has begun. The private medical community is involved in
the planning of programs in many States; some State and local medical
societies have already endorsed the program and pledged their support.
Clinical Trials and Vaccine Safety: Results of the first phase of
clinical trials which involved 5,200 volunteers in the largest
pre-certification field trials ever performed, have been very encouraging.
The trials demonstrate that vaccine preparations from each of the four
manufacturers were effective in immunizing persons over age 24, at as
low as 200 CCA units. The effectiveness was particularly pronounced in
individuals over the age of 53, since they have been primed by exposure
to swine influenza-type virus during the period between 1918-1929.
Reactions to vaccine at the 200 CCA dosage level among all
recipients over the age 24 were minimal. For example, only 1.9
percent of recipients experienced any fever during the 48-hour
observation, a frequency not significantly different from that
observed in the placebo control group where 1.7 percent had fevers.
Persons below the age of 25 years were less successfully immunized.
In these younger adults and children, larger doses of vaccine were
required to induce a protective antibody response. A second phase
of clinical trials, which is expected to end in September, will
provide sufficient data on which to make recommendations for use
of A/New Jersey/76 vaccine in children and young adults. One
possibility may be to give a primary injection to initiate anti-
body production, and follow at a later time with a booster shot to
raise the antibodies to the proper level. Like the first phase, the
current phase of studies is going well. Participants have not
experienced any unexpected or severe reactions that have required
hospitalization.
These studies confirm the long-standing safety record for influenza
vaccines. More than 250 million doses of influenza vaccine have
been administered in this country during the 40-year history of the
use of influenza vaccine. We are aware of no case in the medical
literature of a fatality clearly attributable to killed-virus
influenza vaccine.
Based on other experience to date, there is no known vaccine that
is safer than A/New Jersey/76 vaccine when given in the 200 CCA unit
dosage, to adults over age 24.
Page 3 - The Secretary
Vaccine Production Capacity: Seventy-six million doses of A/New
Jersey/76 vaccine (200 CCA units) are available in final bulk form
in company freezers, as of Friday, July 16, 1976.
An additional 15 to 20 million doses are in the production pipeline.
On July 15, 1976, we were verbally notified that Merrell-National will
not purchase any more eggs after Tuesday, July 20, and therefore, will
be going out of influenza vaccine production. We also learned that
Parke-Davis will be making an "imminent decision" within the next few
days as to the termination of their production.
MAJOR PROBLEM
Contract Negotiations: Since the emergency appropriations for the program
were enacted, the Department and representatives of the four manufacturers
have endeavored to negotiate a suitable contract clause on liability
question. From the outset, the manufacturers expressed their concern that
they might be held liable in suits for injuries resulting from failure
in aspects of the program over which they had no control.
A liability clause was developed by mid-May which was tentatively
acceptable to three of the companies; they indicated that they thought
that it would reduce their risks to an acceptable level. One company
balked at participating in the program unless all risks--other than those
incurred as a result of their own negligence--were assumed by the
government. Shortly thereafter, all companies were informed that their
liability insurance was going to be either cancelled or severely reduced.
In light of these developments, the Department sought legislation to
indemnify the manufacturers against losses resulting from the government's
failure to carry out its responsibilities under the program. On July 1,
the House Subcommittee on Health and the Environment refused to take
action on legislation and urged all parties to resolve the liability
problem through agreement and contract language.
The Department then resumed intensive negotiations with the manufacturers
and a new contract clause was developed which, in our judgement and that
of the manufacturers' counsel, goes to the very limit of our authority to
meet the manufacturers' concerns on the liability question. Among other
provisions, the clause would make the government liable for losses
incurred by the manufacturers in personal injury suits (including
attorney's fees), arising out of failure of the government to discharge its
responsibilities under the contract. At the request of the manufacturers,
we obtained a legal opinion from the Department of Justice that the contract
clause would not contravene the provisions of the Anti-Deficiency Act. Any
general undertaking to indemnify the manufacturers would require legislation,
such as that proposed by the Department last month.
Page 4 - The Secretary
The attitude of the insurors has not been helped by testimony from their
association asserting the possibility of enormous litigation costs
resulting from the program. While ill-informed and exaggerated, this
perception plus the more general problems in liability insurance have
made the insurors unwilling to insure most of the drug manufacturers even
for "baseless" suits and manufacturer negligence.
Current situation. Although we provide a full range of options below,
it now appears (mid-day on Monday) that: (1) some manufacturers will be
unable to get any insurance, even for their own negligence; (2) our
previous proposed legislation will not resolve the problem alone; and
(3) the manufacturers are understandably unwilling to sign contracts
without some protection.
Other Liability Problems: Almost two-dozen States and municipalities
anticipate difficulty in obtaining normal liability insurance for the
participation of their employees in NIIP.
In addition, the liability issue has stalled our efforts to obtain an
advertising agency, through a contract with the Advertising Council, to
develop a needed mass-media public awareness campaign.
Finally, negotiations between manufacturers of split-virus vaccines and
their insurors were recently complicated by news reports of the military's
decision to purchase only whole-virus vaccine, which erroneously implied
that there was something inferior or undesirable about the split-virus
vaccine.
OPTIONS:
The available options can be divided into three categories: (1)
options which would decide now to abandon or substantially revise the
program; (2) options which continue to assume no new legislation but
undertake to continue a full national program; and (3) options which
assume new legislation in order to continue the national program.
In light of most recent developments, some of the options are no
longer viable as the manufacturer's position has been made clear.
They have been retained, however, to give you the full range of our
review. In addition, several options from the second and third category
could be selected in combination. For example, one could decide to
consult with the Congressional leadership without finally deciding to
pursue new legislation.
Page 5 - The Secretary
Category I: Modify or Abandon the Program
Option 1: Partial program. Under this option, the Federal
government would seek to acquire some or all of the stocks currently in
the possession of the manufacturers and would develop a program to
vaccinate some fraction of the population. Possibilities for a limited
or partial program include vaccination of the high-risk members of the
population or a "first come, first serve" program.
PRO
-Would provide Federal monies to protect some Americans
-Would place Federal government in position of trying
to protect the health of our citizens.
CON
-Would reverse the basic thrust of our public position
in behalf of the national program
-Would force a highly undesirable set of Federal choices:
--Selection of high risk group raises
undesirable scientific, ethical and
economic consequences for those left
out.
--A "first come, first serve" program virtually
guarantees geographic and socio-economic
discrimination.
-Manufacturers are likely to be unwilling to release the vaccine
to the Federal government on the grounds that they would
be still subject to suit.
Option 2: Abandon the Program. Under this option, the Executive
branch would announce the failure of insurors to underwrite on
reasonable terms, thus causing us to abandon our program. Flu shots
would still be recommended, if obtainable, and the scientific element
would continue. Manufacturers would presumably sell their current
96 million doses in normal markets, including foreign markets.
PRO
- Would probably result in some coverage of Americans,
mainly middlé- and upper-income.
Page 6 - The Secretary
- Might permit manufacturers to obtain some insurance
(higher priced), since risks in purely private
undertakings are considered somewhat less.
CON
-Excludes much of population and raises price of protection
-Could be regarded as a failure of the Administration
-Could provoke a negative and unpredictable Congressional
or public reaction.
Category II: Continue Negotiations without Further Legislation
Option 3: Presidential Discussions With the Insurance Industry.
The President could intercede personally and urge the leadership of the
largest insurors to provide adequate insurance coverage to the
manufacturers of the vaccine.
PRO
-This action would carry the weight of the Presidency
and demonstrate the importance of preserving
the health of the American people. It would represent
the ultimate attempt on the part of the Executive branch
to encourage the insurance carriers to provide coverage.
-Might be necessary, as a prerequisite, to persuade
Congress to reconsider its negative view of our
existing, proposed legislation.
CON
-Should the insurance industry refuse to provide
adequate coverage, this could be construed as a
defeat for the Administration.
Option 4: Indemnification Fund, from Current Program Appropriations.
A portion of current appropriations might be made available as an
"indemnification fund" to reimburse manufacturers for costs of defending
third party law suits arising out of actions other than their own
negligence. Vaccine manufacturers might then be persuaded to remain in
the program. An "indemnification fund" could be created in one of two
ways: (1) a portion of the excess funds in the program could be set aside
by the government in each contract (the amount to be determined by
negotiation) and be available as needed to reimburse the contractor for
Page 7 - The Secretary
costs of defending suits, up to the maximum amount set aside, or (2) by
inclusion of an additional, fixed amount in the vaccine contract purchase
price. Such an "indemnification fund" could be justified on the grounds
that it is "a part of the contractors' costs of doing business' a
program cost which we have the authority to pay.
PRO
-This provision might meet the manufacturers' professed
greatest concern--the cost of defending a large number
of baseless law suits. Assuming an "indemnification
fund" of about $5 to $10 million for each contract,
manufacturers might be able to obtain insurance to cover
the cost of defending claims above the amount available
in the "indemnification fund".
-If the "indemnification fund" were created under government
control (method 1), the government would be paying only for
costs actually incurred by the manufacturers for defending
such suits.
CON
-The Government would be taking a step further than we have
been prepared to go so far by bearing the cost of defending
law suits against the manufacturer even though the government
fully discharged its responsibilities under the contract.
-If method 2 were used, the manufacturers could receive a
windfall if the number of suits are smaller than they
expect (we believe that they will be).
-Other participants in the program, including public units,
non-profit organizations, volunteers, and health care
providers might demand that an "indemmification fund"
be made available for claims against them.
-The manufacturers may not feel that the amounts the
government can commit are adequate.
-The Congress could question our authority to proceed
in this manner.
Option 5: Formal Contract with Two or Three of the Vaccine
Manufacturers In an Effort to Effect Agreement With Hold-out Company (ies).
Convincing two or three of the vaccine producers to enter into contract
could put public pressure on the remaining one or two company (ies) to
participate in NIIP.
Page 8 - The Secretary
PRO
-Would have the advantage of allowing the hold-out company (ies)
"to bend to public pressure and eventually concede to
participate
in the National interest".
CON
-If unsuccessful, the decision to implement a national
program in the absence of assurances of adequate amounts
of vaccine could result in a serious over-commitment
without a clear recourse to obtain more supplies.
-Not likely to be successful. The least likely companies
are the largest manufacturers who have given very little
indication of flexibility.
Category III: Seek New Legislation
Option 6: Consultation With Congressional Leadership by the
President and Reconsideration of Existing Proposed Legislation. In view
of the major role that the Congress has played in authorizing and
appropriating monies for NIIP and its present interest in seeing the program
continue, the President could meet with both the general and health
leadership of the Congress to urge reconsideration of the Administration's
previous bill. The Subcommittee's belief that this national program could
proceed without additional legislation now appears to be wrong.
PRO
-The Executive branch would be taking a responsible role in
informing the Congress as to the status of contract and
liability aspects of the NIIP. It would provide an
opportunity to discuss the possibility of reconsidering our
previous legislation to indemnify manufacturers for
liability other than that due to their own negligence.
-Our previous legislative proposal had broad provisions
which would permit us to address, if we elected, all
of the concerns of the manufacturers, including the
issue of baseless suits (but not including manufacturer negligence).
-Informal Congressional "feelers" have indicated a
willingness to reconsider the matter.
CON
-This action by the President could be misinterpreted by
the Congress, and viewed by the public, as an admission
of failure to implement a "Presidential program".
-The bill still lacks the specificity desired by the
manufacturers as to whether, and how, the Secretary
will exercise his authority to handle the major
problem.
-May not meet the concern of some manufacturers about
coverage for their own negligence.
Page 9 - The Secretary
Option 7: Federal Indemnification to Provide "Top-dollar" Coverage.
The use of Federal dollars to cover legal costs of suits can be approached
in two ways. Either the government can pay into an "indemnification fund"
to cover costs of suits up to a certain amount (Option 4), leaving to
private insurance any larger amounts; or the government could cover any
costs of suits above some fixed amount, with regular insurance covering
costs up to that fixed point. This option would adopt the latter approach.
PRO
-Would limit outer liability of insurors, thus making their
risk limits explicit.
-Could protect Federal dollars from actual use if we
are right about the real risks.
CON
-Manufacturers might not accept limits proposed by Federal
government
-Insurors might not make primary, "first-dollar" coverage
available to manufacturers at all, or make it
available only at a prohibitive price, which could in turn
be passed back to the government through the price of vaccine.
Option 8: Federal Compensation for Persons Injured as a Result of
Receiving Nationally-Recommended, Licensed Vaccine. We could request
that Congress authorize the development of a compensation plan for
personal injuries incurred as a result of participation in the National
Influenza Immunization Program.
PRO
-Would demonstrate Federal acceptance of the responsibility
for vaccine-associated disability in that claims would be
made directly to the Federal government, by-passing the
manufacturer.
-Would indicate a responsible Federal role since the
government would license, recommend usage, and support
purchase of vaccine and implementation of programs of
immunization.
-Would be applicable to other preventive health programs.
-Would - improve surveillance of vaccine-associated disability
since all claims would be centralized for review and action.
Page 10 - The Secretary
CON
-Could require a new Federal bureaucracy to review, arbitrate,
and settle claims--for what may likely be very few cases
each year.
-Would require a major legislative effort to develop
a compensation plan. Furthermore, the time required
to develop and pass legislation would be too long to
benefit NIIP.
-Could create some undesirable precedent for other
than national immunization programs.
Category IV: Other Options
Option 9: Government Manufacture of Vaccine, Perhaps Under the
Authority of Section 352 of the U.S. Public Health Service Act Which
Presently Authorizes the Production of Vaccine, Otherwise Unavailable.
PRO
-Would provide technical capability to continue to
produce A/New Jersey/76 Vaccine and enable the
government to produce influenza and possibly other
vaccines in the future.
CON
-Federal government has no experience in managing or
directly manufacturing influenza vaccine. The
administrative problems would be formidable.
-Authority under provision 352 of the PHS Act does
not presently exist since influenza vaccine is not
unavailable in the strictest sense. We are simply
unable to successfully enter into contract to
purchase the millions of A/New Jersey/76 vaccine for
use in NIIP.
Option 10: Miscellaneous Options: There are several other options
which we have considered, but rejected from significant consideration on
grounds of legality, administrative feasibility or time required to
implement. These include the following:
A. Purchase of Lease Vaccine Facilities (Administrative
Infeasibility and Insufficient Time).
B. Federal Purchase of Vaccine and Re-sale to Recipients at
Cost, With Revenue Being Placed in an "Indemmification
Fund"; Federal Support Retained for National Plan to
Deliver Vaccine, at No Charge (Administrative Infeasibility;
Violation of Congressional Intent).
C. Payment of Court Costs by Plaintiffs in Baseless, Frivolous
Suits (Legality Problems)
Page 11 - The Secretary
D. Purchase Vaccine from Manufacturer to Relieve their Expenses,
With a Commitment by Us Not to Use Vaccine In NIIP, Without
Their Consent, Until Liability Issue is Resolved. (Legal
Authority Problems).
E. Attempt to Get Those Vaccinated to Waive Right to Sue.
(Legally Not Possible)
F. Classic Re-insurance Plan for Insurors. (Inadequate Time
to Get Enacted and Implemented)