Special: Pricing India’s private Covid-19 vaccines 💰

When a subscriber survey meets The Ken’s reporting, it creates something special

This is edition 299 of Beyond The First Order, a premium daily newsletter that demystifies the hidden models, incentives and consequences of the most significant events across India and Southeast Asia

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Good morning,

Today’s edition is quite special. 

Firstly, we’re making today’s edition free. 

And secondly, unlike our usual editions of Beyond the First Order, this one has just one story. 

Both these reasons are connected. 

At The Ken, we believe that important stories about Covid-19 should be free and accessible to everyone. Today’s story is just that– about the variation and opaqueness in the pricing of vaccines by private hospitals.

It is based on a survey we conducted last week within The Ken’s community. Over 5000 of our free and paid subscribers participated. Armed with this data, our healthcare reporter Ruhi Kandhari got to work, digging deep into the ‘free market’ of vaccines. And our designer Prajakta wove her magic with infographics along with our polls editor Seetharaman. 

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Inside India’s 25% of Covid-19 vaccines free market experiment

In 2010, Ha Joon Chang, a reader in the Political Economy of Development at the University of Cambridge published 23 Things They Don’t Tell You About Capitalism. Written in the aftermath of the 2008 financial crisis, the book gained popularity for its 23-point critique of free markets. The first thing the book delves into is that ‘there is no such thing as a free market’.

Here’s Chang’s argument:

“Every market has some rules and boundaries that restrict freedom of choice. A market looks free only because we so unconditionally accept its underlying restrictions that we fail to see them.”

Cut to the debate at the Indian health ministry in the first quarter of 2021. Several bureaucrats, consultants, and committee members argued that letting the ‘free market’ takeover the sales of 25% of Covid-19 vaccine doses wasn’t an ideal strategy for India. However, despite these reservations, the ministry decided to let vaccine makers sell a quarter of all available Covid-19 vaccines doses to private hospitals at any price they saw fit. In turn, private hospitals were also allowed to price the vaccine as they wanted. A senior consultant with the ministry of health told The Ken this, and a senior executive with a private hospital confirmed it.

As a result, since India’s Liberalised Vaccine Policy came into effect on 1 May, India has been the only major country allowing private hospitals to set the market price of Covid-19 vaccines for citizens. 

The policy stated that the central government could buy 50% of vaccines for a price of Rs 150 (US$2) per dose (for both Covishield and Covaxin), and state governments and union territories could buy 25% of the doses for Rs 300 (US$4) and Rs 400 (US$5.5) per dose for Covishield and Covaxin, respectively. When it came to privately run hospitals, Serum Institute of India (SII) decided to sell Covishield at Rs 600 (US$8.2) per dose and Bharat Biotech at Rs 1,200 (US$16.4).

On 9 May, the central government defended these prices, stating that it was a function of the free market where larger volumes meant lower prices, and smaller volumes meant higher prices. 

A peek into this market shows that resident welfare associations (RWAs) and corporations are more eagerly demanding access to vaccines than others. Similarly, some large private hospitals have stockpiled vaccines, leaving several smaller hospitals in the lurch. Now, these smaller hospitals are trying to get together to work with health-tech companies to level the playing field. 

Finally, every hospital has to incur expenses to administer vaccines and they are limited by space. They can vaccinate only so many people within their premises because of social distancing norms. The demand for vaccination has given birth to the fourth actor in vaccination drives other than the vaccine maker, private hospital, and the ultimate consumer. These are e-pharmacies and other health-tech companies working with the healthcare sector. We argue that there is a method in this mad market and it is not as free as the government had intended.  

Already, the Supreme Court has recognised that the government’s system was not efficient in enabling access to vaccines. 

Even as the government has repeatedly defended its decision, The Ken has learnt that over the month of May, the central government, too, was influenced to soften its earlier stance of favouring free markets.

Since the retail price was not fixed, there was a strong suggestion to cap it especially during the second wave of Covid-19. After the news of five star hotels tying up with hospitals came, there was too much criticism by the media, the government got a little jittery. It gave some kind of soft guidance to district magistrates to enquire if the sale of vaccines happened at an outrageous price. They thought any price above Rs 1500 (US$20.5) was outrageous.

In this story, The Ken explored the dynamics of this market. The analysis relied on:

  1. Two surveys conducted by The Ken in which 3,614 free subscribers and 1,507 paid subscribers participated. The objective of our survey was to solicit from our subscribers the price they paid for the Covishield vaccine via the private sector, free-market route. Thus, we did not present any options cheaper than Rs 600 (US$8.2) per shot, which was approximately what private hospitals were paying vaccine maker Serum Institute themselves. After all, it is unlikely that any private hospitals would sell and administer a vaccine at a loss. However, the language of the survey didn’t make this clear for the first two of the 24 hours the survey was open. We apologise for that initial lack of clarity faced by subscribers taking the survey. We also understand that the data is skewed as the majority of The Ken subscribers belong to the middle or upper class and live in residential colonies in metro cities. In short, the survey is indicative but has also been substantiated through reportage and analysis.
  2. The Ken spoke to a dozen sources, including government officials and executives from private sector healthcare companies. All of them spoke on the condition of anonymity.
  3. The questions we aimed to answer by analysing the results of the survey and through reportage were: What was the range of prices at which Covishield was sold by the private hospitals? Why were some private hospitals administering the same vaccine at vastly different prices? What were the various channels—such as private camps, employers, CoWIN or via government centers—through which vaccines are being sold, and at what price?

The price is right 

“Why does the price of Covishield vary widely for different consumers getting vaccinated at the same hospital?” The question was asked in hushed tones, according to three senior managers with private hospitals in Bengaluru and in Delhi that are administering Covid-19 vaccines to the 18-44 age group. “Everyone is dumbfounded by Manipal Hospital’s pricing strategy. All of us have noticed that there is a lot of variation in their pricing,” said the co-founder of a hospital. “Everyone has a theory, ranging from some enthusiastic sales person who had free rein or the hospital is keen on using vaccines for higher earnings this quarter,” he added.

There are additional costs that a hospital has to incur over the price set by the vaccine manufacturer, said a senior executive with a Bengaluru-headquartered hospital chain. He explained that the landed cost of Covishield includes the goods and services tax along with the transportation cost to the hospital. Thus, the price that a hospital pays for every dose of Covishield varies from Rs 630 (US$8.6) to 650 (US$8.9). “When we bought our first batch, Serum said they would supply only to major cities, so we spent extra to transport the vaccines to other cities,” he added.

That is just the tip of the expenses iceberg for hospitals procuring vaccines, said a former doctor-entrepreneur, who is consulting with hospitals that are functioning as vaccine centers. He laid out the price structure. The vaccine can be administered by a nurse, and their salaries have, in many cases, more than doubled due to a workforce shortage since the pandemic hit, he said. “Add to it the cost of one syringe, swab, gloves, storage, inventory, as some doses will go to waste no matter what we do. Then there is the doctor, who stays on standby in case someone has an adverse reaction to the vaccine,” he added.

However, no one The Ken spoke with could offer an explanation for the Rs 1,400 (US$19) and above per dose that 10% of those who took our survey paid. The rationale seems to be that the large hospital chains have control over the supply and the demand is high.

The Ken wrote to India’s four largest hospital chains—Apollo, Manipal, Max-BLK, and Fortis. Apollo Healthcare promised to respond to our emailed queries by 3 June but had not responded as of the time of publishing. Manipal refused to participate in the story. Max-BLK and Fortis did not respond to emailed questions from The Ken

Some are more equal than others

Chang argued that every market has some rules and boundaries that restrict freedom of choice. The first rule of the market we’re currently seeing is that the ability to pay for high volumes equals access to vaccines by a few hospitals.

There was a caste hierarchy in private hospitals. The biggest buyers (biggest hospital chains) were preferred by the vaccine makers. Apollo got the vaccines first, then Manipal, and then Fortis. It became clear that vaccine makers don’t have large teams to sell vaccines and cannot deal with smaller volumes. They wanted money up front. Only hospitals that could write a cheque for several crore rupees got the vaccine.

A co-founder of a smaller chain of hospitals headquartered in Delhi, said that Serum Institute and Bharat Biotech did not entertain any of their requests. Last week, the Times of India reiterated that small hospitals were not a priority for the vaccine makers. On Sunday, the Indian Express reported that nine private hospital chains administered 50% doses over the month of May. 

9 pvt hospitals corner 50% doses, raise questions of vaccine equity and access, Source: Indian Express

Further, these hospitals have a reason to focus on large cities. A cofounder of a hospital chain headquartered in Bengaluru, who has been procuring vaccines, said that it is easy for a hospital chain to prioritise the urban rich and the middle class. This lets it use the vaccines efficiently, with low storage time, low wastage, and low transportation costs. 

The demand is also higher from various segments within metro cities. “We can vaccinate between 200-300 people every day because the space is limited in the hospital. The holding area limits the number of people a hospital can vaccinate in a day,” he said. “On the other hand, RWAs have larger spaces. You can have more sites and you can administer a lot more vaccines. People prefer access to the vaccine sooner at an RWA or a corporate site, even at a higher price. They don’t want to play the CoWIN bingo for a slot even if it is cheaper,” he added.

Our survey captures this trend. Around 46% of respondents were ‘vaccinated via a private camp’ or through their ‘employer’. 

This trend is evident on the CoWIN dashboard as well when private hospitals and camps hosted by them are compared to government centres. In Bengaluru, for instance, it shows that the private centers had the most number of vaccine doses administered on 5 June.

All the top sites for Bengaluru’s municipal corporation vaccination drive were hosted by private hospitals—158 out of the total 459 vaccination sites. And the majority of them were represented by workplace centres. However, this is not the case in Karnataka’s rural areas. Out of the state’s 5,276 vaccination sites, only 227 are hosted by private hospitals, the rest are government-led, especially in the rural districts. 

While this 25% segment is efficiently managing the supply of vaccines, it is not enabling freedom. Neither to small hospitals nor to consumers in rural areas. 

The rules of the game

Smaller hospitals are trying to level the playing field. But they have not found a solution to buy vaccines yet because the government has not allowed them the power to pick a platform to get behind. 

E-pharmacies like 1mg, teleconsultation networks like Practo, and digital healthcare platforms like Medi Buddy have tried to buy vaccines on behalf of small hospitals because they have cash, but the rules don’t allow them to, said a vaccine supplier, on the condition of anonymity. The vaccine makers want documentation that says that a hospital is buying the vaccine. So instead, e-pharmacies are now partnering with hospitals and becoming go-betweens for corporate users and hospitals looking to procure vaccines, he added. 

The rules of India’s vaccine free market are constantly evolving. For their part, private pharma companies are asking for assurances and more allowances to assert their freedom. For instance, last week, pharma major Cipla, which is close to giving Moderna a $1 billion advance for vaccine booster shots in 2022, has asked the government to exempt it from price-capping.

Large city-centric hospitals are also facing pressure from investors to recover revenues and profits they missed out on over the last year due to the pandemic, said a senior executive with a pan-India hospital chain. He estimated that in the month of May, vaccine doses of Covishield administered at Rs 1,200 (US$16.4) contributed about 20% of his chain’s revenue and about 10% of its earnings. The vaccine market can give large hospitals one good quarter, he added. 

The government has been delicately walking between setting boundaries for the free market and incentives to promote vaccination. But it is jittery now. Last week, for instance, India’s health ministry asked hotels to stop offering vaccine packages in collaboration with private hospitals. This was after a social media post of a famous hotel chain offering a vaccination package in Hyderabad’s Hitec City went viral. 

On one hand, the government does not want to cap the price of vaccines in order to incentivise private hospitals to put their heft behind getting over 300 million people—a quarter of India’s population—vaccinated. The private hospitals know that vaccines are the most prized commodity among those who can afford it in the cities, said the co-founder of a Gurugram-based health-tech company that works with a network of clinics and small hospitals. 

Over the last fortnight, the media has criticised the government over issues with the free market for vaccines, which have adversely affected access and equity. These include greater control of large hospitals on the supply of vaccines, a possible premium package market developing with hotels, and the Supreme Court’s critique of the government’s liberalised vaccine policy. By not allowing hospitals to work with hotels, the government has taken a stand that there are some rules that limit this market. And exorbitant pricing has set the stage for more such rules. So, the free vaccine market is not entirely free.

That’s it from us today.

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