Accounting Rule Change Affects Pediatric Vaccine Stockpile

A change in accounting rules has forced the hands of the companies that make pediatric vaccinations and has caused a serious shortfall in the government's vaccine stockpile.

Under the new rule, companies can't recognize the revenue for a vaccine until it is given to a patient, so selling to the stockpile no longer benefits the companies, the Washington Post reported. Three of the four drug companies that supply the Pediatric Vaccine Stockpile are refusing to sell to the government.

Because the shots sit in manufacturers' warehouses until the government calls for them in emergencies, they are considered unsold by auditors and Wall Street.

The accounting change came after the SEC issued a bulletin in December 1999 seeking to clear up confusion about revenue recognition, the Post reported.

Companies often use phony or incomplete sales to enhance their bottom lines. According to the Huron Consulting Group, over the past five years problems with revenue recognition were the leading reason U.S. corporations had to amend or refile financial reports. There were 253 such restatements last year, a record, the Post reported.

While the SEC says its bulletin does not amount to a new standard, the agency says it gave companies time to comply. PricewaterhouseCoopers, which audits all four vaccine makers, sent clients an analysis in January 2001 noting that "we expect the implementation . . . to have a significant impact on the revenue recognition reporting practices of a number of [companies]," the Post reported.

The vaccine situation came to a head late last summer when CDC asked the manufacturers to make new sales to the stockpile. Three said no. Only Merck said yes, the Post reported.

Created by Congress in 1983, the stockpile is supposed to contain enough vaccine to supply the nation's needs for six months. Its virtual collapse is an acute embarrassment to the Department of Health and Human Services, the Centers for Disease Control and Prevention, and the vaccine makers, the Post reported.

"It's absurd that we're not going to have pediatric childhood vaccine reserves in place because of some accounting," said Rep. Henry Waxman, D-CA.

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