Editor’s Note: According to a new GlobalData report, Mexico’s pharmaceutical industry will be worth approximately $22.5 billion by 2020. Combined with the medical device industry—expected to grow to $5.4 billion over the same period—the total value of the Mexican healthcare market will be $27.9 billion. Clearly, Mexico is a growing market, offering drug and device manufacturers significant opportunities for expansion. The article below shares insights into Mexico’s substantial market potential—as well as some of its challenges. ManattJones offers exceptional knowledge and firsthand understanding of the Mexican market, with an on-the-ground team in Mexico City and a network that reaches into the highest levels of federal, state and municipal governments.

Are the five megatrends shaping pharma’s next decade in the United States also key change drivers for Mexico? Certainly, there are some commonalities for companies doing business in both countries—but there are also major variations. To succeed in Mexico, manufacturers can’t just “export” the strategies they adopt in the U.S. They must understand the unique challenges and opportunities that Mexico presents for life sciences firms—and craft plans customized to the demographic, economic, cultural and regulatory environment of the Mexican market.

Opening Doors—and Overcoming Hurdles

Mexico is experiencing the “demographic bubble” that we saw in the United States during the post-World War II baby boom. Concurrently, there have been increases in the average lifespan, leading to higher demand for treatments of non-communicable diseases (NCDs). Those changes—combined with the growth of Mexico’s middle class and the economic reforms President Enrique Peña Nieto and the Mexican Congress are introducing—have begun to reduce the differences in standards of living between the two countries.

Narrower differences, however, do not translate into the convergence of our healthcare systems. The fact that the United States shares many healthcare challenges with Mexico does not mean companies can operate the same way in both countries and expect to achieve equal success.

The historic and cultural variations between our nations—along with the still-significant gap in per capita income and inequality—remain key determinants of how our respective systems work. For some segments of the healthcare sector, these differences create challenges and even impediments to doing business. For others, the differences can open doors to important new opportunities. Reviewing each of the five megatrends individually reveals the potential obstacles and opportunities the Mexican system holds for healthcare stakeholders.

From Volume to Value: Increasing Cost Pressures and Growing Rates of Non-Communicable Diseases

As in the United States, cost pressures are central to healthcare delivery in Mexico. Mexico has seen important economic changes over the past two decades, since the implementation of, but not solely due to, NAFTA. The changes have driven the growth of the middle class. They also have dramatically increased life expectancy, from 70 in 1990 to 75 in 2011.

Along with the overwhelmingly positive changes have come some downsides that have altered the composition of the services that Mexican healthcare agencies provide. As incomes have risen, so has the prevalence of NCDs. Today, Mexico has one of the highest rates of diabetes in the world, as well as significant incidences of coronary disease and some cancers. As a result, Mexico is especially vulnerable to both the increasing costs of treating NCDs and the indirect costs of not treating them.

What’s driving the soaring rates of diabetes? Mexico has surpassed the U.S. as the most obese country in the world – and not because Americans have gotten thinner. In late 2013, the Peña Nieto administration sought to address the obesity challenge by proposing an additional tax on soft drinks sweetened with sugar, as well as on products with extremely high caloric content. Although the so-called “junk-food tax” passed, revenues were not allocated specifically to healthcare. Therefore, the tax represented a missed opportunity to augment strained healthcare budgets.

What does this mean for the industry? In simple terms, higher demand for healthcare services will not, at least in the short term, be met with greater access to resources. Just as in the United States, pharmaceutical and device manufacturers will increasingly need to look for creative and innovative approaches, such as risk-sharing agreements, when selling to government agencies.

For the Mexican healthcare system truly to deliver higher value to its consumers, it will need to refocus its resources. President Peña Nieto observed in his National Development Plan (issued in early 2013) that the healthcare system currently focuses more attention on cures than on prevention. This concentration on treating disease rather than preventing it may, in part, cause the bottlenecks at the primary care level within the public system. While attention improves at secondary and tertiary care levels, changes in the overall approach to healthcare will be required to enhance the system’s efficiency.

(Non)Centrality of the States: Understanding the Relationships of Mexican States to Federal Institutions

The Mexican healthcare model is significantly different than the U.S. model in terms of the role of the states versus the federal institutions. Mexican states have a more limited role than their U.S. counterparts. In fact, concerns about misuse of funds and unacceptable differences in care levels among the states have prompted the federal government to exert greater control over state delivery of healthcare.

When Mexico’s universal healthcare program, known as Seguro Popular, was established in 2003, individual states were responsible for providing healthcare for the uninsured. Although Seguro Popular is only one of five federal healthcare programs, it is among the largest, with roughly 50 million beneficiaries.

When it was established, Seguro Popular was funded through allocations from the federal government and state governments, supplemented by contributions from participants. Each state would determine which services to provide and individually procure the necessary drugs and devices. More recently, Mexican federal authorities have sought to limit or control states’ flexibility, ensuring healthcare funds are spent more efficiently. How this effort to assert greater fiscal responsibility and uniformity of care for the uninsured will play out is still unknown. Increased centrality could lead to greater price uniformity across the country. At the same time, it also could expand the market for some medicines and devices.

Mega Health Systems: Identifying Where Consolidation Might Occur

Any consolidation in the Mexican healthcare system will occur within the public systems in an effort to establish a National Universal Health System that would provide healthcare access, regardless of employment or economic status. As noted above, there are five main public providers of healthcare in Mexico. Participation is determined by an individual’s employer (or in the case of Seguro Popular, the absence of a formal employer).

Mexico’s Social Security Institute (IMSS) is the largest of the five systems—and the biggest social security institution in all of the Americas—providing healthcare services to 53 million beneficiaries. Seguro Popular is second largest, covering those without a formal employer. The other three plans cover government workers (excluding the military), defense department employees, and employees of the state-owned petroleum company, PEMEX.

During Pena Nieto’s 2012 presidential campaign, he suggested consolidating Mexico’s five public systems into a single institution. More recent discussions have focused on establishing “portability” under which beneficiaries of one system could receive treatment at facilities belonging to another, a practice which is currently prohibited. Lifting the prohibition could provide more efficient and rational use of healthcare facilities, while also encouraging best practice sharing within and across the institutions.

The reaction of the powerful healthcare unions, and their willingness to accept systemic changes, will be the key challenges to introducing portability successfully. Also challenging will be establishing the rules and technical capacity to share patient data and manage reimbursement across the institutions. Mexico will need to develop innovative solutions, if it is to create a more seamless and efficient system.

On the private side, economies of scale may drive consolidations, just as in the United States. Mexico has a parallel private system which caters largely to its more affluent citizens. Those who can afford it turn to the private system seeking:

  • More diverse treatment options without the constraints of institutional formularies,
  • Individualized attention from physicians, and above all,
  • Shorter waiting times for treatment.

Private hospitals and healthcare systems are looking for opportunities to improve their negotiating position vis-à-vis distributors and manufacturers through outsourcing hospital management. This trend may provide opportunities for outsourcing discreet services within a hospital system, such as laboratory analysis or routine procedures.

Employers Recalibrate: Exploring Medical Tourism

The trend toward employer recalibration in the United States may lead some companies, providers and beneficiaries to contemplate healthcare or medical tourism in Mexico. Medical tourism may look especially appealing to states on the Mexican border.

Mexico already attracts numerous Americans each year for care not typically covered by insurance plans. Popular categories for medical tourism include dental and vision care, as well as weight-loss surgeries. Those seeking to try experimental therapies not approved by the FDA also often travel to Mexico for treatment.

There are several reasons providers, employers and employees may be seriously exploring programs that permit (but do not require) beneficiaries to seek care in Mexico. The savings from choosing treatment in Mexico vs. the United States are substantial, ranging from 36% to as high as 89%. In addition, large populations of Mexican and Mexican-American residents live within miles of the border, making Mexico a convenient choice for cost-effective healthcare. Mexico also can be a good alternative for surgeries which require longer rehabilitation times, such as orthopedics, as well as for those that have become routine, such as coronary bypasses.

Some hurdles must be overcome before medical tourism can reach its full potential. Obstacles include the perception of security problems in Mexico, patient and U.S. physician confidence in quality of care, and uncertainty about insurance coverage. While none of these issues can be easily addressed, the pressure on both providers and patients to control costs may drive them to give greater consideration to medical tourism.

Healthcare Everywhere: Dealing with Limited Access

The development of new technologies will have a similar impact in Mexico as in the U.S. and may generate similar opportunities. One key difference, however, is the more limited access to broadband in Mexico. According to the Organization for Economic Cooperation and Development (OECD), the United States has nearly three times as many broadband subscriptions per 100 inhabitants as Mexico overall—and the difference in rural areas would likely be much greater.

Inequality in Mexico is manifested in many ways, not least of all in access to technology. Wealthier, urban Mexicans have access to all the same technologies available in the United States, while their poorer, rural counterparts do not. These access differences – both in terms of broadband connectivity and the resources necessary to obtain devices to connect to the Internet – place limits on the immediate ability to implement m-health solutions.

At the same time, the potential to provide new technologies, expand healthcare to new populations and reduce the costs of providing care to existing patients is exciting. In particular, telemedicine may help Mexico address the efficiency challenges currently plaguing its healthcare infrastructure.

Conclusion

Trends prevalent in the United States will play out in Mexico, as well. The differences in the healthcare systems and the populations they serve, however, will lead to very different outcomes.

Mexico is currently experiencing a demographic bubble, which will be followed by a commensurate increase in retirees and the associated growing need for healthcare. At the same time, the standard of living is improving, driving a growing demand for better healthcare. As a result, despite its issues, Mexico presents important expansion opportunities for drug and device manufacturers.

While the private insurance model provides an outlet for those frustrated with the deficiencies of the public system, the Peña Nieto administration must look to “do more with less” to address the expanding healthcare market. Healthcare reform has not received the level of attention that has been extended to energy and labor reform. As those reforms bear fruit, however, President Peña Nieto and his team will inevitably turn to healthcare, where both the possibilities and the challenges remain great.