Editor’s Note: The following article is adapted from a presentation ManattJones Global Strategies delivered at the Woodrow Wilson Center’s Mexico Institute.
Healthcare is an extremely important but often overlooked element of Mexico’s national development and economic growth. When President Enrique Peña Nieto assumed office in December 2012, there were high hopes that he would propose systemic reforms to Mexico’s inefficient and inadequate healthcare system. Though successful in passing historic reforms in other key sectors, such as energy and telecom, he chose not to tackle healthcare with the same vigor. As a result, systemic healthcare reform, thought widely understood as necessary, will not occur until at least 2019. (Peña’s successor will take office on December 1, 2018.)
Delayed reform, however, provides opportunities for private investment, either in partnership with government or alone, in a range of areas. Increasing demand for better care, including through use of new technologies, devices, and medications, will require new approaches to funding, financing and access.
The Healthcare System in Mexico
Healthcare in Mexico is provided through six public systems which are largely independent of one another. Membership is based on one’s employment status. Portability—the right to access treatment from one system for patients belonging to another—is extremely limited. Some Mexicans are covered by multiple systems through spousal coverage or by holding or having held positions in the private and public sectors. Care across the systems varies, with different drug and device formularies, standards of care, and wait times for service.
Overall, the healthcare system is underfunded. Mexico spends about 6.2% of GDP on healthcare, whereas the Organization for Economic Cooperation and Development (OECD) average is 9.6%. Of this comparatively small expenditure, roughly 45% is out-of-pocket spending. Mexicans with greater financial security are able to seek treatment in private practices. In addition, administrative costs, at roughly 10%, are higher than most OECD countries. Essentially, Mexico spends too little on healthcare and spends its limited resources poorly.
System-Driven Opportunities: Institutions Find Ways to Stretch Budgets
The pressure on the Mexican healthcare system is driving public sector institutions to explore innovative mechanisms to improve efficiencies through public-private partnerships (PPPs) and outsourcing of services. Integrated services—in which a provider is responsible for not only the medical technologies, treatments and supplies but also for delivering them to patients—are increasingly common. Mexico’s largest healthcare provider, the Mexican Social Security Institute (IMSS), relies heavily on this mechanism to provide dialysis to its patients at lower cost than in its own facilities. The Mexican Institute for Social Security for State Workers (ISSSTE) will soon announce plans to build six new hospitals through a 25-year private concession in which the winning bidder will build, equip and administer the facility.
Integrated services must be carefully regulated to ensure that pressure to reduce cost does not place patient health at risk. There are anecdotal stories of reusing items, such as gloves or syringes, that should be discarded after a single use.
High-quality providers who can guarantee appropriate use standards will be attractive to federal institutions. As the trend toward seeking innovative ways to provide services continues, we can anticipate opportunities for private sector involvement in a range of areas, from primary care to surgical procedures to rehabilitation services. In the future, Mexico may follow the United States in moving toward more outpatient care and greater use of outpatient surgery centers for treatment.
Private Sector-Driven Demand for Reform
Industry and businesses will drive demand for systemic reform and alternative forms of treatment. Inadequate healthcare funding has significant impact on productivity, both overall and within specific sectors—a fact increasingly understood in Mexico.
Recently, the U.S. Chamber of Commerce issued a study1 which assessed the impact on healthcare delivery and productivity in 19 countries, including Mexico. The study found that the economic cost caused by productivity losses from presenteeism (working while sick), absenteeism, and early retirement due to ill health is equivalent to over 5% of the total labor product.
ManattJones recently conducted a similar study to assess the impact of inadequate and/or inefficient provision of healthcare services on the productivity of the automotive industry in the state of Guanajuato. Our study found an impact of 7.3%, roughly 80% of which came from presenteeism. Increasingly, one would expect employers and potential investors to take access to healthcare into account when making investment and expansion decisions. States that have more limited access—such as longer wait times to see doctors, longer travel times to reach doctors, and pharmacy shortages—will lose investment to those states that do a better job of providing healthcare.
Private-Sector Response to Demands on the Public Healthcare System
Large employers in Mexico have established and will continue to establish primary care facilities on their premises to ensure higher-quality, more timely care. Addressing the needs of these employers provides opportunities for innovation and for investment. In addition, the high rate of out of pocket expenditure demonstrates that Mexicans are willing to spend their own money on healthcare, creating a robust market for quality healthcare service delivery.
It is important to note that Mexican physicians are highly skilled and well trained, often in the United States or Europe. Most split their time between public facilities and private clinics or hospitals since public sector wages are inadequate. As a result, Mexican physicians gain exposure to technologies, devices, drugs and techniques in their private practices that are not available through the limited formularies in public facilities. Patients who can afford private care rather than depending solely on federal institutions can take advantage of doctors’ full knowledge and have access to more sophisticated treatments.
It has not yet been determined how increasing public sector expenditures will be covered. It is likely in the coming years, however, that supplemental healthcare insurance will expand. Currently only about 6% of Mexicans have private insurance, but this number is likely to rise with the growing demand for private healthcare.
Recognizing the need for alternatives to the public system, some private employers already offer supplemental insurance for their employees. The cost, and changes regarding deductibility after the 2013 fiscal reform, however, prevent employers from expanding these programs to cover more employees. Insurance companies could explore creative opportunities to offer coverage to individuals currently covered only by IMSS or ISSSTE.
Other Opportunities for Private Sector Engagement
1. Clinical Trials
Mexico is an ideal location to conduct clinical trials for drugs and devices. Mexican researchers are well trained, often in the United States or Europe. In addition, Mexican trial data can be included in multicenter trials for Food and Drug Administration (FDA) approval.
Many companies already conduct trials in Mexico. To attract more clinical trials, the government has taken steps to reduce red tape and accelerate the trial approval process, while not endangering public health. Mexico’s regulator, COFEPRIS, has also updated the legal framework and standards for clinical trials, taking into account the balance between promoting economic development and protecting patients. COFEPRIS also has expedited its regulatory approval process, encouraging multinational companies to launch their products first in Mexico.
2. Research/Academic Partnerships
Mexico has very strong academic institutions and hospitals—some of which already partner with U.S. institutions—and is seeking to establish more. Research and clinical partnerships that provide opportunities for training and best-practice sharing are of greatest interest. The key to successful partnerships is to develop a collaborative approach designed to improve capacity in Mexico while providing research and training opportunities for U.S. institutions.
3. Medical Tourism
Mexico remains an attractive destination for corporate medical tourism programs. Medical care in Mexico, especially in hospitals with international accreditation, is equal to care in the United States but at a considerably lower cost. Millions of Americans already travel to Mexico for treatments not covered by insurance. There are significant opportunities to develop programs that provide surgeries and treatment that are covered by insurance—but could be performed for far less expense in Mexico than in the United States.2
Despite a desperate and well-known need for additional investment in its healthcare system, Mexico’s current administration will not have the needed resources to address systemic reform. As a result, Mexico faces an unmet demand for quality medical services that can be effectively addressed through public-private partnerships or direct provision of services. Opportunities exist in several key areas, including the provision of services, clinical trials, research partnerships, and medical tourism.
1 Health and the Economy: The Impact of Wellness on Workforce Productivity in Global Markets, A Report to the U.S. Chamber of Commerce’s Global Initiative on Health and Economy.
2 For more information on medical tourism opportunities in Mexico, see our March 2016 webinar, http://www.bna.com/health-care-without-m57982066639/