Mexico's government turns to private sector to cope with rising demand

In January 2016 President Enrique Peña Nieto’s first public appearance was to inaugurate Chiconcuac Community Hospital. “The first thing we want is health,” he announced at the event. “Let this be a year full of health, achievements and accomplishments, which is why I am devoting the first public events of the year to the theme of health in our country.” In his three years as president the federal government invested nearly MXN20bn ($1.2bn) in expanding, building or modernising 500 hospital units and over 2700 outpatient centres across the country. “It is a commitment that we are fulfilling every day in the effort, investment and infrastructure we are developing in the area of health, for the benefit of all Mexican families,” he said. However, the expansion of health infrastructure is increasingly being achieved through private enterprise.

Modern Era

The 21st century has brought new challenges to the Mexican health care sector. The growth and ageing of the population, combined with the rise of non-communicable diseases has put increasing strain on the provision of public services. To combat this pressure Mexico has, since 2002, turned to public-private partnerships (PPP) in order to build critical social infrastructure. The PPP model allows governments to receive infrastructure now and pay for them over time.

Projects are tendered to private companies, which receive a guaranteed return on investment in return for the design, construction and operation of the facilities. Mexico currently has six operational PPP hospital projects and a further six in various stages of planning and construction. The expansion of the model opens new opportunities for private firms.

First Generation

The PPP model has been widely used in the UK, which has 113 PPP hospitals, and British asset management and construction consultants Currie & Brown were hired as technical advisors by the Ministry of Health to develop a model applicable to the Mexican health care system. The first social infrastructure PPP was the Bajío hospital in Guanajuato state. Completed in 2007, the 184-bed hospital was designed, built and financed by Acciona. The Spanish firm also provides non-medical operations until the hospital is returned to the state in 2030.

In late 2010 – following advisory work from the International Finance Corporation – the government signed PPP contracts for two 120-bed hospitals, to be constructed and run for $60m each. The first, in Toluca, was awarded to Promedex consortium and the second hospital, in Tlalnepantla, was constructed by Marhnos, a local construction group. Since then the model has been expanded and developed, and by March 2017 there were a total of six PPP hospitals in Mexico, with a total capital expenditure of $455m operational in the country, placing the country joint fifth in terms of numbers of PPP hospitals behind the UK, Canada, Australia and the US.

However, the first generation of PPP hospitals faced a number of challenges, according to Antonio Hurtado, director of medicine and quality management for IGSA Medical Services, a medical equipment provider. “The original PPP model involved splitting the country into 16 regions to build a high-speciality hospital in each one,” Hurtado told OBG. “The idea was to decentralise specialised hospitals away from Mexico City. However, many of the projects were never built, due to financial restrictions, and it proved hard to provide the specialist medical staff needed in more distant regions.”

In a November 2015 report entitled “Lessons from Latin America: The early landscape of health care public-private partnerships,” accountancy firm PwC noted that while Mexico, along with Chile and Peru, led the pack in terms of PPP health care, “Mexico’s initial projects involved tertiary facilities located outside of the capital region, where social need was high but availability of resources was low. Consequently, these hospitals have struggled with physician recruitment and low occupancy rates during their initial years of operation.”

New Model

In January 2012 Mexico passed the PPP law (see legal framework). The law clarified existing federal legislation, strengthened the selection and decision making process, provided equal rights to foreign and local firms, and determined that the bidding process be undertaken with sufficient public notification. The new law applies to all federal PPP projects and all state PPP projects that receive more than 50% of their funds from the federal government. Importantly, the new law also opened the door for unsolicited proposals from the private sector, which had the effect of increasing activity in infrastructure projects. For public health projects, private firms bid for contracts that include the design, construction, provision of equipment and the provision of non-medical operations for a period of 25 years.

Second Generation

Under the 2012 legislation seven further hospital projects are being developed. The smallest, a 66-bed complex in Mérida, the capital of Yucatán state, began construction in October 2016, and is due to receive its first patients in early 2018 following an investment of MXN603m ($36.3m).

In September 2016 the Mexican Institute of Social Security (Instituto Mexicano de Securidad Social, IMSS) opened the tender process for a new hospital in the state of Chiapas, where health care provision is at its weakest. The facility will contain 180 beds and 31 consulting rooms and will cost MXN1.4bn ($84.4m), of which the federal government contributed MXN563m in 2016 and will add a further MXN794m ($47.9m) in 2017.

In January 2017 IMSS relaunched the tender process for a new hospital in Bahía de Banderas in Nayarit state. Consisting of 32 consulting rooms and 144 beds, the estimated capex is MXN1.1bn ($66.3m) to be paid by the federal government. In the same month construction began on a 155-bed hospital built for the Institute of Social Security and Services for Government Employees’s (Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado, ISSSTE) patients in Villahermosa in Tabasco state. The project is scheduled for completion in mid-2018 with a price tag of MXN900m ($54.2m). The three biggest projects will be built in central and northern Mexico. In the south of Mexico City an ISSSTE hospital will be developed in a building donated by city authorities.

The 365-bed ISSSTE complex will cost an estimated MXN1.5bn ($90.4m), and is due to receive its first patients in October 2018. In the central Mexico State, a new hospital in the city of Tepotzotán featuring 260 beds and 43 consulting rooms, is expected to cost around MXN1.7bn ($102.5m). Finally, in Nuevo León, the municipality of García will receive a new 260-bed and 38-consulting-room hospital for a total project investment of MXN1.8bn ($108.5m).