Outsourcing helps to cut costs and improve efficiency in Mexico health

In 2007 the federal Hospital Regional de Alta Especialidad del Bajío in León, Guanajuato, became the country’s first hospital to be opened under a public-private partnership (PPP) model. Since then two other major federal PPP hospitals have been opened in Ixtapaluca, Mexico State and Ciudad Victoria, Tamaulipas.

Several state governments have also launched their own PPPs in the sector, for instance, Mexico State has four hospitals that operate under PPP models. In addition, there is a wide range of services that are outsourced to the private sector within the public health care system. Industry stakeholders have estimated that the number of PPPs deployed within the health sector have roughly doubled since 2012, and there is plenty of room for further collaborations in the coming years. All PPP projects in Mexico are tender based and are bid out on an annual basis, for instance, there were 12 PPP projects tendered at the start of 2017, three of which were related to the health sector.

Process

For PPP health facilities, the private provider that wins the government tender operates the non-medical operations of the facility for 23 years. The company that wins the bid is often a construction firm, which sometimes only has the knowledge to build the hospital structure. The company that maintains hospital operations is commonly an outsourced third party. Services run by the private sector are all logistical and operational, with the exception of two medical services – laboratory services and haemodialysis. All other medical services are operated by the public sector, and state and federal governments provide all of the medical staff within PPPs structures. This model aims to limit the financial risks of the state and raise the standards of medical care.

“The third party operating the hospital is in charge of ensuring 705 technical standards that are stipulated in PPP contracts, such as service timetables,” Antonio Hurtado, director of medical and quality control at IGSA, a private firm that operates Hospital Regional de Alta Especialidad Zumpango in Mexico State, told OBG. “Penalties are put on the operator if it fails to meet these standards and are subtracted from the monthly quotas that are paid out. This holds providers to a higher standard of service.”

Integrated Services

As the government attempts to tighten its budget, many public health care providers such as the Mexican Institute of Social Security (Instituto Mexicano de Seguridad Social, IMSS), are turning to the private sector outsourcing concept known as integrated services. Without having to invest in expensive equipment or infrastructure, it is often more efficient to contract private operators, not just for equipment or infrastructure provision, but for the provision and delivery of services. “Integrated services are transforming the way health care is delivered,” Jaime Cervantes, CEO of integrated services provider Vitalmex, told OBG. “It’s hard to argue against a model that speeds up processes, optimises resources and reduces overall spending by around 35%. The challenge, however, is in their execution.”

In addition to the significant costs savings for the state, integrated services have also improved the quality of care for patients. This is because bad service results in financial penalties for the private operator. Likewise, the trend towards integrated services is beneficial for the private sector as it provides new business opportunities. Mexico is increasingly becoming a target for investors seeking to work with relatively open government entities. “Mexico is the only country in the region that uses integrated services, which makes it one of the most advanced in Latin America in this respect,” Rogério Sanson, former managing director of integrated services provider Getinge México, told OBG.

IMSS, which is Mexico’s largest public health care provider with over 63m customers, has substantially increased its use of integrated services. In 2011 it had assigned MXN4.8bn ($259.4m) for integrated services, and by 2016 this had risen to MXN8.3bn ($448.5m).

Labs

Due to capacity constraints, both haemodialysis and diagnostic services are almost entirely outsourced to private service providers. “Clinical laboratories with diagnostic capabilities are in a boom. These labs, which have an incredible amount of medical devices, are now in front of almost all public health centres,” Hurtado told OBG. “Chemotherapy mixes are a very highly regulated, so public facilities often outsource to labs that can make these mixes more efficiently and assume some of the cost and risk.” Cleaning and food services, facility management and sterile utensils are often provided by private companies as well. IMSS has opened tenders for sterilisation centres and surgical units. However, there has been no indication that medical personnel will be brought in from the private sector.

Implementation

In spite of the attention around the PPP model, implementation remains limited. For example, out of the Institute of Social Security and Services for Government Employees’ four hospitals approved under the PPP scheme, only the one in Merida, Yucatán has entered into service. Furthermore, various government bodies have released conflicting estimations for the total costs of these projects, raising questions of regularity and transparency.

“The PPP concept is great for Mexico, but unfortunately progress has been slow. Although private operators are eager to participate in bids and get projects moving, there is a lack of organisation in the public sector,” Rogério told OBG. “To move PPPs forward and make this a success, the public and private sectors should have their goals and objectives aligned.”

However, given Mexico’s complex health care system, which has multiple public health care providers run by a mix of government departments, there needs to be efforts to coordinate and optimise their resources more effectively, not just their individual relationship with the private sector. This lack of coordination is partly due to the different objectives of stakeholders.

“In addition to the fact that there is little communication between stakeholders, there are also many health care systems within the public sector,” Jorge Moran, CEO of health services provider and consulting firm Genetics and Health, told OBG. “This makes it difficult for resources to be shared and used efficiently.”

Future Investment

The bidding processes for most PPP projects were halted in 2018 as the government prepared for the general elections. Over the previous six years, however, PPPs have been mostly implemented in infrastructure and transport projects, with these receiving higher levels of investment and generally progressing faster than PPPs in the health sector. In 2017 only 25% of the PPP projects that were opened for tender were health related. Nevertheless, there has been some progress in recent times. In March 2018 IMSS signed three PPP agreements for the Hospital Regional de García in Nuevo León, and the general hospitals in Tapachula in the southern state Chiapas and Bahía de Banderas in the western state Nayarit.