As coverage expands, important benchmarks have been set

Though it enjoys a regional reputation for its quality, the Colombian health care system has experienced significant difficulties in recent years. While seeing advances in coverage in the past two decades, and inching closer toward attaining universal coverage, escalating costs from increased coverage and an ever-expanding mandatory health plan have put considerable financial pressure on the sector.

As a result of a system-wide cash flow crisis, health care standards have fallen, in part prompting President Juan Manuel Santos in 2013 to introduce a reform aimed at reducing costs and elevating the current quality of services.

Strong opposition, primarily from the labour movement, has considerably reduced the scope of the reform, creating some uncertainty around what impact the reform can have in terms of addressing the sector’s immediate challenges. At the same time, however, a dynamic private sector is pushing medical tourism forward, in the process adding to the country’s expanding infrastructure capacity.

System

Owing to the health care reform of 1993, which established Law No. 100, Colombia operates one of the most extensive health insurance schemes in Latin America. The law created the General System of Social Security in Health (Sistema General de Seguridad Social en Salud, SGSSS), funded by public and private contributions under a dual scheme – contributory and subsidised.

The contributory system applies to workers in the formal economy. Employer and employee provide monthly contributions of 4% and 8.5%, respectively, for a total deduction of 12.5% of the employee’s salary. Contributions are made into the Solidarity and Guarantee Fund (Fondo de Solidaridad y Garantía, FOSYGA), a national fund which distributes premiums to the more than 20 Health Service Advisors (Entidades Promotoras de Salud, EPS) operating within the contributory scheme. At the end of 2012 this scheme covered nearly 20m Colombians, 44.64% of the population and around 40% of the costs of the health care system. The subsidised scheme, which applies to the unemployed and most economically marginalised, is funded by the government in addition to an equity contribution of 1.5% from the contributory scheme.

At the end of 2012, this scheme covered around 22.5m Colombians, or 50.37% of the population, according to the Ministry of Health and Social Protection (Ministerio de Salud y Protección Social, MinSalud). Funds are channelled to local governments, which then set contracts with the more than 40 EPSs under the subsidised scheme.

EPS

The vast majority of EPSs are private. They manage public and private resources, and act as intermediaries between patients, the authorities and service providers. Colombians choose which EPS they wish to be affiliated with, giving EPSs – about 60 in total – power to choose services on their behalf and allocate resources. EPSs contract with a network of Health Service Entities (Instituciones Prestadoras de Salud, IPSs) and play an important role in the market by using their leverage to keep prices down.

In many ways, the functions performed by EPSs are similar to insurance companies in the US. They collect premiums and receive a 10% remuneration for their services. However, the government dictates the value of the premiums, and coverage of services is determined by the Mandatory Health Plan (Plan Obligatorio de Salud, POS), introduced in 1993. The POS establishes the package of services, procedures and pharmaceuticals to which all Colombians are entitled. Initially, the POS for the subsidised scheme represented 60% of the coverage offered for the contributory scheme. However, since July 2012 the POS is the same for affiliates in both schemes.

In the two decades since the establishment of Law No. 100, health care provision has expanded significantly, and Colombia is now close to achieving universal coverage. In December 2012, some 91.1% of the population was enrolled under the SGSSS. In mid-2014 the figure was estimated to be 96%.

Spending

The funds from both schemes amount to COP35trn ($17.5bn), according to the Colombian Association of Comprehensive Health Care Providers (Asociación Colombiana de Empresas de Medicina Integral, ACEMI). Another COP10trn ($5bn) is spent on other expenses, such as public health and prepaid medicine, and optional private pre-paid care, which provides affiliates with access to faster care and better facilities. Figures from the World Health Organisation (WHO) show that in 2011 private prepaid plans comprised 32.3% of private expenditure on health. Given how extensive the POS is, out-of-pocket expenses, including private insurance, are low, representing around 18% of total health expenditure and 60.9% of private expenditure in 2012. Penetration rates for private insurance remain low.

According to ACEMI, in recent years total health expenditure has reached approximately COP45trn ($22.5bn) annually. In 2012 the public sector was responsible for 75.8% of total spend, while the private sector made up the remaining 24.2%. Total health expenditure represented 6.8% of GDP in the same year, according to WHO. Despite its reputation for quality health care, and even though annual spending per capita has increased consistently in the past decade, by regional standards it remains low, at $530 in 2012, according to the World Bank. Other sources, including the WHO, put it as high as $723.

When the system was designed in 1993, it was anticipated that around 80% of the population would be in the contributory scheme, with most of the rest in the subsidised scheme. However, with a large portion of the population operating in the informal economy, the current ratio is almost 50-50, with only about half of the population contributing.

While equal coverage for both schemes has made the system more egalitarian, it has also added financial pressure. This was exacerbated by Law No. 100 defining health care as a “fundamental right”. When a patient is denied coverage for a procedure or treatment, he can file a writ of protection, which must be seen by a judge within 10 days. The judicial system has consistently upheld this obligation for the state, hence the significant expansion of POS. As such, almost every medical procedure is covered. CRISIS?: Consequently, demand for services has increased considerably. According to ACEMI, the per capita annual average consultation per patient was 1.5 before the law. Now it is 3.5, more than double.

With the rise in demand for health services, and the rapid introduction of new technology, mainly pharmaceuticals, health costs have ballooned. The introduction of new technology alone is estimated to have brought costs up by around 80%.

In this context, since 2005-06, the health system has faced notable pressure, leading sector specialists to talk of a crisis. One aspect is the financial challenge many institutions are facing. The government-run FOSYGA is estimated to owe more than COP3trn ($1.5bn) to the various EPSs, which in turn has affected the EPSs’ ability to make payments to the IPSs, igniting a system-wide cash-flow crisis.

According to the Colombian Association of Clinics and Hospitals, EPSs owe close to COP5trn ($2.5bn) to IPSs. Indeed, many EPSs are facing serious financial management issues. In an attempt to rescue EPSs from possible insolvency, the government has taken over many of them. The public sector has been hit the hardest, while local government authorities have incurred high levels of debt and are also behind on payments to IPSs. The most visible feature of the crisis, however, has been the deterioration in health care standards, with emergency rooms congested and patients in need of elective procedures facing delays.

Jaime Arias Ramírez, the executive president of ACEMI, told OBG, “Medical appointments are rushed to around 15 to 20 minutes, and there is a lack of intercommunication between institutions to give continuance to a patient’s care.” According to Arias, there is a need to re-orientate the system towards a primary care model that includes a family doctor.

Reform

Discontent among the general population as well as medical practitioners prompted the government of Juan Manuel Santos in 2013 to introduce a reform aimed at reducing costs and improving the quality of the system.

The reform, approved by Congress in October 2013, started with an ambitious agenda, but its scope has since been significantly reduced. One of the remaining changes entails converting FOSYGA into a new entity, entitled My Health, or “Salud Mía” in Spanish, which would be responsible for managing all of the health resources and dismantling the compensation system under which EPSs now operate. Payments through the newly created fund would be made directly to the IPSs, only after treatment is approved, ensuring more government oversight. A second change involves the POS, which would be converted into a new plan known as My Plan, or “Mí Plan”, though this is essentially only a change of name.

The most controversial issue of the reform, however, is the role of EPSs, which have been at the centre of investigations involving the mismanagement of funds. Further, EPSs have been known to engage in unethical practices, such as prohibiting clients from using certain IPSs or steering them towards IPSs owned by the same EPS. Several EPSs have been under investigation and sanctioned for collusion.

Under the re-designed system, EPSs would be converted into health managers. They would no longer be responsible for making payments to IPSs directly. Instead, they would simply approve payments, which will be made by Salud Mía. The reform also proposes to link the remuneration that EPSs receive to results achieved, that is, the quality of care they are able to negotiate for their patients.

The proposals have been received with much opposition, with arguments citing that the reform fails to address overarching problems in the system, in particular the role of EPSs. There is a national debate on whether this intermediary layer is in fact needed and whether it should be eliminated completely. Some argue that it is needed to apply downward pressure on health costs. Gustavo Morales Cobo, superintendent of health, told OBG, “This layer is needed to prevent the direct relationship between health providers and the entity paying them. Otherwise, there would be incentives to spend more, order more procedures, more tests, more surgeries.”

The reform legislation was upheld by the Constitutional Court in April 2014 and at the time of writing was awaiting implementation.

Pharma

The pharmaceutical market is also undergoing prominent changes. Colombia has traditionally had some of the highest pharmaceutical prices in the region, mainly due to the lack of price regulations. In an attempt to lower health care costs, in mid-2013 the government announced the introduction of price controls on 32 of the most expensive pharmaceuticals. According to MinSalud, the measure is set to save an average of $180m annually. Since the announcement, price caps have been extended to a number of additional drugs.

As of early 2014 the list of medications affected by the price caps surpassed 500, and the number is expected to continue rising, according to a press statement by Alejandro Gaviria, the minister of health and social protection (see analysis). While the measure is likely to reduce profits for pharmaceutical companies, the industry should benefit from increased regulation. Indeed, to address the highly fragmented nature of the industry’s regulatory framework, the health reform proposes to make the National Superintendent of Health the sole supervisor of the pharmaceutical market. At present, three separate entities regulate the industry (see analysis).

The changes are ultimately geared toward strengthening the sector’s regulatory framework in line with the industry’s expansion. Colombia’s pharmaceutical market has posted rapid growth in the past few years, closing in on regional powerhouses Brazil and Mexico. The industry is estimated to have grown at around 6% in 2013. According to IMS Health, a vendor of health care data, prescription drug sales rose 5.7% in the same year, to reach $1.38bn. A combination of an uptick in coverage along with the reforms to the POS in 2012, which has helped to widen the spectrum of benefits in the subsidised scheme, has significantly boosted growth potential.

Generics

Besides expanding patients’ access to medications, the introduction of price caps is set to end the monopoly some drugs have enjoyed, while promoting the sale of generics. In recent years efforts to promote generics, including not requiring doctors to include brand names in prescriptions, have already seen a substantial increase of the generics’ share of the market, which is estimated to be near 40%.

However, the lack of regulation, particularly at the institutional level, has put into question the quality of generics being released into the market, specifically as bioequivalence or bioavailability tests are not required. In turn, this has contributed to a lack of trust in generics among consumers, who still prefer brand-name products. According to the local press, the government is working on a new set of regulations for the biotechnology segment. However, industry players are concerned that in order to reduce costs the new regulations will still allow products without the necessary bioequivalence standards to enter the market (see analysis).

Capacity

While the quality of health care remains among the best in the region, shortages at both the infrastructure and human resource level have slowed progress. According to a report by the WHO published in 2012 with data compiled between 2009 and 2011, Colombia had 16.5 physicians per 10,000 people, slightly below the Latin American average of 17.3, though above the Andean regional average of 13.3.

A study conducted by the Project Centre for Development at Pontificia Universidad Javeriana in Bogotá, meanwhile, also reported that Colombia had an estimated shortage of between 14,424 and 25,780 general practitioners and 1194 specialists in 2011. These shortages apply primarily to general surgeons and anesthetists. This trend is exacerbated by universities and unions imposing limits on the number of professionals that can undergo training. By and large, rural areas are worst affected by the shortage of medical professionals, mainly due to a lack of incentives for doctors to relocate.

In terms of hospital beds, Colombia also has some way to go to catch up with the region. The number of hospital beds per 1000 inhabitants, at 1.4, is below the Latin America average of 2.1, further reflecting the country’s capacity shortages.

Capacity

In the meantime, a special tax regime has allowed for the creation of medical clusters. Colombia already has nine health free zones where businesses, including pharmaceutical groups, benefit from a 15% income tax, compared with the standard 25% for commercial activities. Medellín Health City and the medical cluster in Santander are two of the most important in the country. These large-scale projects have contributed to a major increase in Colombia’s capacity, particularly for urban districts. However, rural areas remain underserved.

Of the existing infrastructure, in particular public, a significant portion is also in need of undergoing modernisation, as years of financial pressure constrained large-scale investments. The government seems to be starting to address this, having announced in May 2014 that COP75bn ($37.5m) would be invested to improve the national health infrastructure. The investment is expected to improve public hospitals and clinics across the country.

Private Sector

The private sector has contributed significantly to advances in infrastructure capacity. The past few years have seen the sector expand and attract foreign players eager to take advantage of the opportunities the market is offering. In 2013, in Bogotá alone two big clinics were inaugurated; Chilean-owned Clínica La Colina and locally owned Clínica Los Nogales. The same Chilean group also opened two additional facilities in Barranquilla and in Bucaramanga. Several other clinics have undergone expansion and modernisation, including Clí nica Santa Fe, which should see it double its size in the next few years. According to Fabián Francisco Londoño, vice-president of insurance company Sociedad Colombiana de Anestesiología y Reanimación Seguros, the health sector’s stable fundamentals are a key selling point. “One of the advantages of the health care system in Colombia is that it is apolitical, thus creating a climate of certainty for investors. An example of this is the increasing interest from hedge funds around the world to acquire private clinics in the country,” he told OBG.

Medical

To increase efficiency, many EPSs had adopted a vertical integration model, building their own health facilities, primarily ambulatory services, and offering more affordable prices. However, with the changes contained in the health reform, this could presage a different approach.

Mauricio Muñoz Panesso, general manager of EMI, a local company that offers home health services, told OBG, “The new regulations governing the sector are becoming more restrictive on how vertical EPSs can be. This has led EPSs to start changing their approach, focusing more on their core business and outsourcing the rest,” he said.

Capacity constraints are also creating new opportunities for public-private partnerships (PPPs), a trend that is likely to continue. Morales told OBG, “I believe that in years to come we will have to re-think the concept of public hospitals. We cannot keep justifying operating enormous public hospitals, incurring the additional costs associated with the public sector (such as public service wages and benefits), and forcing them to compete with the private sector.” For Morales, it is time for Colombia to adopt a different model. “What we should be moving towards are intensive care hospitals and emergencies, and specialised centres for different conditions.”

Tourism

The private sector is also propelling the country forward in the medical tourism industry. For the past few years the industry has registered stable growth as it lays the groundwork to reap the benefits of a growing international trend.

According to the annual report for the Productive Transformation Programme (Programa de Transformación Productiva, PTP), medical tourism posted growth rates of 64% and 61% in 2012 and 2013, respectively. In 2013 the sector attracted more than 50,000 medical tourists, placing Colombia among the top destinations in the region for that segment. Revenues from direct sales reached $220m in 2013, a substantial jump from the $130m recorded in 2012.

Among the factors that make Colombia an emerging medical tourism destination are its relatively close proximity to the US and a wide range of affordable procedures, which, according to Proexport, the national investment agency, are approximately 60%- 70% less expensive than in North America.

Raising The Bar

To raise its global competitiveness, the country has been working towards getting its hospitals and clinics to meet international standards. As of early 2014, three hospitals had already been certified by Joint Commission International, including the Fundación Cardio Infantil de Bogotá, the Fundación Cardiovascular de Bucaramanga and the Fundación Santa Fé de Bogotá. A number of additional establishments are now under review. A ranking of the best clinics and hospitals in Latin America in 2013 by América Economía, a Latin American business publication, placed 16 of Colombia’s clinics among the top 45 in the region.

According to Patients Beyond Borders, a global medical and health travel publication, Colombia has become the preferred destination for aesthetic procedures, in particular liposuction and breast implants. Surgeons perform an estimated 240,000 plastic surgery procedures per year. However, these are not the only specialties Colombia is becoming known for. According to Proexport, medical tourists coming to the country are also searching for procedures such as rhinoplasty and orthodontics, as well more mainstream medical procedures in cardiology. Most patients come from the US, followed by Spain, and a significant portion of these are Colombians or relatives and friends of Colombians living abroad.

Setting The Stage

Four cities in particular – Bogotá, Medellín, Bucaramanga and Barranquilla – are leading the charge, and have seen an increase in the number of clinics focusing on medical tourists.

With the best connectivity in the country, Bogotá has become a natural destination, while Medellín has the infrastructure capacity to attend to an even higher number going forward. According to Victor Ardila, general manager of Clínica Clofán, Medellín’s Health City cluster, the country’s second city is trying to raise its international competitiveness with a collective strategy. “The cluster has been going through a process of organising itself and establishing a general strategy. The next step is getting the tourism sector involved and starting to market Medellín internationally,” Ardila told OBG. He said the cluster was targeting primarily the Colombian diaspora and countries of the Caribbean region.

Since 2009 the sector has benefitted from a delineated strategic plan under the PTP, which seeks to consolidate sector growth. As part of this goal, in 2009 a partnership between the Health Chamber of the National Association of Entrepreneurs of Colombia, the PTP and Proexport, with the support of Marca País, the re-designed country brand, established a certification initiative. As many as 20 clinics and hospitals have been endorsed with the stamp “Colombia is health: exporter of health and wellness services”, a certification that these establishments meet quality requirements to serve the medical tourism industry. The objective is to expand the number of institutions currently working under this initiative.

The hotel industry is also taking steps to increase its role in the medical tourism industry. In early 2013, the Colombian Hotel and Tourism Association announced the introduction of an evaluation tool for businesses to determine whether they meet quality standards to serve medical tourists. Developed by the PTP, the tool consists of an online survey designed to help establishments identify weaknesses and build strategies to better serve medical tourists.

Equipment

Another area registering major growth is the medical device market. According to a report on medical devices released by Espicom, a medico business intelligence group, Colombia’s medical device market was valued at $1.2bn in 2013, making it the fourth-biggest market in Latin America. Though its size is still small, its potential for growth is tremendous. According to the same report, from 2013 to 2018 the medical device market is projected to grow at a compound annual growth rate of 13.3%, reaching $2.2bn by 2018, double its current size. This would place Colombia among the top-10 fastest-growing medical device markets globally.

Similar to the pharmaceutical market, the medical device market in Colombia has traditionally been high-priced. The industry relies predominantly on imports, which have grown consistently in the past few years. In the 12 months leading up to November 2013, imports grew at a rate of 8.9%, reaching $935.4m. The vast majority – around one-third – of medical devices in the country are imported from the US followed by China, which is quickly increasing its market share, and Japan and Mexico.

The country’s need and aim to modernise public health facilities, coupled with the private sector’s dynamism, in particular in medical tourism, is expected to continue to fuel growth in the medical devices segment for a number of years to come.

Health Panorama

In the two decades since the current health structure was implemented, Colombia has undergone key demographic and epidemiological changes. According to the UN Development Programme, in 2012 average life expectancy stood at 73.9 years, higher than Brazil (73.8), and an improvement on 1990 (68 years). The under-five mortality rate per 1000 live births, meanwhile, was calculated at 18 by the WHO in 2011, above the regional rate of 16. In 1990 this figure was 49.

The majority of conditions being treated are no longer infectious diseases, but chronic conditions and lifestyle diseases, such as diabetes and some types of cancer. Recently the country has also suffered from a high incidence of dengue fever, a virus transmitted through mosquito bites. According to MinSalud, in Q1 2014 alone 14,000 cases were reported.

With an ageing population and lower mortality rates, the disease burden has increased considerably, and with it, health care costs. Financial and capacity shortages have prevented a further shift towards a more preventive health care model. However, there are signs that prevention is getting a bigger emphasis. In 2013 Colombia received a programmatic policy-based loan for $250m from the International Development Bank to support measures for the adoption of a model that emphasises prevention as well as transparency in the use of resources. As financial and capacity pressures are alleviated, more preventive measures should be expected.

Outlook

Two decades of escalating health care costs and only half of the population in the contributory scheme have taken its toll on the local health care system. Boosting the number of Colombians in the contributory scheme goes hand-in-hand with reducing the number of people in the informal economy, a difficult task faced by many Latin American economies. While the impact that the current reform will have in alleviating some of the financial pressure health institutions are facing remains questionable, limiting the role the EPSs have traditionally enjoyed is a step forward towards a more transparent system. As the country moves towards a more efficient model and attempts to curb rising costs, an increase in the number of PPPs is very likely, while the private sector will continue to grow and mature.