Peru's health sector benefits from rising public investment and innovative treatment approaches

Since 2008 Peru has made significant progress in expanding health care infrastructure, lowering barriers to access and modernising public sector institutions. In so doing the government has laid the groundwork to achieve universal coverage, a goal the current administration hopes to achieve by 2021. This process has been supported by major sectoral reforms in 2009 and 2013, coupled with cooperation with international aid agencies. Nonetheless, the country faces ongoing infrastructure limitations, a shortfall in doctors and other medical professionals, as well as persistent disparities in access and quality between rural and urban areas. These gaps have been partially filled by the private sector, with the number of private clinics and health insurance offerings growing markedly.

In tandem with this expansion regulatory and political obstacles to private investment have become evident, most notably in terms of pharmaceuticals. Concerns have also been raised regarding government moves to bypass patent laws. Nevertheless, the private sector has shown itself to be increasingly innovative, expanding care through the use of new technologies, most notably through the rise of e-health solutions. Furthermore, the current administration of President Martín Vizcarra Cornejo has announced plans to address the infrastructure shortfall through further public-private partnerships (PPPs) over 2018 and 2019.

Key Players

There are five major entities operating in the sector – four of them public and one of them private. These include the Integral Health Insurance (Seguro Integral de Salud, SIS) operated by the Ministry of Health (Ministerio de Salud, MINSA), which is the largest insurance provider covering around 60% of the population. The second-largest provider is the state Social Health Insurance (Seguro Social de Salud, EsSalud), which covers those in the formal economy, – including the armed forces and the police – or just over 35% of the population. As of 2016, private health insurance providers covered just under 5% of the population.

In 2013 a comprehensive $2.7bn reform package was introduced to expand access to health care, upgrade infrastructure and improve sectoral regulation, under the administration of former President Ollanta Humala. This included the establishment of the Integrated Health Service Network (Redes Integradas de Establecimientos de Salud, RISS), which enables SIS customers to receive care at facilities administered by EsSalud. Another key aspect of this reform was the restructuring and strengthening of the Superintendency of National Health (Superintendencia Nacional de Salud, SuSalud), the industry’s supervisory and regulatory body.

Vital Statistics

Following the passage of the Universal Health Insurance Law of 2009 and the 2013 reform package, health indicators have shown a marked improvement in the country. Coverage has increased dramatically, with the percentage of Peruvians with some form of health insurance rising from 37% in 2004 to reach 83.2% as of 2017, according to the OECD.

According to the latest data from the National Institute of Statistics, chronic malnutrition among children under five years old decreased from 28.5% in 2007 to 13.1% in 2016. Similarly, the number of births in hospitals increased from 83.8% to 91.9% between 2011 and 2016. Vaccination rates have risen markedly, with 74% of children under a year receiving all the usual vaccinations for their age in 2016, a 4.6-percentage-point increase on 2015. Furthermore, average life expectancy has risen from 71.6 years at the beginning of 2000 to 75.5 in 2016, as per the World Health Organisation.

Nevertheless, in common with other developing and developed countries there has been a notable rise in the prevalence of chronic and non-communicable lifestyle-related conditions, including heart disease, cancer and diabetes. For example, obesity rates among those over the age of 15 stood at 35% in 2016, considerably higher than the OECD average of 19.5%.

Increased Investment

Improvements in health care provision and access are largely the result of increased public investment in the sector. The national budget allocated to the sector rose from PEN5.1bn ($1.6bn) in 2008 to almost PEN16.4bn ($5bn) in 2018. Indeed, between 2017 and 2018 alone, the government’s health care budget rose by 16%. Nevertheless, combined public and private spending on health care as a share of GDP was around 5.5% in 2017, still behind the regional average of 7.3%. Additionally, although concrete proposals have yet to be announced, President Vizcarra has indicated that the government intends to invest in further infrastructure projects, medical equipment and the training of medical personnel.

Infrastructure Needs

Although considerable progress has been made in closing the country’s health infrastructure gap, more remains to be done. As of 2016 there were over 18,400 medical institutions in the country, including hospitals, specialist consultancies and clinics, up from around 10,000 in 2013.

Furthermore, the number of medical doctors in the country increased from around 49,000 in 2010 to approximately 70,000 in 2016, with the ratio of people to doctors falling from 602 to 445 over the same time period. The number of hospital beds, meanwhile, rose from 41,800 in 2005 to approximately 50,000 in 2015, the last year for which comprehensive data is available. While this marks an important improvement, the country remains behind its regional peers; in 2017 Peru had around 16 hospital beds per 10,000 people, below that of Brazil (24) and Chile (21).

Rural Health Care

Although overall health indicators suggest significant improvements in access to health care, infrastructure and childhood health, persistent inequalities between urban and rural areas in Peru remain. Indicative of this is the ratio of people to doctors across different regions. For example, in Lima and Arequipa, there was one doctor for every 259 and 245 people, respectively, in 2016 compared to one doctor for every 1744 people in Amazonas and 1743 people in Huancavelica during the same period.

Similar disparities are evident in terms of chronic malnutrition among children under five years old across the urban-rural divide. Levels of child malnutrition in 2016 in Amazonas were 33.4 per 100,000 and 19.3 in Huancavelica. Whereas, in Lima and Arequipa, this figure was 5.9 and 6.3 per 100,000, respectively. Nevertheless, it is important to highlight that child malnutrition levels have decreased markedly in most rural parts of Peru; falling by almost half in Amazonas between 2007 and 2016, for example.

Shortfall

One of the most important challenges facing the Peruvian health care system that presents a major bottleneck in their movement toward universal coverage, is the continued shortage of doctors and medical specialists. According to the Peruvian Medical Federation (Federación Médica Peruana, FMP), public hospitals in the country require at least 18,000 more doctors, including an additional 15,000 medical specialists, in order to meet patients’ needs.

The country faces a particularly acute shortage of obstetricians, gynaecologists, paediatricians, surgeons, neurologists, anaesthesiologists and ophthalmologists. Moreover, as of 2016, 47.7% of all medical specialists and 54% of all doctors in the country were located in Lima, highlighting major inequalities in health care provision across the country. This problem has been compounded by an increase in the number of doctors leaving the country to pursue opportunities abroad, as a result of low wages – particularly in the public sector – according to FMP and the Colegio Médico del Perú, an autonomous medical school based in Lima.

According to figures cited by local media sources from 2016, between 1000 and 1500 doctors leave the country every year to seek employment overseas. The resulting shortage of medical staff combined with a limited amount of trained administrative staff in medical facilities has resulted in long waiting periods at public hospitals. Average emergency waiting times at public health facilities range from 80 to 135 minutes, compared to an average of 57 minutes at private institutions, according to Peruvian public services monitor, Contribuyentes por Respeto. Similarly, waiting times for a doctor’s appointment average 14 days in the case of public health institutions, compared with an average of six days in private hospitals or clinics.

Private Expansion

In light of these shorter waiting times, the middle-class is increasingly turning to the private sector, known as health service providers (entidades prestadoras de salud, EPS). According to the latest statistics from SuSalud, the EPS system covered around 2.1m Peruvians as of June 2016, up from 1.9m in the same period in 2014. Pacífico Seguros was the market leader with 858,159 EPS customers followed by Rímac (711,877), Mapfre (356,260) and La Positiva Sanitas (170,312). An additional 1.8m Peruvians were covered by other forms of private insurance, including prepaid private clinic or hospital coverage, during the same period.

Dynamic Sector

Foreign investors are seeking out opportunities in Peru’s increasingly dynamic private health care sector. Infrastructure gaps and strict building regulations also present obstacles to the long-term sustainability of private sector expansion. “There are very few suitable sites in Lima to build a private hospital with 250 beds,” Juan Carlos Salem Suito, general manager of SANNA, the largest network of private clinics in Peru, told OBG. “[Securing construction licences is] very complicated, as is adhering to industry technical standards.” One way investors interested in hospital and clinic infrastructure projects can get around onerous construction licence requirements and strict regulations is through PPP models.

Significantly, Peru has one of the most sophisticated PPP frameworks in Latin America, particularly for the construction of social infrastructure, including hospitals and clinics. A recent notable example of this is the PPP contract for the construction and operation of the Callao and Villa María del Triunfo hospitals, awarded to Spanish construction and health care group IBT, along with Spanish health care investor Ribera Salud. Use of the PPP model of outsourcing the construction and operation of hospitals to private firms shows the way forward, Ricardo Castillo, general manager of Peru for Sanofi, a multinational pharmaceutical company, told OBG. With the administration of President Vizcarra strongly in favour of the use of the PPP model in the sector, the number of health care infrastructure projects can be expected to continue to rise.

The country imports most of its medical equipment due to limited domestic manufacturing capabilities. In 2017, for example, Peru imported over $355m worth of medical equipment and these imports comprised over 20% of the total in 2015, the last year for which data is available. With the sector undergoing expansion, driven both by the government’s efforts to achieve universal coverage along with an increasingly affluent middle class seeking private treatment, this can be expected to continue. Furthermore, as local public and private hospitals seek to invest in state-of-the-art equipment, demand for diagnostic imaging equipment, including computed tomography scanners, robotic radio-surgery systems and gamma knives, appears set to grow. Additionally, in October 2017, Peru’s Congress passed a bill legalising the production, importation and commercialisation of medical marijuana, effectively opening up a new market for investors operating in this niche but growing industry.

In a further sign of the sector’s dynamism, the government launched a campaign in January 2017 to support the expansion and implementation of e-health solutions to address health care needs. As a result, several innovative products have emerged, including MINSA’s WawaRed, a data-collection and analysis platform created in partnership with Universidad Peruana Cayetano Heredia with the support of the International Development Research Centre, a Canadian research and development agency, that communicates with pregnant women about hospital appointment reminders, nutritional recommendations and healthy lifestyle tips. The platform also provides users access to their medical records and those of their family via a mobile phone. With around 65% of people owning a mobile phone and additional e-health apps under development, the provision of health care via new technology appears set to expand over the medium and long term.

Pharmaceuticals

Information on the number of private health care institutions in Peru is not comprehensive, but EsSalud had 397 registered institutions as of 2016. All in all, estimates suggest that there are currently around 20,000 formal private health care institutions, including pharmacies, in the country and around another 60,000 informal, unregulated institutions. Concerns have been raised about these informal institutions over lack of professional standards and the quality of medication administered. This issue highlights the need for greater government regulation and oversight of the informal health care sector, particularly in terms of the distribution and sale of pharmaceuticals.

Concerns among private pharmaceuticals players extend beyond the informal sector into the state’s purchasing policies, which favour generics over brand-name drugs due to their cost-efficiency, which is increasingly important as the state works towards universal coverage. The state has been gradually rationalising its procurement process. For example, MINSA replaced the branded HIV drug Atazanavir, produced by Bristol Myers Squibb (BMS), with generics imported from Brazil in 2016. The government plans to import PEN700m ($215.5m) worth of generics in 2018. This preference for generics creates a challenging market environment for brand-name producers. “[Private firms] often do not even try selling their patented drugs to public sector institutions because they know that they cannot compete; it all comes down to price and not quality,” Ángela Flores, director of the National Association of Pharmaceutical Laboratories, told OBG.

Generic Challenge

As well as competing on price, pharmaceuticals manufacturers worry the production standards are not evenly applied. “The fight against illegal market is a shared responsibility between private and public sectors. Both have to be aligned and work together to assure quality of medicines for the patients,” Ana Dolores Román, country director for Ecuador, Bolivia and Peru for Pfizer, told OBG. “Generic drugs need more regulation to help guarantee that they follow the same standards as patented products.” This sentiment was shared by Mara Fani, BMS’s country manager for Venezuela and Peru. “There should be bio-equivalence in Peru for patented versus generic drugs,” Fani told OBG. The industry has also expressed concerns about current legislative proposals that would allow MINSA to bypass patent laws if a certain drug is deemed to be in the public interest.

In another move likely to render the operating environment for pharmaceuticals more challenging, several congressional proposals were presented in recent months that would oblige pharmacies to buy a minimum amount of generics and regulate drug prices. As of July 2018 these proposals were still under debate in Congress, but if passed, it would affect all public and privately owned pharmacies.

“A law to control prices would ultimately hurt the patient, because it limits the patient’s right to choose,” Jurgen Schosinsky, general manager of Roche Peru, told OBG. “The solution would be to increase the offer and give patients knowledge through the price observatory. Through technology this observatory could be made available to the general public.”

Faced with opposition from the industry, it remains to be seen whether the state will try to address some of the regulatory and political barriers to increased investment. The direction of government policy has been obscured by the fact that the country had three ministers of health between July 2016 and May 2018. However, with the current administration showing signs of securing bipartisan support for its agenda, which prioritises health care as a key pillar, domestic and international confidence is expected to return.

Retail Market Concentration

One of the most significant moves in recent years took place when Intercorp, a holding company that owns drug store chain Inkafarma, announced in January 2017 the acquisition of its main competitor, Quicorp, owner of pharmaceutical company Química Suiza and drug store chains MiFarma, BTL and Farmacias Ahumada, for a reported $583m. While some critics brought up concerns of a monopoly, the operation will allow Intercorp to integrate the logistics, distribution, manufacturing and retail of drugs in Peru. According to Rafael Dasso, the general manager of Inkafarma, together Inkafarma and MiFarma own 2140 stores nationwide, representing 18% of all pharmacies and 50% of the drugs sold in Peru.

Outlook

Peru has made impressive strides towards achieving its aim of universal coverage by 2021. With the launch of the governments e-health programme it has also shown itself to be receptive to the possibilities provided by emergent technologies to expand and improve provision nationwide. Nevertheless, the sector faces major challenges as a result of persistent shortages of doctors, particularly specialist practitioners.

In addition, the country faces pronounced inequalities in the quality and scope of health care services between rural and urban areas. Yet despite these issues the overall outlook for the sector remains positive.