Finding a cure: Change is on the horizon along with expansion

Like many Andean nations, Peru has a history of limited access to health care. However, the country has made vast strides recently, nearly doubling the percentage of insured citizens over the past decade. While policies tend to focus heavily on establishing universal coverage and providing service for more vulnerable groups, authorities have realised the importance of involving the private sector for reaching long-term goals. A series of reforms in late 2013 have effectively redesigned the sector’s institutional framework and increased coverage and access to services.

Fragmented System

The health care system is comprised of a variety of public and private providers that are organised into several segments, encompassing vast differences in both cost and quality of care. The government offers coverage to the lowest-income segments through a state insurance scheme known as Integral Health Insurance (Seguro Integral de Salud, SIS). This system was created as a means of providing access to vulnerable groups by eliminating the cost of service. The scheme currently grants subsidies to more than 12.3m participants who can receive treatment in public health facilities administered by the Ministry of Health (Ministerio de Salud, MINSA).

For middle-income families, the Social Health Insurance scheme (El Seguro Social de Salud, EsSalud) offers coverage through a contributory system, aimed at permanent employees in the formal economy. While EsSalud is overseen by the government, it operates independently, with its own network of facilities and different benefit plans. However, overcrowding in both public hospitals and EsSalud facilities has led to service exchange agreements when deemed convenient. Covering nearly 9.8m people in 2012, just over 32% of the population, EsSalud is the second-largest scheme after SIS. The other two state-administered insurance programmes cover the armed forces and police, both of which additionally provide their own independent facilities with service extending to cover their families. Generally speaking, Peru lacks a strong insurance culture. Sebastián Céspedes, general manager of Clínica Ricardo Palma, told OBG, “In the top market segment, for example, only about 50% of people have private insurance because they can either afford to pay out of pocket or go abroad for medical services.”

Private Services

Private sector participation has been on the rise over the past decade, responding to the growing demands of a population capable of paying for better services. A variety of private insurance companies compete within this market, of which Rimac Seguros and Pacífico Seguros are the largest, as well as health promotion entities (entidades promotoras de salud, EPSs), which operate under a model similar to health maintenance organisations (HMOs) in the US. A boom in the number of private clinics throughout Lima illustrates the growth of this segment and the confidence that people have in privately operated services. However, Céspedes told OBG, “The private sector has very little coverage outside of Lima, as the public hospitals have saturated these markets and therefore the regions are not attractive in commercial terms. The entire province of Ica, for example, has less commercial potential than the district of San Isidro in Lima.”

Other Models

Consumer confidence has led to another insurance scheme outside of the conventional systems outlined above. In Lima, the Metropolitan System of Solidarity (Sistema Metropolitano de la Solidaridad, SISOL) emerged in 2004 as an alternative run by the municipality but financed through a private sector model that relies on affiliate fees. The network uses private health facilities, offering quality service to mainly middle-income families. According to Pan American Health Organisation (PAHO) human resources consultant Dr Carlos Arósquipa Rodríguez, SISOL has been a very successful insurance offering, receiving wide approval from the general population that views the quality of services as higher than those offered by both MINSA and EsSalud. Still, Dr Arósquipa described the health care system as “extremely fragmented”, leading to unarticulated policies and a major cause of inequality. According to the latest available data from the National Institute of Statistics and Computing ( Instituto Nacional de Estadística e Informática, INEI), only 64.5% of the population is affiliated with one of these insurance schemes, reiterating that much ground has yet to be covered in order to reach universal coverage.

Unbalanced

Though the system has seen vast improvements over the past several decades, the nature of Peru’s centralised development has left rural, poverty-stricken areas with deficient health resources and facilities. Evidence of these unbalanced improvements has been noted by international organisations. In a 2000 study on the health care systems of 191 countries, the World Health Organisation (WHO) reported that Lima residents of all social classes attend regular immunisation and medical check-ups at similar rates, with this attributed to their access to and knowledge of available services, rather than their level of income. This situation is in stark contrast to rural areas, where such practices were virtually non-existent.

Since the 2000 study, the immense differences between urban and rural health care systems have not disappeared. While in Lima there are around 28 physicians for every 10,000 people, in more rural areas, such as San Martín, fewer than five physicians are available for 10,000 people, according to INEI. “There is a very large gap in the efficiency of human resources, meaning many people in rural areas do not have access to medical attention,” said Benjamín Puertas Donoso, a human resources advisor at PAHO Peru.

Shortages

Convincing qualified doctors to move to rural areas where assistance is most needed has been a challenge for health authorities. MINSA is currently developing several incentive programmes to increase the number of doctors in provinces but it has not been simple. Paulina Giusti Hundskopf, chief of MINSA’s Consultancy Cabinet, told OBG, “Even when doctors are offered two to three times their regular pay, they are still reluctant to work in rural zones.”

At a national total of 16.6 doctors per 10,000 people, the supply of physicians in Peru is below the regional average, which, according to the latest WHO data, was slightly over 20 per 10,000 people. The proportion of nurses and midwives in Peru is even lower, recorded at 12.7 per 10,000 people, in stark contrast to the regional average of 71.5. Puertas told OBG that this deficit of medical professionals is even worse when considering the availability of specialist physicians.

Despite the large deficit of physicians and nurses, many Peruvian professionals are migrating to other countries, such as Chile, Brazil, Spain, Italy and the US, in pursuit of better pay. According to PAHO, the country loses up to $60,000 in training costs per professional that emigrates. Although health infrastructure has tried to respond quickly to increased demand and demographic growth, facilities are still lacking.

INEI figures from 2013 indicate that Peru has 511 hospitals, 2096 medical centres and 7124 health posts. According to MINSA, there are nearly than 46,000 hospital beds, translating into 15.2 per 10,000 people. While nearly 4000 beds have been added over the past decade, the proportion to 10,000 inhabitants has remained virtually stable due to population growth.

Illnesses

While Peru is subject to occasional outbreaks of specific diseases in isolated regions, mainly due to the country’s diverse ecosystems, the country faces permanent problems with both dengue and multidrug-resistant tuberculosis (MDR TB).

Dengue is not only limited to Peru but is also prevalent throughout the wider region, including in countries such as Ecuador, Paraguay and Brazil. Whereas the disease used to only affect jungle areas, it has now spread to the coast and is becoming difficult to combat due to its particularly contagious qualities. Dengue is a sickness transmitted by a vector that grows in clean water, therefore the most prevalent areas include those with heavy rainfall or where water is stored.

“Dengue is very much related to poverty and it thrives within homes, in flower vases or any receptacle that collects water,” Dr Arósquipa told OBG. “Many parts of the population have to store water because they do not have access to running water, and this turns into a breeding ground.” He added that combating both dengue and MDR TB requires better awareness and, although MINSA has carried out several education campaigns, more efforts are needed in order to help cure and prevent the spread of these prevalent diseases.

Limited Spending

Inequality within the health system has traditionally been met by injecting more resources into institutions. However, even this option has not been thoroughly exploited. Health expenditure in Peru is relatively low, representing 4.8% of GDP in 2011, the last year for which data is available. This percentage has slowly been dropping over the past couple of years, according to the World Bank, from 5.7% in 2008. Expenditure on health per capita is also very low, recorded at $289 in 2011, far below the regional average of around $729, according to WHO.

Nearly half of health expenditures come from the private sector, a fact that Dr Arósquipa believes is indicative of the government’s failure to provide equal access and quality service to the population. “It is impossible to fathom universal access with such low public investment,” Dr Arósquipa told OBG. “If Peru does not increase its health expenditure to 7% of GDP, especially in the public sector, universal health coverage will simply not be a reality.” Out-of-pocket expenditure makes up 87.4% of private spending on health, according to PAHO.

System Stress

Despite infrastructure improvements, access is still an issue. Better coverage schemes, especially for the low income and unemployed, have increased demand beyond hospital capacity, putting stress on the public system. This has also resulted in long waiting periods for exams and surgery, which can vary drastically depending on the provision scheme.

According to PAHO, EsSalud patients have to wait one to two months for a specialised examination, while surgery and other medical procedures often take just as long, doubling the treatment time. One reason for these long waiting periods is the fact that most people still make appointments in person, aggravating already insufficient hospital infrastructure. In 2013, MINSA began pilot programmes to install a system of scheduling appointments over the phone in several health facilities such as Lima’s Ventanilla Hospital and the Daniel Alcides Carrión National Hospital, in Callao. The government aims to install this system on a national level and also include the option of making appointments over the internet. Such initiatives are in line with efforts to update the electronic database of patients, which the government has already begun to carry out.

Reform Package

One of President Ollanta Humala’s promises on assuming office in 2011 was to carry out a major reform of the health care system as part of his administration’s policy of social inclusion. Several consecutive strikes by doctors that began in July 2012, followed by a month-long strike by MINSA, intensified the push for comprehensive reform. The second half of 2013 was marked by a series of historic reforms aimed at increasing the efficiency and competitiveness of the sector, access to services as well as coverage. The resulting changes have effectively redesigned the sector.

The first set of reforms, announced in September 2013, addressed the demand for higher salaries for medical professionals and support staff. PEN670m ($252.32m) was allocated to increase monthly salaries, according to Juan Jimenez Mayor, former president of the Council of Ministers. The measure is expected to affect around 60,000 staff. Legislative Decree 1153 also established a monthly bonus of PEN2960 ($1115) for doctors practising in remote areas.

The second and more far-reaching set of reforms took effect in December 2013 and established a series of measures aimed at closing gaps in four critical areas: restructuring MINSA, coverage, access to services and funding. Decree 1158 strengthened the role of the National Superintendence of Health Insurance, while Decree 1161 effectively redesigned MINSA. The ministry, which assumes a regulatory and supervisory role, is now responsible for health safety, epidemics, environmental health and food safety, among other areas. Decree 1167 created the Health Services Management Institute, which will provide assistance to regional governments and be responsible for planning, management and service delivery for national hospitals.

In line with the overarching goal of achieving universal coverage, Decrees 1163 and 1164 strengthened and expanded the SIS scheme. One important aspect of this was the extension of coverage to expectant mothers and children up to five years of age. To improve access to services and reduce inequality between urban and rural areas, Decree 1166 created an integrated network for primary health care. SIS affiliates will now have access to services at establishments operated by MINSA, EsSalud, the armed forces and the police, regardless of their insurance affiliation. Another decree –1165 – also established the concept of “inclusive pharmacies”, which are meant to give SIS affiliates being treated for chronic diseases access to essential medication. A last set of reforms streamlined the rules regulating investment in the sector, increasing transparency, efficiency and, most importantly, speeding up bureaucratic processes. Decree 1157 modernises the management of public investments in the sector, while Decree 1159 approves the implementation and development of regulations for service delivery exchanges.

The reforms also envisage a greater role for the private sector. Luis Miguel Castilla, minister of economy and finance, told local press that the reform package seeks to attract the participation of the private sector in the delivery of services, adding that the government will be seeking 20-year management contracts through concessions to ensure the quality of health care. In the area of infrastructure, he announced that a fund had been created for co-financed initiatives.

Service Blend

Public health services have already seen major changes. Both MINSA and EsSalud have reached agreements with several private clinics to treat publicly insured patients as a means to alleviate overcrowding in hospitals. Miguel Villanueva, general manager of Clínica Javier Prado, believes these agreements are not only beneficial for the sector but also profitable for the clinics that participate. Clínica Javier Prado participated in the last major service exchange, which took place in September 2011, receiving 300 patients of some 5000 from the public system. “Although fees are reduced to an average of 80% of the lowest that we normally charge, the high volume of patients makes up for the difference,” Villanueva told OBG, adding that patients often appear much more satisfied with the services received in clinics than those from the public system.

While these patient exchanges have been previously carried out on informal terms, a decree was passed in February 2013 to allow SIS and EsSalud to formally engage in contract services with the private sector. Clínica Javier Prado was recently named the official representative of all private clinics and EPSs to the government and will no doubt take advantage of these exchanges in the future, Villanueva said. This blend of services is expected to increase exponentially as a result of the recent reform package.

A traditionally poor public health system has entrenched people’s negative opinions, which in turn influence patterns of demand. Not only are hospitals often considered to provide inferior services, but they are also seen as the only alternative for the poorest, especially among certain segments of the lower social strata. Villanueva believes there is a huge market has yet to be attended to in these low-income segments. “About 30% of Lima’s population works in the informal sector and as such are not covered by any insurance scheme,” Villanueva told OBG. “This group, which includes many merchants earning a decent wage, is an unsatisfied market and requires an affordable clinic with quality services located in a central area of the city.”

Clinic Investment

Other private facilities include Clínica Ricardo Palma, Clínica Internacional and Clí nica San Pablo, all of which have made major recent investments of $10m-50m in infrastructure-related expansions. However, the most substantial investment has come from economic groups which already own two of the most important insurers.

Grupo Brescia, owner of Rímac Seguros, plans to invest $150m in health infrastructure over the next three years, after having already invested $40m since 2010. Additionally, Grupo Romero, which owns Pací fico Seguros, invested nearly $100m in 2012 in several major clinics throughout Lima, including Clínica el Golf and Clínica San Borja. It also had more modest ventures in the provinces, through the acquisition and modernisation of small clinics in southern Arequipa and northern Trujillo, each of which came to $5m.

Of the foreign players, Chilean group Banmédica holds a large presence, investing some $32m in major improvements to the Clínica San Felipe and equipment supplies to other leading clinics. With a handful of firms making major investments in the sector, the market is becoming highly competitive for smaller clinics, insurers and businesses. In Lima, such investments are creating an oversupply of clinics.

Rising Competition

Smaller clinics clearly find it more difficult to compete and are searching for investors or companies with which to associate. However, if the current rate of new investments continues, the market is likely to become more concentrated, leaving a small number of large companies. Some estimates suggest that there are around 700,000 patients that the private sector is seeking to capture.

Most clinics try to form medical teams to increase the quality of their services and boost competitiveness, while simultaneously reducing fees. Clínica Javier Prado, considered small with some 120 medical professionals, has already formed a team of 16 expert doctors in interventionist cardiology. Future plans include the creation of a multidisciplinary team of oncologists in response to increased numbers of cancer cases. However, while demand will continue to rise, the operational profit margin for the health sector is not very high, averaging from 10-15%.

Some clinics have begun trying to attract foreign patients and have begun sending delegations to international events to promote medical tourism. The cardiovascular, cosmetic and plastic surgery segments have been identified as having high potential. “With low procedure costs and an oversupply of private clinics in Lima, we are very well positioned to become a medical tourism destination,” Villanueva told OBG. So far, travel for medical purposes occurs mostly at border crossings. The traffic between Tacna and the Chilean city of Arica is a notable case, with many people from both sides crossing the border to purchase medicine depending on where prices are most affordable.

Public-Private Partnerships

Further integrating the private sector into public health facilities, the government has recently developed a series of public-private partnership (PPP) projects that will be tendered through ProInversión, the state’s private investment agency. Of these, the most significant is the management of the new Children’s Hospital (Instituto Nacional de Salud del Niño, INSN) in Lima’s San Borja district. With around 32,560 sq metres of hospital space, 254 beds and 13 operating rooms, INSN is already equipped and will complement existing children’s hospitals, taking on the load of more serious paediatric cases. For MINSA’s Giusti, engaging in PPPs is a very positive move for the health care system, as the government is open to both new forms of financing as well as alternative management methods. “We are willing to do what it takes to make sure these projects work,” she told OBG.

Mario Hernández Rubiños, the project manager for capital markets at ProInversión and head of the INSN project, agrees that the novelty of PPPs within the health sector is very positive. “The decision to operate the hospital through a PPP displays gaps that exist in the public sector’s full ability to run health facilities,” he told OBG. “The state can assure high levels of quality through private sector participation – that is one of the main motives behind these projects.”

While the INSN PPP procedure is scheduled to close during the first quarter of 2014, other hospital maintenance PPPs are currently being developed for EsSalud facilities. ProInversión expects PPPs to become a popular trend within the sector.

MINSA has also proposed several other projects which should be integrated into ProInversión’s 2014 portfolio, Hernández said. These projects include a national bone marrow donor registry and blood bank, and a mobile service to detect chronic degenerative illnesses in rural areas. Another high priority is the medical waste disposal network, also potentially very profitable for the firms involved. “Organising the disposal of medical waste is a good business,” Hernández told OBG. “We would like to give one or two companies the control of this market in Lima, which generates around 10 tonnes of solid waste per day.” According to Herná ndez, there are currently 16 companies in charge of waste management in Peru that cover a diverse range of activities from medicine to mining and industrial operations. Hernández said several of these companies, as well as some foreign players, have already displayed interest in participating in the medical waste project.

While ProInversión carries out an important role for facilitating private investment in PPP projects, direct government incentives to attract more capital are still lacking. Within Peru’s construction sector, the government has been pushing incentives through a programme called Public Works for Taxes, or Obras por Impuestos in Spanish, in which contractors are given the option of building additional public service infrastructure in exchange for tax exemption (see Construction chapter). However, the incentive scheme has so far failed to reach a big enough group of participants, leading Castilla, the minister of economy and finance, to announce alterations to the programme’s structure in June 2013. The incentives will now include management and maintenance of public facilities, such as universities and hospitals, and allow for the reimbursement of expenses occurred during the pre-investment phase. Such changes are expected to boost private investment in both health and education.

Outlook

While the government has ambitious short-term goals for reform, the actual changes to the health system will take longer to come into effect. Regardless, sector professionals interviewed by OBG remain confident in the current administration’s political commitment to improving the system’s efficiency in terms of administration, salaries, infrastructure and service. As the country’s capital and home to the largest population concentration, Lima will doubtless receive the bulk of investment in the near future. However, rural areas are still in need of both doctors and infrastructure, leaving a gap that authorities are looking to close.