Public-private cooperation increases in Mexico's health sector

A decade after the introduction of the Popular Health Insurance Scheme (Seguro Popular de Salud, SPS), the national insurance programme, Mexico has made tremendous progress toward attaining universal coverage, albeit limited. The country is now striving to guarantee universal access to health care, not an easy feat for a fragmented system suffering from decades of under-spending. While the sector reform announced by the government of Enrique Peña Nieto in 2013 has been postponed in the short term, steps to increase integration among public institutions and between the public and private sectors continue, as part of a countrywide effort to increase efficiency and improve access to health care services for the population.

Public System

Mexico’s public health sector is complex and fragmented, with medical coverage being tied to a person’s work status. The Mexican Institute of Social Security (Instituto Mexicano de Seguridad Social, IMSS), the largest social security institution in the country, provides coverage to Mexicans employed in the formal economy and is funded by contributions from the federal government, the employer and the employee. As of end 2014, IMSS provided coverage for nearly 59.5m Mexicans. In addition to its regular coverage, IMSS offers medical services free of charge to the more vulnerable segments of the population through IMSS Prospera scheme, previously known as IMSS Oportunidades. Including IMSS Prospera, the institution covers around 72m people, roughly 60% of the population.

Public servants are covered by the Institute of Social Security and Services for Government Employees ( Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado, ISSSTE), which in 2014 accounted for nearly 12.8m Mexicans. The Oil Workers Medical Service, the Ministry of National Defence and the Ministry of Marine Affairs cover their own employees and combined account for roughly 3m Mexicans.

Seguro Popular

The vast majority of the unemployed are affiliated with the SPS, which grants medical coverage to Mexicans without social security. The SPS was introduced in 2004 with the aim of achieving the constitutional right to social protection in health, which – although guaranteed in the constitution – had not been realised in practice.

Administered by the Ministry of Health, SPS is funded by federal and state governments, as well as a small contribution by users, and covers 100% of conditions treated in health centres, 95% of conditions which require hospitalisation and 60% of high-speciality conditions. As of end 2014, the SPS covered 55.6m Mexicans, having expanded enormously from 5.3m in 2004.

Access

While Mexico has nearly reached universal coverage since the introduction of SPS, access to medical services remains a challenge, particularly in rural and remote areas. Because of the different coverage schemes, patients are limited to receiving care in the medical facilities of their respective providers, with the exception of emergencies and obstetric cases. As a result of the sector’s fragmented nature, the public health care system is characterised by variable standards of care and bureaucratic inefficiencies.

Mexico’s demographic boom and marked increase in coverage in a relatively short time period has also put tremendous pressure on the sector’s finances, infrastructure and human capital resources. IMSS in particular has experienced significant financial distress in the past decade. The institution saw its annual cash deficit rise from MXN300m ($20.2m) in 2007 to MXN24bn ($1.62bn) in 2012. According to the OECD, the number of hospital beds per 1000 inhabitants increased only slightly from 1.6 in 2000 to 1.8 in 2012, and remains significantly below the OECD average of 4.8. The number of doctors per capita rose at a faster rate – from 1.6 per 1000 inhabitants in 2000 to 2.2 in 2012 – but is also lower than the OECD average of 3.2. The deficiency in nurses is more pronounced, with 2.6 nurses per 1000 people in 2012 (up only slightly from 2.2 in 2000), well below the OECD average of 8.8.

Limited Spending

Mexico’s public health system has also suffered from decades of under-spending. As a percentage of GDP, total health expenditure in Mexico was 6.1% in 2012 and 6.2% in 2013, according to the World Health Organisation (WHO), significantly below the OECD average of 9.3% in 2012. While the public sector’s share of total expenditure increased from 47% in 2008 to 52% in 2013 (roughly 3.1% of GDP), this remains well below the OECD’s average of 72% in 2012. Moreover, even though public investment in general rose 7.5% in 2014, the share allocated to the health sector actually decreased by 6.2% to MXN10.3bn ($693.2m), representing just 1% of the government’s total investment budget for the year. Making the most of its resources is thus another key challenge for the sector.

“Mexico not only has to increase health expenditure, it also needs to make spending more efficient,” Jose Alarcón Irigoyen, health associate at PwC México, told OBG. “Administrative costs represent on average 3.9% of public health expenditure among OECD countries. In the case of Mexico, that figure rises to 12%, meaning it costs Mexico three times more to manage public health.”

Additionally, in 2013 private health expenditure accounted for 48.3% of total expenditure, according to WHO, with the vast majority of this – 91.5% – being out-of-pocket expenditures, suggesting access to health can have significant costs for Mexican families.

Rising Costs

Effective spending is particularly important in the context of Mexico’s health profile and socioeconomic conditions, which point to a pronounced increase in health care costs in the coming decades. Mexico is no exception to the global trend towards an ageing population. Though still below the OECD’s average of 80.2 years, life expectancy at birth in Mexico rose from 73.3 years in 2000 to 74.4 years in 2012, according to the OECD. Longer life expectancy is expected to increase the burden of disease on the health care system while putting additional pressure on the social security system. “Today the ratio of persons in productive age (between 25 and 60) to seniors (65 plus) is 11:1. By 2050 this is set to decrease to 2.9:1,” Alarcón told OBG. “At the same time, a growing middle class will demand more and better services,” he added.

Health Profile

Meanwhile, the incidence of chronic and life-style related conditions is on the rise. Cardio-vascular diseases, diabetes and cancer are the leading causes of death in Mexico, according to the National Institute of Statistics and Geography. Diabetes and cardio-vascular conditions in particular are associated with the high levels of obesity. A study by the UN Food and Agriculture Organisation found that in 2013 Mexico’s adult obesity rate reached 32.8%, surpassing the US (31.8%), and placing Mexico among the countries with the highest obesity rates in the world. According to the most recent National Health and Nutrition Survey in 2012, 71.3% of adults were considered obese or overweight, with around 21m adults considered clinically obese. Among children aged 5-11, 34.4% were obese or overweight, an increase of 27% since 2000.

A study by the Mexican Institute for Competitiveness revealed that obesity costs the health care system between MXN82bn ($5.5bn) and MXN98bn ($6.6bn) per year (considering costs associated with obesity and type 2 diabetes), the equivalent of 73% and 87%, respectively, of the 2012 health budget. According to the International Diabetes Federation, there were more than 9m cases of diabetes in Mexico in 2014.

Reform

Recognising the need to overcome fragmentation and increase efficiency, the Peña Nieto administration announced a structural reform for the sector in 2013, aimed at enhancing cooperation between public health providers to promote greater efficiency in the use of national infrastructure and resources. Two key initiatives as part of the proposed reform were the strengthening of the role of the Ministry of Health as the sector’s regulatory agency and the establishment of portability, a system whereby beneficiaries of one coverage scheme would be entitled to receive treatment at facilities belonging to another provider. This would entail the development of a system to share patient data and manage reimbursement between institutions, which was expected to lead to the spreading of best practices and a standardisation of care.

While the reform was set to be introduced during Peña Nieto’s administration, which ends in 2018, the marked fall in oil prices since mid-2014 has changed Mexico’s economic outlook, leading the current government to introduce budget cuts in early 2015 and delay prospects for reform. The 2015 health budget was initially set at MXN134.8bn ($9.1bn), a slight increase of 0.1% from the previous year, with nearly MXN47.8bn ($3.2bn) and MXN74.2bn ($5bn) allocated to the SPS and IMSS Prospera, respectively. The government’s budget cut affected the sector by MXN10bn ($673m).

Increasing Efficiency

In the meantime, the country is making strides to increase efficiency and improve access. IMSS, for instance, has introduced a programme known as receta resurtible, which enables patients with chronic conditions to get three-month prescriptions in one consultation as opposed to the previous limit of one-month supplies. “You would think it is a relatively small change, but it affects efficiency immensely,” Basilio Velasco Barros, an advisor at IMSS, told OBG. “IMSS estimates that this measure freed up resources to provide almost 7m additional consultations per year, which requires the equivalent of 600 medical offices, the number of new medical offices built by IMSS in the past 10 years.” Through the introduction of cost-effective initiatives such as this, the institution has managed to cut its annual deficit in half from MXN24bn ($1.6bn) in 2012 to MXN12bn ($807.6m) in 2014.

Cooperation among public providers is also rising, with the administration promoting the establishment of more service exchange agreements between public providers. IMSS already has agreements in place with other public providers, primarily the SPS and ISSSTE, in Baja California Sur, Chiapas, Yucatán and Querétaro. Such moves should prove useful to enhancing access. “The OECD recommends promoting access to quality health care through improved coordination across health institutions to reduce redundancies; in particular, promote exchange of services between health care networks,” Angel Gurria, director-general of the OECD, told OBG.

Prevention

The government has also taken steps towards a more prevention-focused health care model. To curb obesity, some MXN312m ($21m) was allocated to prevention initiatives in the 2014 fiscal year. Moreover, in 2013 the government introduced a tax on sugary drinks of roughly 10%, aimed at reducing consumption. The new tax generated around MXN18bn ($1.2bn) in 2014 alone, and a preliminary study by the University of North Carolina estimated that sales of taxed beverages declined by 12% that year. However, at home the effectiveness of the tax has generated some debate. “While there was a reduction in sales of sugary drinks, this had a small impact on caloric intake, which saw a small decrease of 2% with respect to the previous year,” Campillo told OBG. “Additionally, 64% of the tax raised came from the more vulnerable segments of society, with 36% of it coming from Mexicans in a condition of extreme poverty,” Moreover, the sector did not benefit from the funds. “None of the funds were put towards health initiatives, so this really was a lost opportunity,” Campillo told OBG.

Private Sector

While the public sector works towards greater efficiency, the private sector has been growing at a steady pace, helping to fill gaps in public provision and responding to growing demand for faster and better care. The country now has a number of private chains, including Grupo Ángeles, Médica Sur, Hospitales ABC and Star Médica, which since 2007 have been expanding their offer and raising care standards across the country. They have also played a particularly important role in pushing forward an increasingly competitive medical tourism industry (see analysis).

Private sector expansion is showing no signs of slowing down. In early 2015 Médica Sur announced plans to invest $500m in a new development adjacent to the chain’s hospital in Tlalpan, Mexico City. In conjunction with Abilia, a real estate intelligence group, Médica Sur has developed plans for a multi-use complex that includes the expansion of the existing hospital and the construction of a tower with 250 medical offices and 8-9 floors of clinic space, a hotel, as well as residential space for medical staff, retail space and a convention centre. Besides offering medical services, the new facilities will also promote research activities.

The sector’s dynamism may also be attracting new players. In early 2015 Forbes reported that Mexican holding Grupo Gigante, owner of RadioShack and Office Depot in Mexico, was planning its entry into the health care market via the construction of a University Centre for Health Sciences. According to Forbes, the project is slated for Atizapán de Zaragoza, in the state of México, and will span 54,000 sq metres.

Positive Prospects

While private prepaid insurance plans account for a small portion of total health expenditure (8.5% in 2013, according to WHO), the ratio has been growing steadily for the past decade – in 2004 it stood at 5.3% – and there is significant room for further growth. “The upper classes are turning to private insurance to expand their medical coverage and services. Now the challenge is how to incorporate the middle-class segment of the population that is no longer willing to use public services but cannot yet afford private insurance,” Campillo told OBG.

Developments in Mexico’s insurance sector are likely to bring about new offers and make coverage more dynamic. On April 4, 2015 the new Insurance and Surety Institutions Law came into force, enabling medical expenses schemes to provide coverage for preventive procedures, a service previously restricted to health insurers. Additionally, the Mexican Health Foundation and the Mexican Association for the Insurance Industry have been working together to explore ways in which the public and private sector could work together to expand medical coverage cost effectively. Six proposals were presented to the federal government at the XXV Convention of Insurers, which took place in Mexico City on May 6-7, 2015. “The idea is to enable Mexicans to expand their coverage with public institutions by complementing existing coverage with tailor-made, cost-effective schemes,” Campillo told OBG.

Pharmacies

One peculiarity of the Mexican private health care system is the proliferation of pharmacies with a doctor office on the premises, a trend which has grown exponentially in recent years, partly as a response to growing demand for quick consultations, given long waiting times with public institutions. According to PwC México, doctor offices as part of pharmacies represent 15% of the private care system. “This business model has expanded so much that it currently employs some 56,000 doctors, almost as many as the entire public system, and they account for 30% of prescriptions,” Campillo told OBG. As well as offering reduced waiting times, this model is also attractive for its convenience and affordability; it helps ease the strain on the conventional health system and expand access.

However, a weak regulatory framework is a concern. The industry has seen a degree of vertical integration in recent years with a number of pharmacies producing their own generic drugs, and actively commercialising their products through the doctor offices, raising concerns about unethical business practices. “This vertical integration is here to stay. Rather than containing it, what needs to be done is to increase regulation to avoid conflicts of interest, and explore the potential there is to develop partnerships with hospitals to establish efficient and reliable referral services,” Alarcón said.

Infrastructure

Between the public and private sectors, the health system is set for new infrastructure in the coming years. The National Infrastructure Programme (Programa Nacional de Infraestructura, PNI) 2014-18 envisages combined public and private investment of MXN72.8bn ($4.9bn), of which 98.54% is public and 1.46% private, for 87 health projects, including general hospitals, children hospitals, speciality hospitals, and units for primary, secondary and tertiary care.

Cooperation between the public and private sectors has increased. There are already a number of hospitals operating under public-private partnerships (PPPs), including Hospital Bicentenario ISSSTE in Tultitlán and ISSSTE hospitals in Ixtapaluca and Zumpango, with more being considered under this model. The MXN8bn ($538.4m) ISSSTE hospital under construction in the federal district is an example. While ISSSTE remains responsible for the provision of medical services, the private sector is managing the construction and maintenance of the hospital for a period of 25 years. More similar models should be expected as efforts to raise efficiency continue. “There is plenty of room for cooperation between the public and private sectors and this is an avenue we should be following to increase efficiency in the system,” Alarcón told OBG, MEDICAL CLUSTERS: PPPs are also the model being adopted by the various medical clusters being contemplated across the country. One of these is the medical city being built in Querétaro. With a price tag of MXN5bn ($336.5m), the project is expected to cover an area of 100 ha, behind the existing Hospital Infantil Teletón de Oncología, and will house some 12 health care projects, including a medical university.

Another important project is the medical city of the zona de desarrollo económico y social (economic and social development zone) in Tlalpan, Mexico City, which broke ground in February 2015. With investment of MXN6bn ($403.8m), the project will span some 208 ha and is expected to benefit around 160,000 inhabitants and generate between 5000 and 6000 direct jobs, according to local authorities. Médica Sur is one of the investors, contributing 5000 sq metres of land to develop medical infrastructure, including a children’s hospital to treat obesity and diabetes.

Increasing Access

IMSS also has plans to build new medical units across the country in 2015 and 2016. The state of Coahuila, for instance, is set to receive two new hospitals and a clinic in Saltillo, Acuña and Torreón, with a planned investment of MXN700m ($47.1m) each. “IMSS is re-adopting its initial model for cost-effective clinics – smaller clinics in more places to increase access for patients,” Velasco said. To increase access in rural areas that will not necessarily benefit from the planned new infrastructure, authorities are also working on establishing a national programme for telemedicine. Though distance medicine initiatives are not a new concept in Mexico, a national programme was launched in 2015 in Nuevo León, State of México, Zacatecas, Yucatán, Oaxaca, Querétaro and Jalisco. The service entails mobile medical units featuring a general practitioner, a dentist, a nurse and a health promotion agent (focused on preventive measures), which will offer services in rural and remote areas, including videoconferences between the mobile medical units and hospitals. Authorities hope to have 65 units across Mexico by 2016.

Outlook

While the health reform has taken a backseat in the context of fiscal constraints, the small steps being taken towards raising efficiency will undoubtedly foster incremental change. Greater cooperation among public institutions and between the public and private sectors should be expected in the coming years. The outlook for the private sector is particularly positive; it will be in a position to benefit from increases in sub-contracting while continuing to explore niche markets such as medical tourism. As standards of living improve, driving demand for health care services, Mexico will remain a key market in Latin America, providing opportunities for drug and device manufacturers.