Alejandro Paolini
Executive Vice President
Siemens Healthcare
View from the Top

Closing the Gap Between the Device and the Service

Wed, 09/09/2015 - 13:17

Q: What is the role of Mexico in Siemens Healthcare’s global strategy?

A: Siemens Healthcare currently represents less than 20% of Siemens’ total revenue. However, the healthcare division remains an important business as the area represents a significant segment of the company’s profit and we generate a large portion of its cash flow. Healthcare is a profitable business and global trends indicate that the industry will continue growing in Mexico and worldwide. Mexico is by far our most relevant market in Latin America and presents great short- and medium-term potential. Excluding Brazil, Mexico is the largest market for us in Latin America, with Colombia in second place but not even making up half of Mexico’s size. On the global scale, Mexico is in tenth place among the second wave of emerging countries so it is appropriate to call this country a land of opportunity.

Q: What is your main focus within the healthcare division?

A: We provide medical devices mainly for diagnostics and for prevention and we are the only company that covers the whole spectrum for diagnostics, including two out of three methods of diagnosis. The first method, which focuses on the physical test from a physician, is a technique that is rarely used nowadays. The other two methods are much more popular: through imaging techniques or through clinical tests. Most companies cover either just imaging or laboratory, not both. Naturally, this means that we face different competitors such as GE and Philips for imaging, and Abbott and Roche in the laboratory segment. This coverage is an opportunity for us as the healthcare sector is continuously growing due to an aging global population. Usually, a person spends 60-70% of their total healthcare expenditure in the last 20 years of their lives. In contrast, Mexico’s health profile is starting to resemble that of other developed countries as communicable diseases are being replaced by chronic ones, such as obesity, cancer, diabetes, and cardiovascular diseases. As long as Mexico continues growing, the incidence of these diseases will only increase. However, one of the main challenges that Mexico must face is the fact that, while chronic diseases are clearly increasing, the public healthcare system still has to treat communicable diseases.

Q: Do you believe that healthcare is a priority for the Mexican government?

A: Healthcare has not been the government’s top priority for the last two years. In 2014, the medical devices market did not grow as expected for that very reason. At the time, the government was more concerned with the Energy and Tax Reforms. However, healthcare will eventually become a priority that can no longer be postponed. Mexico currently invests around 6% of its GDP on healthcare, which is low for the OECD. Taking into account Mexico’s infrastructure and population, the government should immediately increase investments to cover the current demand. The previous presidential administration implemented Seguro Popular, but there are still many gaps to be covered in terms of the number of available talents, infrastructure, medical equipment, and medicines. Siemens wants to cover those gaps in medical devices as it provides a complete portfolio for all medical devices needed in different markets. Siemens is widely recognized for its high-level innovative technologies but we do not only sell the latest equipment. For example, developing countries such as Mexico need equipment that is both affordable and good enough to cover the large demand. Siemens can offer advanced yet affordable solutions to fulfill this need. We are aware that resources are limited and the healthcare sector must look at every aspect before making a decision.

Q: What proportion of your sales goes to the government and what percent to the private sector?

A: The exact percentages differ from year to year, but an average of the last five years indicates an even split between both sectors. In the last three years, we mostly sold to the private sector, since the previous governmental administration did not invest in healthcare during their last year and the current administration has not increased its investments. In contrast, the private market has been quite active, as large private healthcare groups have been expanding either by acquiring or building brand new hospitals. These different growth trends reflect different needs. While IMSS and ISSSTE have basic needs and do not need the latest technologies, the National Institutes of Health are focused on cutting-edge research and therefore require the latest equipment. The needs of the private sector also depend on the type of hospital and its patients, but its main focus is to achieve an investment return.

Q: How are digitalization and technological developments changing the devices sector?

A: Digital health and information solutions are quickly growing in the healthcare sector. It has become clear that the future lies in the digitalization of services. Siemens has already discontinued the use of analog equipment and all our systems are digital. We are making considerable investments in the development of new operating systems. We are also focusing on technology for medical imaging in many areas and we are developing new software for processing images. For example, we have invested in the development of the Picture Archiving and Communication System (PACS). Another crucial driver is that medical resources, including medical devices, are heavily concentrated in some parts of the country while they are essentially inaccessible in others. Digitalization can help to close this gap as it allows clinics to perform specific tests in remote areas of the country but with specialists immediately being able to analyze them from a distance. Despite this opportunity, Mexico still has a long way to go as several parts of the country do not even have access to basic equipment. Closing this gap will be a slow and gradual process that will take considerable time.

Q: Do you foresee Siemens manufacturing devices within Mexico and how do you view the change in regulations for medical devices?

A: Siemens has nine plants in Mexico for several devices but none for healthcare products. This is because it is complicated to manufacture medical devices in Mexico, as the industry requires a high level of technology as opposed to mass production. For example, the Mexican market for Magnetic Resonance Imaging (MRI) equipment is only around 30 units per year, which makes it too small for us to have local plants dedicated to this sector. Our main competitors are in the same situation and most international manufacturers center their production process in Germany and the US from which most products are imported. Furthermore, the medical devices industry is highly regulated and must remain that way. Our devices must be safe and efficient and the public must be certain of that fact. Therefore, the challenge for all countries is to have a strong and efficient regulatory authority whose main objective is to protect the population. Conversely, regulatory authorities cannot be so restrictive that they become barriers for innovation. In that sense, COFEPRIS has made huge progress in the last three years, especially since Mikel Arriola took office. The situation has improved dramatically but it must keep doing so. COFEPRIS has changed the regulatory framework for medical devices and has eliminated more than 500 medical devices from its list, since they did not comply with regulations. Since then, several manufacturers have praised Mexico for easing up on regulations and making it easier to develop new technologies here. Our goal, as part of AMID, is to help COFEPRIS increase its efficiency. One of the main advantages of Mikel Arreola’s administration is that it has always been open to conversation and to new ideas.

Q: What are your top priorities for 2015?

A: Our main priorities are to meet our commercial targets and continue expanding as we meet all the necessary conditions to outgrow the market. While Siemens Healthcare does not currently have a manufacturing base in Mexico, our plans are focused on solid and continuous business expansion as we expect that the market will grow. We want to take advantage of our strong position and expand our leading position in the diagnostics market, since we are the only company covering the complete diagnostics sector.