Three Steps to Evolution

Q: What is PwC’s role as an advisor to the healthcare industry?

A: Six years ago, we identified a global trend of healthcare systems around the world undergoing transformations as a consequence of reforms that took place in the 1980s and 1990s. In the 2000s, acute infectious diseases ceased to be a primary concern in most countries and systems strived to adapt to the rise of chronic and degenerative diseases. PwC has been promoting efforts made by the public and private sectors and investing in helping countries to transform their healthcare systems.

Q: What trends have been driving the transformation of the Mexico healthcare sector?

A: We have identified several trends driving the transformation of the Mexican healthcare system. Firstly, the Mexican population is aging. Today, six out of every 100 citizens are over 65 years old, with this figure expected to rise to 21 out of 100 people by 2050. Chronic and degenerative diseases increase as a population ages, requiring greater public investment. Even though net healthcare expenditure increased by 5% in 2013 in Mexico, our investment level is only 0.08% from the total 6.2% of healthcare expenditure. This investment level should be increased to at least 0.7% to get to the OECD average, which is 7.5 times our present level. The 6.2% needs to be increased itself to the OECD average closer to 9%. This is an issue that quickly needs to be resolved since the number of elderly people will triple within the next three decades. Furthermore, economic units represent 79.5% of the total healthcare expenditure, leaving over 20% to cover unpaid work such as volunteering or relatives becoming careers at home. Within this expenditure, public and private spending account for 51.2% and 48.8% of spending respectively. On the other hand, international players are entering the Mexican market as a result of globalization while companies from other sectors are investing in the healthcare industry. For instance, Walmart has 50 clinics with Previta, which operates consulting offices within pharmacies, AT&T provides long-distance healthcare services, Samsung has a medical devices division, and third-party logistics providers such as DHL, UPS, and FedEx are helping pharmaceutical and medical device clients to reach final consumers more easily. These players were not traditionally seen in the Mexican market but the decline of Casa Saba has left room to grow and transform in the distribution segment.

Q: What role do patients play in this transformation and what are the challenges that the government must face?

A: Patients are now considered to be clients or end users in the value chain. Today, they are more aware of their rights and the importance of being healthy. High and middleclass families also have increased access to education and resources in relation to healthcare. The Mexican middleclass is comprised of 18 million people, which equals Chile’s population, creating a powerful group demanding better healthcare services. On the other hand, 50 million Mexicans are below the poor line and require more effective medical attention in first contact clinics, which could happen through telemedicine solutions. Furthermore, despite growing health awareness among the population, lifestyle changes are not necessarily having a positive impact on health. Chronic diseases represented 48% of mortality causes in the 1990s but this has risen to 72%. A study carried out by the Mexican Institute of Competitiveness (IMCO) found that obesity costs the government MX$80 billion, MX$60 billion goes towards treatment costs, MX$10 billion goes to premature deaths during productive years, and the final MX$10 billion towards absenteeism. Obesity is a latent crisis, the implications of which have not fully been considered. However, it could still be treated in a timely manner in order to prevent a scenario where the government would no longer be able to finance treatments as a consqueence of Mexico’s obesity epidemic. Moreover, out of pocket expenditure represents 92% of total private investment in healthcare, meaning that both private and public insurance options are underutilized due to lack of adequate access mechanisms and quality issues within the public system. and price sensitivity and complexity perception on the private insurance side. This comprises a significant challenge for the system to improve access and competitiveness. Mexico should also modernize since around 12% of the public expenditure goes to administration activities, which is significantly higher than the 3.9% average in the OECD. This is all more unsettling since overall healthcare expenditure in Mexico is below the OECD average.

Q: How important is it for the current government to begin a reform that can address the challenges?

A: Healthcare is a priority for the current government. This is evident in the National Development Plan, which states that Mexcio’s system should begin to allow citizens to choose their preferred healthcare provider. All actors are expecting an important set of three reforms, which could take shape under three different scenarios. One of them consists of improving the financial capabilities at different levels within Seguro Popular by better collaborating with the private insurance sector. The second one aims to open up the system to competition based on the citizens rights to choose to enable a better mix of private and public sectors and to eliminate crossover. This means Seguro Popular and private insurance companies will not cover the same patients for specific diseases or categories of diseases. This is a strategic risk management practice for the public system as its budget can be allocated as a fixed cost per capita. Finally, progress in these two steps could guarantee an easier implementation of a major transformational reform in 2019-2020. The government already knows what is required but the challenge lies in the implementation. We think the reform will be gradual during this current presidential term but will become transformative by 2020. If reform happens, IMSS must prepare to lose a significant number of affiliates, which private hospitals will be interested in capturing, since money will follow the patients. If a set period is mandated by the government to balance the healthcare system, private hospitals would use that time to build a wider network of hospitals to meet growing demand and better compete against other healthcare chains.

Q: What emerging opportunities do you identify in having physicians at the point of sale?

A: The dynamics between insurance companies and hospitals have changed as a result of new partnerships among different players in the value chain. Physicians at the point of sale represent a good opportunity to create partnerships between insurance companies, pharmacy chains, and hospitals in order to transfer or refer patients from pharmacies to hospitals whenever a higher level of medical attention is required. In this regard, more collaborations and negotiations among pharmaceutical companies, pharmacies, and hospitals are expected to appear over the next three years. There are good examples of collaborations among insurance companies, hospitals, clinics and pharmacies in other countries such as Kaiser Permanente in the US, Colsanitas in Colombia, Banmedica in Chile, and Rimac & Pacifico in Peru.

Q: What advice would you give to companies operating in this evolving industry?

A: Our most recent CEO Survey, in which CEOs of several pharmaceutical and medical devices companies participated, concluded that there are three main action imperatives facing the pharmaceutical industry: creating alliances, integrating technology, and segmenting goto-market strategies. Building alliances to provide solutions for the complete patient experience, instead of focusing on commercializing products would mean that complex diseases like cancer and diabetes would require pharmaceutical companies to partner with integrators and other companies in different segments. Secondly, we need to make more effective use of technology to approach patients and physicians in innovative ways, comprising the trend of digital health and the integration of social media and healthcare. Finally, the third challenge is differentiating products and services and correctly segmenting the market, placing an emphasis on entrepreneurial understanding of variations within different markets in Mexico. For example, Monterrey has three times the national average of people with medical insurance while also having an older population than the rest of Mexico. This means that companies require a different strategy for that city rather than simply inserting products into private hospitals. Personalized services and tailored distribution models are becoming increasingly necessary for successful commercialization.

Q: What innovative models should the healthcare sector incorporate?

A: Payment for performance, which consists of paying clinicians, health providers, and integrators based on better health outcomes, can be an effective model in the healthcare sector. A successful example of this in Mexico can be seen within Seguro Popular in the state of Hidalgo, which plans to use schemes incentivizing public and private healthcare providers to measure healthcare outcomes in individuals and the overall population. Supporting integrated healthcare networks is also important. These comprise multi-channel solutions that allow access to healthcare services through different platforms, including online medical information and medical history, as well as other systems that provide medical advice and help patients book their medical appointments. PwC is promoting an integrated platform model that had a successful pilot program in the Basque Country. It aims to improve the quality of medical attention and to reduce patients’ waiting hours and re-admissions to hospitals. We also provide strategic planning services, which consist of helping clients understand market dynamics and design future scenarios. The Latin American region is interesting for us in terms of understanding the transformation of current healthcare systems and the impact of international treaties and alliances on local pharmaceutical and medical devices industries.