As it undertakes its most fundamental reform in over 20 years, Colombia’s health sector is clearly in a period of transition. Demographic change, new challenges in disease management and a lack of financing have led to an overhaul of the system that has shown significant advancements since it was established in 1993. Today Colombia has nearly universal coverage and vastly improved health care indicators. According to World Bank figures, life expectancy has risen from 69 years in 1993 to 74 years in 2013, and infant mortality decreased from 21 deaths per 1000 births in 2000 to 14 in 2015. A new law is set to expand the services available to all citizens. While the government considers the options available to secure the necessary funding, the Ministry of Health and Social Protection (Ministerio de Salud y Protección Social, MinSalud) is determined to tighten costs of drugs and products.
One Of A Kind
Since 1993, Colombia has had a health care system that is unique worldwide. The General System of Social Security in Health (Sistema General de Seguridad Social en Salud, SGSSS) is a public system with nearly universal coverage, but is intermediated by private companies and health care services are provided by both public and private institutions. According to data from the Colombian Association of Comprehensive Health Care Providers (Asociación Colombiana de Empresas de Medicina Integral, ACEMI), in 2015 some 95% of Colombians was registered under the SGSSS. Of these, 43% were registered through the contributory system. Under this plan, a total of 12.5% of an individual’s salary – 8.5% paid by the employee and 4% by the employer – is paid to the Solidarity and Guarantee Fund (Fondo de Solidaridad y Garantía, FOSYGA), the central financial pillar of the Colombian health care system.
A further 22.9m Colombians, or 48% of the population, are covered by the subsidised regime, designed for citizens without the financial capacity to pay into the contributory scheme. This regime is financed by the federal government, municipal taxes and cross-subsidy transfers from FOSYGA, with a 1.5% payroll tax used to fund the subsidiary regime. Around 390,000 Colombians are registered under a plan designed for members of the security forces and the national oil company. As a result of the SGSSS, out-of-pocket spending on health care fell from 45% in 1994 to 14.4% in 2013, one of the lowest rates in the region, according to the December 2015 OECD report “OECD Reviews of Health Systems: Colombia 2016”.
EPS & IPS
The 1993 reform was designed to create a managed competition model at the heart of the Colombian health care system. This is achieved by allowing Colombians to choose from around 60 Health Service Providers (Entidades Promotoras de Salud, EPSs) that currently operate in the country. Most EPSs are private and act as the intermediary between patients and hospitals and clinics, known as Health Service Institutions (Instituciones Prestadoras de Salud, IPSs). Like a US health insurer, the EPSs collect premiums, in this case sourced from FOSYGA, and receive a 10% payment for their services. In return the EPSs contract IPSs to treat their patients.
Health care is a highly politicised issue in Colombia. The country’s 1991 constitution established the responsibility of the government to provide health care to its citizens, and since then a number of court decisions have expanded the range of services open to Colombians. The 1993 reform established the Mandatory Health Plan (Plan Obligatorio de Salud, POS), a comprehensive list of treatments, services and drugs that EPS members are entitled to. When it was designed, patients on the subsidised regime were entitled to around 60% of the procedures included on the POS. However, in July 2012 the system was unified, providing full access.
The provision of health care services has also expanded well beyond the POS. By exercising their constitutional right to health care through a legal procedure known as a tutela, or guardianship, Colombians can access high-cost drugs and procedures not included in the plan. If the EPS refuses to provide prescribed, but non-POS, services, the patient can invoke their constitutional right to health care through a tutela in the Constitutional Court. Judges, who are understandably unwilling to jeopardise an individual’s health, almost always side with the patient after a three-day review process. According to an August 2015 study by the Colombian Ombudsman, over 118,000 tutelas for health care provision were made in 2014. “Colombia has the most judicialised health care sector in the world,” Jaime Arias, president of ACEMI, told OBG. “There is pressure from the courts to provide high-end health care to all citizens, and the field of heath jurisprudence has grown rapidly.”
The expansion of coverage has outstripped the financial resources of the SGSSS. The system ran a surplus between 1993 and 2005. Since 2005, however, the situation has reversed and steadily worsened. According to MinSalud data, in 2014 the income of the contributory regime increased by 10% to reach $2bn, but still registered a net loss of $83m, although this was a significant improvement on the $193m losses incurred in 2013. The subsidised regime saw its inflows grow by nearly 10% in 2014, but it also saw net losses of $91m, up sharply from $33m in 2013.
However, the 2014 figures come on the back of a decade of similar results, contributing to higher debt levels. The Colombian Association of Clinics and Hospital estimated that by early 2014 the EPSs owe around COP5.8trn ($2.1bn) to the IPSs. “In the Colombian health care landscape, insurers and health service advisors maintain high negotiating power, while health care providers assume all additional costs, such as any rise in prices for medicine and medical consumables. This has resulted in imbalances in the sector,” Fred Piza, general manager of Clínica Palermo, a private clinic based in Bogotá, told OBG.
For treatments and procedures outside of the POS, the EPS advances payment for the treatment and recovers it from FOSYGA. However, FOSYGA has failed to reimburse EPSs for around a quarter of money owed. The EPSs are also missing payments from payroll contributions. The SGSSS’s financial insolvency is the root of the system’s problems. Shortages of hospital beds, delays in treatment and conflicts between different entities stem from the bottleneck in cash flow. The health care sector’s mounting challenges have become a common topic of national debate.
In order to address the system’s problems it is important to note how demand for health care services in Colombia has changed since 1993. At the time, control of infectious disease was the focus of the public health policy. Since then, the country has gone through a demographic transition, with decreasing birth and death rates resulting in an aging population. According to ACEMI’s 2015 report, non-infectious diseases, such as cardiovascular diseases, cancer and diabetes, account for around 80% of high-cost health care spending. While infectious diseases are relatively cheap to vaccinate against and treat, non-infectious diseases often require far more costly procedures and drugs. The SGSSS needs a change of strategy that will allow it to incorporate the latest developments in oncology treatments, biotechnology products and orphan drugs, or drugs developed to treat rare medical conditions.
The design of the 1993 reform also included a crucial miscalculation. It was anticipated that 80% of Colombians would be paying into the contributory system from their monthly pay check as formal employees. However, more than half the country’s jobs are in the informal economy, and as such the subsidised regime has grown far bigger than forecast. The result has been a rapid rise in patient consultations from 1.5 per person per year prior to 1993 to nearly four per year in 2015. Each day the SGSSS makes around 500,000 consultations. “The Colombian health care system provides a range of services that are among the most generous in Latin America and comparable to some European countries,” Arias told OBG. “At the same time the cost to the patient is very low, at an average of $220 per person per year. However, the system has been a victim of its own success and today demand far outstrips supply.”
More To Come
Rather than tighten the belt, however, MinSalud is set to significantly expand the range of treatments and drugs available. In February 2015, following nearly two years of debate, Congress approved the Statutory Health Law (Ley Estatutaria de Salud, LES), an ambitious reform unparalleled in Latin America in terms of the range and depth of services it offers to all citizens. Previously the provision of health care was a legal obligation of the state, subject to certain limitations. The new law makes health care a fundamental right, and the practical effects of this change are multiple and far-reaching. MinSalud has been given two years, from the passing of the law, to decide how it will be implemented and define the necessary changes to regulations and processes.
Many of the implications of the LES are already clear. It will spell the end of the POS. Patients will be allowed access to all procedures, services and drugs registered by the National Institute of Food and Drug Monitoring (Instituto Nacional de Vigilancia de Medicamentos y Alimentos, INVIMA). The exceptions to this rule are procedures and drugs with primarily cosmetic ends, those which have unproven safety or efficacy records, experimental drugs, and any procedures that must be undertaken outside of Colombia. All Colombians will have access to cutting-edge and potentially high-cost health care. In addition, hospitals will be obliged to treat all urgent emergency patients regardless of the state of their EPS.
Furthermore, the decision regarding which procedure or drug to prescribe will be made solely by doctors, with the EPS having no influence. This is good news for patients, but given that doctors have little incentive to think of the bottom line, it could lead to increased prescriptions for high-cost treatments. Colombian health professionals are concerned about how the system can be financed going forward. “The new law is well intentioned and good for the country, but there are simply no resources at present,” Rafael González Molina, president of Clínica del Country, a private hospital in Bogotá, told OBG. “I think there will have to be a major tax reform in order to finance it.”
Arias agreed, saying, “The new law will see health care costs grow by around 20%. At the moment Colombia spends 6.8% of its GDP on health care, and I expect this will have to grow to 8%, but that would still be below Mexico and Brazil.”
The Bottom Line
While the government is studying another tax reform to be implemented in the coming years, the health care sector must compete for funds with other public services and initiatives. As such, increased funding must be coupled with a focus on cost-effectiveness. Writing in Colombian weekly publication Semana in July 2015, Alejandro Gaviria, minister of health and social protection, said, “The health system needs to have, in a manner of speaking, the capacity for discernment: it should incorporate only cost-effective technologies, those that decidedly contribute to health and well-being at a reasonable price. In modern medicine, there is often a discrepancy between value and price: many technologies cost a lot but provide little.”
Gaviria claims that the expansion of non-POS treatments through the tutela process is largely responsible for the SGSSS’s financial problems. He argued that in order to provide extensive and universal health care, three key policies are required: price controls, a new cost-efficacy assessment system and a streamlined approval system for biosimilars (biological drugs that can be proven to be similar to existing and approved reference drugs). In short, the government’s strategy, which is based on the LES, is to expand access to high-end treatments while controlling the prices of said treatments. This ambitious strategy presents both opportunities and threats to existing health care providers.
The wide-reaching health care reform has already been tempered by tough financial and organisational challenges. The government had intended to convert FOSYGA into a new entity – Salud Mía, or My Health – that would manage the compensation system for all Colombians. This would have entailed significantly reducing the role of EPSs, removing their responsibility to pay IPSs and converting them into health managers that simply approve payments from Salud Mía. However, concern regarding the ability of a single public sector body to manage the accounts of over 47m Colombians has led MinSalud to put Salud Mía on the back burner. “We told the government that Salud Mía would be problematic,” said Arias. “EPSs have problems, but they can be overcome. We showed MinSalud the data management challenges associated with centralising the system and they agreed with us.”
Instead, the EPSs will continue to manage payments, but their future is far from assured. They have been given a seven-year period to pay off their debts and, as a result of a MinSalud decree issued in December 2014, will have to increase their minimum capital and prove they have enough reserves for two months’ operations. According to ACEMI, this will require a recapitalisation of nearly COP5bn ($1.8m) and many EPSs may be liquidated or merged. If by 2022 these requirements have not been met, Salud Mía remains on the statute books and can be implemented by the government. The OECD’s health report on Colombia also recommends that EPSs be held to greater standards of accountability and their performance measured – and rewarded or penalised accordingly, based on the quality of services provided.
The sector most likely to be disrupted by the LES is the pharmaceuticals industry. During the 2000s the lack of price controls resulted in Colombia having some of the most costly drugs in the region. In addition, an extensive chain of suppliers, distributors and intermediaries sprung up, each taking their cut of profits and pushing prices up further. For example, by 2012 Bogotá-based daily El Espectatdor reported that Adalimumba, an anti-inflammatory and immunosuppressant drug, was 173% more expensive than in the UK. “Around 20 years ago Colombian pharmaceuticals used to include the pricing on the packaging,” Javier Prada Rey, general manager of Grünenthal Colombiana, the local branch of the German pharmaceuticals firm, told OBG. “However, since then there was a belief that market forces could control prices in the private market. Drugs became expensive at origin, but the entrance of numerous intermediaries – including distributors, packagers and marketers – pushed prices up further.”
In such circumstances, price controls were long overdue. During President Juan Manuel Santos’ first term (2010-14) the government introduced price controls on hospital drugs based on the maximum rate of return for producers. However, the reform was criticised for being partial in scope and insufficient in that prices for many drugs still remained far higher than in comparable economies. In September 2013 a second reform introduced an international price referencing system for 32 of the most expensive drugs. Since then, the pricing scheme has been extended to cover over 500 products. “The pharmaceutical industry supports the responsible application of international price referencing to Colombia pharmaceutical products in order to better align to other world markets and to ensure that as many patients as possible may have access to the products they need.” Sandy Sommer, president of pharmaceuticals company AstraZeneca Colombia, told OBG.
Pharmaceutical firms operating in the country may find it harder to get approval for new products. Some inside the industry fear that if all locally licensed drugs are available for prescription by local doctors, INVIMA may slow down the entrance of new products to avoid liabilities for high-cost treatments. The government’s new strategy is to make the product approval process run parallel to cost-effectiveness studies and price regulation. The details have yet to be defined, but theoretically a new product would be assessed to ensure it offers something new over existing products, and INVIMA approval would be delivered alongside a stipulated maximum price for the product. “The question is whether the regulatory bodies have the capacity in terms of time, to undertake such studies,” said Prada. “Do they have the capacity to undertake such studies across a wide range of old and new molecules without affecting their availability in the market for the patients that are awaiting the innovation? I fear this could lead to a slowing of the approval process.”
A third challenge for big pharma comes in the shape of government legislation on biosimilars, which are based on similar, but not identical, protein structures to those of existing biological medicines. Like generic drugs, which use active ingredients identical to patented drugs, biosimilars have the potential to provide affordable treatment for serious diseases, including diabetes and cancer. The government is working on a decree to allow biosimilars to enter the market based on the efficacy studies of the original drug it resembles rather than its own studies. Colombia would be the first country in the world to undertake such a generous position towards biosimilars.
The flip-side to shrinking margins and greater competition is that the market for new drugs in Colombia is going to expand considerably with the termination of the POS. Sales of pharmaceuticals continue to grow. While figures for institutional medications were not available, IT and business services provider IMS Health reported that retail sales grew by 8% from October 2014 to November 2015, totalling COP4.79trn ($1.8bn). Various sub-segments are also yet to be fully developed. Prada points to pain treatments aligned with accurate diagnosis, treatment and women’s healthcare. Jorge Triana, general manager of GlaxoSmithKline Colombia, told OBG, “We have seen interesting niche health care markets emerge as the middle class in Colombia continues to grow. Consumers have become more sophisticated, and preventative health care has become more prevalent. Additionally, demand for aesthetic and dental care, among other services, has also increased significantly.”
Investment in health care infrastructure is also expected to pick up given the new demands on the SGSSS. Colombia has 1.58 hospital beds per 1000 inhabitants, according to the OECD’s report, well below the OECD average of 4.8 per 1000 and Brazil’s 2.3. By the start of 2016 there were several ongoing expansion projects. Hospital Universitario de la Fundación Santa Fe de Bogotá will increase its capacity by 54% with the construction of a new tower in the north Bogotá, and private hospital Clínica del Bosque is adding a new building. In June 2015 Colombian businessman Luis Carlos Sarmiento Angulo announced that one of his companies, Construcciones Planificadas, would build a 300-bed cancer centre in a greenfield site in the north of Bogotá.
Private health care and medical tourism also look ripe for strong future growth. Just 1.5m Colombians have additional health insurance on top of their EPS affiliation. In comparison Chile has 18m inhabitants and over 4m people have private health care. In Colombia the segment has grown steadily at 4-6% in recent years, but with the expansion of public treatment under the LES, its future lies in offering premium services to supplement private medicine. “There is an enormous opportunity to offer complimentary medical services in Colombia,” said González. “As the middle class grows, more people will be prepared for improved service. In Colombia private health plans tend to have high coverage, but limited options. The patient is fully covered, but must be treated in a certain clinic. In the future I can see Colombia moving towards a mixed system where patients have full coverage in certain clinics and the option of attention at high-end clinics for an additional payment of 20-30% of cost.”
Once fabled for its cosmetic surgery expertise, Colombia’s medical tourism sector is diversifying its options. For many years the country has received patients from Central America and the Caribbean islands through partnership with insurance companies in those countries. Although competition for this market is increasing with the rise of Panamanian health tourism, Colombia is still a key destination in the hemisphere. According to data from government authority Migration Colombia, the number of foreigners visiting Colombia for medical procedures grew from 274 in 2008 to 10,039 in 2014. That year medical tourism generated revenues of $144m for the country, according to estimates from Migration Colombia and the Ministry of Commerce, Industry and Tourism.
Training & Innovation
Another potential bottleneck to the expansion of coverage is the lack of adequate human resources. Colombian doctors are required to see a new patient every 20 minutes. According to Prada, several misdiagnoses have been identified in the health system due to the short time that the physician has to do an adequate diagnosis and costs the system heavily in terms of inadequate prescribed drugs and repeat appointments.
There is also a shortage of specialists in Colombia, which can be attributed to the lack of financial and professional incentives offered, with medical students receiving no stipend while studying for expensive specialisation courses.
A focus on training and research is key to the development of the sector according to Juan Gabriel Pérez, executive director of Invest in Bogotá, the Colombian capital’s investment promotion agency. “With over 2000 research groups and close to 51% of the country’s science, technology and innovation activities, Bogotá is a prime location for pre-clinical and clinical trials for Latin American markets,” he told OBG. “In addition, given that Colombia is one of the most biodiverse countries on earth, we must encourage research centres to exploit the medicinal potential of the Colombian ecosystem.” In addition, Invest in Bogotá is working to attract manufacturers of medical devices to set up production plants.
From a public health care standpoint, there is a lot to like about the Colombian system. For a relatively small outlay per citizen, the country has achieved universal coverage and provides a wide range of services. The full implications of the LES will not become clear until February 2017, but it is clear that the heath care sector is set to expand significantly in the coming years as more patients gain access to cutting-edge treatments. Foreign investors could be presented with significant opportunities in Colombia, particularly in the area of financing, which is a problem the government has yet to solve.