The introduction of the Popular Health Insurance Scheme (Seguro Popular de Salud, SPS) in 2003 redefined Mexico’s health sector by providing public coverage, albeit limited, to half of the population, which previously had no protection. In a little more than a decade since the introduction of the SPS, Mexico has made vast strides in extending coverage and is closer than ever to attaining universal coverage.
Nonetheless, rapidly changing demographics have boosted demand for medical services and put significant pressure on the sector, which is now faced with the task of increasing capacity to effectively meet health care needs, while expanding access in rural and remote areas, where infrastructure is lagging. But even though health expenditure has increased in the past few years, at 6.3% of GDP it remains below the OECD’s average of 9%. A sector reform already announced for 2014 is expected to introduce important structural changes aimed at increasing integration among service providers and ultimately expand access to medical services.
COVERAGE: Mexico’s public health sector is complex and fragmented. Mexicans in the formal economy are covered under social security institutes, which operate their own medical facilities. The Mexican Institute of Social Security (Instituto Mexicano de Seguridad Social, IMSS), the largest public social security institution in the country, provides coverage for around 51m Mexicans in the formal private sector, or 43% of the population, plus 11.8m through the programme IMSSOportunidades. It is funded by contributions from the federal government, the employer and the employee.
Under this same scheme, 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 accounts for 6% of the population. The Oil Workers Medical Service, the Ministry of National Defence and the Ministry of Marine Affairs cover their own employees and combined account for a little over 0.7% of the population. Moreover, IMSS-Oportunidades can cover independent workers or workers previously in the formal sector who lost their jobs, in exchange for an annual contribution, though this is underutilised with the vast majority of unemployed people being affiliated with the Seguro Popular de Salud (SPS), a national insurance programme. The SPS was introduced in 2004 following a health-sector reform aimed at realising 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, the SPS grants coverage to Mexicans without social security. By 2012 the SPS had enrolled 52.9m people, a significant increase from 5.3m in 2004. SPS is funded by the federal and state governments, as well as a small contribution by enrollees, and covers 100% of conditions treated in health centres, 95% of conditions which require hospitalisation and 60% of conditions considered high-speciality.
SERVICES: Since the introduction of the SPS, Mexico is closer than ever to attaining universal coverage. According to the most recent health and nutrition survey ENSANUT, in 2012, 21.39% of the population reported having no protection. This is especially significant considering that 57.6% of the population had no protection in 2000. Moreover, the SPS has contributed to important increases in several key health indicators, such as the percentage of women receiving prenatal care, cervical cancer screenings and treatment of acute respiratory infections in children under five. Finally, the private sector provides services to those with the means to pay. According to PwC México, private expenditure makes up 53% of total health expenditure, 92% of which is out-of-pocket, with only 8% being financed by private insurance companies. Ever since the introduction of the SPS, out-of-pocket expenses declined 4% but remain high at about 47%, according to PwC México.
As for public expenditure, although the health budget has been increasing, it remains low, with Mexico allocating the least public resources to health of all OECD members. For the 2014 fiscal year, the federal health budget increased by MXN41.08bn ($3.19bn) from 2013, reaching MXN490.05bn ($38.08bn), 2.79% of GDP. The largest share, MXN217.31bn ($16.89bn), is allocated to the federal share of contributions to the IMSS. According to a study by the Chamber of Deputies one significant challenge in this area is the fact that around 97% of the budget is allocated to current accounts, to cover personal services, operations and subsidies while less than 3% is allocated to investment to modernise and expand the sector’s infrastructure.
FRAGMENTATION: Mexico’s fragmented system means that patients are limited to receiving care in the medical facilities of their respective providers. While technically anyone could go to IMSS facilities, this is not known by the general public. The framework in place to make such transactions does not function efficiently, and it would imply out-of-pocket expenditures for the person. A notable exception is the Gineco-Obsteric Emergency Agreement, which mandates all public health institutions to deal with any pregnancy-related treatment independently of the person’s affiliation. Moreover, as in many other countries, health care centres must provide medical care in emergencies or when the patient’s life is at risk. Daniel Broid Krauze, coordinator of the Institutional Strategic Planning Unit at IMSS, told OBG, “In theory, anyone could use services in IMSS facilities. The costs are published in the Official Gazette, but in reality the vast majority of our patients are people insured by IMSS, not counting the exceptions in the law and those treated through agreements between IMSS and other institutions.” Among the priorities for the current administration is to scale up and greatly increase the exchange of treatments and services with other public health care institutions, bringing the country closer to effective universal health care coverage.
However, the system was further fragmented following a period of decentralisation of Ministry of Health services beginning in 1983, which saw states become responsible for the delivery of services in their territory. Mexico has been attempting to overcome this fragmentation for many years, but it has proven difficult. Cuauhtémoc Valdés Olmedo, general coordinator at the Mexican Health Foundation, told OBG, “In part, unions have proved a challenge, making it difficult to make advancements in the area of integration of services. But other issues, such as salary differences between service providers for example, have also held back reform. For instance, a doctor with the Ministry of Health, exercising the same functions, does not have the same remuneration or benefits as a doctor with ISSSTE. A doctor with ISSSTE can retire at 55, whereas one with the Ministry of Health has to wait until 65.”
REFORM: The current administration has announced a structural reform for the coming year. While the details of the actual reform have yet to be made public, President Enrique Peña Nieto told local media that the reforms seek to create a more homogenous health care model, with better coordination between the different institutions in the country. Ultimately the reform seeks to guarantee all citizens access to health care, independently of their work or social condition. Two important changes will have an impact on the sector as a result of the fiscal reform in 2012: the law on government accountability is expected to increase transparency across all levels of government, while the second shift is expected to ensure efficiency in the allocation of funds within the SPS programme, by ensuring that funds actually reach health care institutions as opposed to remaining in state coffers. According to Valdés, the two initiatives are a preamble to the reform which should ultimately see the Ministry of Health become responsible for overseeing not only health programmes but also the resources allocated to health. “Another important expectation from the reform is the possibility to establish a single fund, which will disperse resources to institutions according to services delivered and not the number of affiliates an institution has, as is the case now,” Valdés told OBG. This is in line with the government’s sector plan, according to which the country should advance to having Mexican citizens choose the service provider they believe is most adequate.
ARTICULATION: According to Valdés, a third element of the reform is expected to address the articulation of services. This has to some degree been set in motion already as social security institutions have started to make internal changes to increase inter-institutional communication in various areas such as service provision. Jose Alarcón, health associate at PwC México, told OBG, “This reform aims to advance on three fronts: integration, convergence and quality. To increase integration, the idea is to make health care rights portable, using a clinical record, an information-sharing platform made accessible to different institutions. Secondly, convergence entails national quality standards, uniform clinical practices and protocols, but also an increase in synergies in areas such as the purchase of medication, which has already happened to an extent. Thirdly, to ensure quality, one aspect is to increase capacity through public-private partnerships, enabling the sharing of infrastructure.”
CHALLENGES: Fragmentation is not the sector’s sole challenge. Having made significant progress in coverage, the sector’s most immediate challenge is meeting the capacity to deliver quality health care services while increasing access in rural areas. The fast-growing population has put considerable pressure on the sector and exposed shortages in installed capacity. With 1.7 hospital beds per 1000 people in 2011, according to the OECD, Mexico ranks last among the organisation’s members, which average six beds per 1000 inhabitants . There is also a shortage in human capital. In 2011 Mexico had 2.2 doctors and 2.7 nurses per 1000 inhabitants, well below the OECD’s average of 4.5 and 8, respectively. This means long waiting times for patients which, according to PwC México, averages almost an hour for outpatient services, and can go up to 90 minutes in the case of services by state ministries. The current administration has set ambitious goals for these indicators. The sector development plan outlines strategies to nearly double them, going from 2.2 doctors per 1000 inhabitants to four, from 2.7 nurses per 1000 inhabitants to five, and from 1.7 beds to 3.4. “It will be very difficult to physically double the number of doctors. The goal is to match the productivity of four doctors using technology,” Alarcón told OBG. According to Alarcón, there is also room for improvement in operational efficiencies. “Around 11.9% of health expenditure in the social security schemes goes to administrative costs. The OECD has an average of a little more than 3%. There is significant room for efficiency gains,” Alarcón told OBG.
Another challenge is to increase access to health services in rural and remote areas, where infrastructure is limited. Private facilities and specialised hospitals tend to be located in urban areas, leaving many underserved and having to incur additional costs such as transportation to the nearest hospital.
In the past few years, efforts have been made to improve access in these areas, in particular through tele-health and distance medicine initiatives, which allow medical health practitioners to carry out consultations without physically being in these areas. Another initiative is known as “caravanas”, mobile medical units.
INFRASTRUCTURE: According to PwC México, 3734 infrastructure projects were completed from 2007 to 2012; 1070 of which were new units, 194 were modernisation projects, and 2470 were expansions or remodellings. In 2011 there were almost 22,000 public medical units, or up to 83,000 beds. Indeed, the vast majority (86.5%) were clinics administered by the Ministry of Health and clinics for the IMSS-Oportunidades programme. Social security institutes accounted for the remaining 13.5%. The private sector accounted for 3000 units with 34,881 beds. MXN78.259bn ($6.08bn) are also being invested for the completion of 1028 projects. Around 90% of this is funded by the federal government, and the remainder by private sector capital, and state and municipal government funds.
PRIVATE SECTOR: Since 2007 the private sector has assumed a more prominent role in the development of infrastructure, with private hospital chains such as Grupo Ángeles Médica Sur, Hospitales ABC and Star Médica registering exponential growth. According to the Ministry of Economy, foreign direct investment in the health sector, including medical services and hospital infrastructure, has reached a cumulative $234m over the past 14 years. The private sector is expected to see increased domestic and foreign private investment following the reform, alongside more instances of PPPs in infrastructure and sub-contracting, to meet demand from Mexico’s expanding middle class. Although the number of PPPs remains small, the concept is getting some traction. Since 2012, Mexico has an established legal framework for the implementation of PPPs, following enactment of the PPP law in December 2012.
Two federal and three state hospitals have been built under PPP schemes. There are also instances of public and private exchanges in operations. Many doctors split their time between the public and private system. In the past few years, links between academia and the private and public sectors have started to develop with the establishment of medical clusters. For example, in Mexico City there are currently three clusters in development and more have been announced. An important cluster is the Zona de Desarrollo Económico, or Zode, in Mexico City, which takes advantage of the natural cluster in the city’s south where renowned universities and hospitals as well as national investigation centres are concentrated. Atizapán is already home to a biotechnology cluster, while Baja California also has an important medical tourism cluster.
PHARMACIES: According to a PwC México study, doctor offices as part of pharmacies represent around 15% of private care in the country. “For every three pharmacies, there is one doctor,” Carlos Vázquez Darimont, director general of Asofarma de Mexico, a pharmaceutical company, told OBG. Serving anywhere between 15 and 80 customers a day, this health care model is attractive for its convenience, reduced waiting times and affordability. Moreover, it is helping to ease the strain on the conventional health system, contributing to the expansion of services in rural and remote areas.
As supermarket chains with their own pharmacies such as Walmart, Comercial Mexicana and Soriana, gain prominence, independent pharmacies are disappearing. Karel J Fucikovsky, general manager for Mexico and Central America of Pierre Fabre, a pharmaceutical company, told OBG, “Big pharmacy chains are monopolising the sector and forcing small, family run pharmacies to close down, or to offer goods other than pharmaceuticals to consumers.” These large channels, which buy in volume, can actively commercialise their own products through the doctors in the offices attached. However, the relative absence of regulations in the sector has led to concerns that such profit-driven commercialisation of products will lead to the proliferation of unethical business practices. For instance, it is not uncommon for doctors to substitute prescriptions with products sold in their pharmacies.
MEDICAL DEVICES: Mexico has seen significant growth over the past decade in sub-sectors such as pharmaceuticals, medical devices and medical tourism (see analyses). The medical device market in particular has experienced dynamic and sustained growth, partly as a result of Mexico’s manufacturing capacity. In 2013 the industry was valued at $4bn. Increasing health expenditure and acquisition of new technology has fuelled some of the growth in the domestic market, while Mexico’s proximity to the US, which absorbs 91% of Mexico’s medical device exports, has benefitted industry.
According to ProMéxico, the national investment promotion agency, Mexico is the leading supplier of medical devices to the US and the fifth-leading medical device exporter in the world. Its lower operational costs also make it an attractive manufacturing base for international players. Indeed, according to PwC Mé xico, manufacturing costs in Mexico are estimated to be 23% lower than in the US. It should be noted that Mexico is already home to seven clusters in the industry, representing around 130 companies.
The cluster in Tijuana, Baja California, accounts for nearly half of the country’s medical device exports. Growth in the past few years has doubled the number of jobs in the medical-devices industry in Tijuana, from 15,000 to nearly 31,000, according to state figures. More than 42,000 people across Baja California are employed in the industry. Demand is expected to go on growing, with annual growth rates of 5% from 2013 to 2020, according to a study by DHL Supply Chain.
HEALTH PANORAMA: Although Mexico’s average life expectancy, measured at 74.2 years in 2011, approaches the OECD average of 80.1, infant mortality rates and under-five mortality rates remain high at 8.6 and 13.7 per 1000 live births, respectively, compared to the OECD’s averages of 2.8 and 4.1. The leading causes of death today are diabetes and cardiovascular diseases; combined, they were responsible for 150,000 deaths in 2012, according to the World Health Organisation. Diabetes rates have doubled since 2000 and the condition has become the leading cause of blindness in adults and an important contributor to amputations, according to the Mexican Diabetes Federation.
Both conditions are associated with the high levels of obesity prevalent in the country. With a 32.8% adult obesity rate, Mexico has one of the highest obesity rates in the world, surpassing the US (31.8%) in 2013, according to a study by the UN Food and Agricultural Organisation. The most recent National Health and Nutrition Survey showed that in 2012, 71.3% of adults were considered overweight or obese. According to the study around 21m people are clinically obese, while 34.4% of children aged 5-11 are obese or overweight, a 27% increase since 2000. Studies attribute high obesity rates to increased consumption of sugary drinks and mass-market foods, combined with the adoption of increasingly sedentary lifestyles. Obesity rates are estimated to cost the health system $6.5bn and costs are expected to double by 2017, reaching $13.7bn, according to the Ministry of Health. Accordingly, the government has allocated MXN312m ($24.24m) towards obesity prevention initiatives for the 2014 fiscal year, an increase from MXN269m ($20.9m) in 2013.
OUTLOOK: Structural reforms are expected to increase integration and reduce fragmentation within the sector. However, efforts to increase capacity in order to expand access to medical services should open further opportunities for both public and private partnerships, alongside continued expansion in the private sector.
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