Medical care provision in Peru suffered from internal conflict and economic problems during the 1980s and 1990s. Already struggling to deliver health services, this influenced the health care system, forcing the Peruvian government to close facilities. Since the mid 1990s, the health sector has been gradually evolving through health reforms and policy changes. However, a large proportion of the population lacks access to any form of health service due to poor distribution. Although recent developments indicate social improvements, health care advances still have some distance to go. The sector combines both privately and publicly run health care providers operating in small regional hospitals, small health centres, large national hospitals, medical clinics, private hospitals and clinics. Health care services are available in Lima and other major cities, However, in rural regions and small towns less extensive care is offered. Health care, especially at better quality facilities, can be expensive.
OVERSIGHT: Overall the health sector in Peru remains the sole responsibility of the Ministry of Health (MoH), which seeks to promote health, protect personal dignity, prevent disease and ensure comprehensive health for all inhabitants. The ministry, which oversees the implementation of a universal health insurance scheme, maintains that the policy aims to widen access and provide higher standards of health coverage to all Peruvians. According to the ministry, a key component of universal health insurance involves wide distribution and accessibility to health care services throughout Peru. Once the programme is fully established, a mandatory government participation requirement will be adopted to ensure Peruvians have access to health care.
The EsSalud scheme, which forms part of the ministry’s network and health care system, caters to Peruvians in the formal economy who are integrated into the social security system known as Instituto de Serguridad Social (IPSS). Designed to give health care assistance to the poor, EsSalud, provides services based on earnings contributed through self-employed workers or employees working for a company. EsSalud membership provides health care services for members and their families though a network of health care facilities. During the early stages of the scheme, EsSalud provided relief for state-run health care services, but struggled with increasing demand for public health care services, such as overcrowding and the long waiting periods for patients to endure. Owing to this, criticisms and overwhelming pressures to resolve the current issues looms over the programme.
HEALTH CARE SYSTEM: Both private and public sectors play a role in the sector by providing and funding health care services. In the case of the public sector, the ministry, EsSalud and the armed forces and police, have all established health care networks. While services provided by the ministry should be free, most public hospitals are underfunded resulting in patients purchasing their own medicines. Ramón Granados Toraño, an advisor of health systems and services at the PanAmerican Health Organisation, agrees, telling OBG, “The government offers universal health insurance coverage for all Peruvians, but unfortunately, not all Peruvians receive health care, since the funds are not enough to cover the entire population.”
Insurance coverage is low throughout Peru. Although the government increased health care funding from 1995 levels, the private sector accounts for the lion’s share of expenditure, with out-of-pocket costs amounting to around 75% of the total. According to the National Institute of Statistics and Informatics (Instituto Nacional de Estadística e Informática, INEI), out-of-pocket expenditure remains high, but the number of citizens with health insurance (currently 65.2%) increased at the end of 2011. “Health insurance penetration has increased from 35% five years ago to 65% today,” Jorge Ruiz Portal, the CEO of Clínica Stella Maris, told OBG. “This is quite an improvement, but there is also still a lot of room to grow further.”
INSURANCE: Due to the pressure on the uninsured poor, the government aims to increase health insurance coverage and contracted Aseguramiento Universal Insurance Management (Aseguramiento Universal en Salud, AUS) to complement the current health insurance structure. By expanding the integral health insurance (Seguro Integral de Salud, SIS), a MoH-subsidised insurance scheme, specifically intended for low-income Peruvians, the government plans to achieve total health insurance coverage for the entire population by 2013.
This promises to be a major undertaking. “Some 30% of the population does not have access to health coverage,” Miguel Villanueva Merino, the CEO of Clínica Javier Prado, told OBG. “So the challenge is there, and we will need major investment to implement any kind of universal coverage.” SIS accounts for 12.6m insured Peruvians, EsSalud 9.1m and the armed forces and police cover 1.3m insured Peruvians. Of 6.5m Peruvians, receiving health care services from more than 450 public hospitals, clinics and health care centres, 2.5m contribute to the formal economy, holding employment on official company payrolls, and thus paying into the system.
Private insurance providers are also growing. “Mergers and growth will continue to expand in the private sector,” Rodrigo Salazar, an analyst at business intelligence firm Apoyo Publicaciones, told OBG. “Insurance companies are merging with each other, for instance, InkaFarma recently bought by Interbank. Quicorp, a public health group, expanded to a medical lab called Química Suiza and bought a series of drug stores because the group wants to expand. The public sector will improve infrastructure in health care, but the private sector will take hospitals to provinces.” Indicative of this, with 60 clinics and hospitals, Empresas Prestadoras de Salud (ESP), a private sector provider, continues to expand the number of private clinics. By July 2009, the superintendency of health care providers ( Superintendencia de Entidades Prestadoras de Salud, SEPS), which regulates the industry, reported over 1m beneficiaries and a 13% increase since mid-2008. As consumption grows, private health insurance companies will continue to attract new members. In July 2011 the president addressed the urgency by announcing a national audit of all public hospitals, resulting in a stable outlook for public spending in health care.
SPENDING: Health care expenditure as a percentage of GDP rose from 4.3% in 2006 to 4.7% in 2008. Health care spending as a percentage of GDP fell slightly when GDP grew during 2003-08 period. Since then, government efforts have been under way to increase the share back to 5%. Professional associations, universities and municipalities have also invested in their own health centres. Since 1990, a steady increase of private clinics emerged while, for the wealthier population, private health schemes prove more attractive.
A rift exists between availability of health care services in cities and in rural areas. For example, according to the National Health Institute, a 2002 survey estimated malnutrition among children under five at 25.6%, with rates ranging from 8% in Lima to over 40% in the provinces. In regards to spending on drugs and other supplies, the state introduced a new approach, which includes inter-institutional and corporate purchases. The government’s universal insurance coverage and purchase strategies provide price regulation for drugs and harmonise the process of pharmaceuticals acquisition. While the government intends to introduce tougher sanctions on reducing the prices of drugs, the constitution protects free market competition and bans price control measures. Owing to this, the government will continue to utilise these purchasing strategies to achieve reductions in expenditure. As universal health care moves forward, it should boost demand while mitigating consumption of low-cost illegal products.
POLICY CHANGES: In spite of the 2009 global economic crisis, the Peruvian pharmaceuticals market remained resilient and promising with private and public sales totalling $1bn. In 2010 sales increased about 10% reaching $1.1bn. In November 2009 after several years of negotiating and discussing a law for medications (including medical devices and sanitary products), it was approved and had a six-month period of regulated implementation. This law provided significant improvements and modifications to the regulatory environment, by offering quality services to patients and laying a foundation for the future development of the pharmaceuticals industry in the country. The law reinforces the Office of Medications, Raw Material, and Drugs (Dirección Nacional de Medicamentos, Insumos y Drogas, DIGEMID), which monitors quality control of medications in the country.
According to the National Institute of Health, the law introduces sturdy requirements for registering drugs and includes good manufacturing practice, certifications and generic bioequivalence tests. These changes transformed the national market, increasing the variety of products and the quantity of suppliers, and made a significant impact on the informal market by holding counterfeit drug businesses accountable with a stricter penal code. Owing to this, the pharmaceuticals market saw an increase in competition between serious long-term players and a reduction in counterfeit products. Since its implementation, registration approval of products required additional costs and a new timeframe. Prior to this law, it took about one week and $100 to register and evaluate drugs entering the market. Now the application process is much more rigorous, with a six-month evaluation process and prices sometimes reaching $1000.
PHARMACEUTICALS: In 2011 Peru represented the smallest pharmaceuticals market in Latin America with an estimated $1.5bn in sales. While the market will remain small, sales should continue to rise to about $2.5bn in the upcoming years. The domestic pharmaceutical manufacturing sector in Peru, though small, should also grow and target production of off-patent generics. Pressure to cut costs as well as public sector demand may drive the growth of generics. The Peruvian pharmaceuticals market has shown substantial growth in the past few years, owning largely to a self-medicating and administering population resulting from expensive fees for doctor visits. A study conducted by DIGEMID showed 34% of patients in Lima self-medicate. According to Bernardo Naranjo Vázquez, the regional manager of Crespal Laboratories, “When Peruvians get sick, it becomes an economic problem. Health care is expensive and the pharmaceuticals industry sometimes benefits, since generic or brand name drugs are generally cheaper and faster than a visit to the doctor.” Self-administering and medicating, although widespread, poses a threat to the generic drug market and may explain the low penetration of generic drugs. While consumers feel comfortable self-medicating, they mostly opt for brand name drugs, since scepticism lurks over the quality of generic drugs.
GROWTH CONTINUES: Adding to Peru’s multiple free trade agreements (FTAs), in February 2009 it entered an FTA with the US. The FTA eliminated a 9% import tariff and reduced the price for 20% of imported medicines. FTAs are not the whole story, however. “More regulations to the industry are needed,” Naranjo told OBG. “While regulations may be complicated it serves an overall good. In order get FDA approval for our products to be exported we need regulations to get into the US, Germany, and other parts of Europe.” The government initiated an online price observatory to increase transparency in pharmaceuticals prices. Through this online system, individuals can research the price of medicines sold in both the private and public sector. The pharmaceuticals market remains ripe for growth in upcoming years, owing to an expanding middle class and a fertile market space to develop businesses. Local firms are expected to continue to expand within the market as participation grows. International companies, which have already shown a significant interest, should also continue to boost their participation and may try to purchase local players.
GENERICS: As growth continues, it should largely remain in generics. The sector accounts for approximately 17% of the Peruvian pharmaceuticals market. Given their affordability, the government favours the importation, production and use of generic drugs, especially medicines dispensed and used in the public sector. “The MoH organises procurement tenders supporting public sector institutions,” Salazar told OBG. “This mandates that doctors have to prescribe the generic name or the international non-proprietary name by law, with fines of around $2500 if they fail to recommend the generic name.”
A CONTINUING CHALLENGE: Since DIGEMID lacks resources, with limited inspectors throughout the county, doctors and pharmacists still prescribe brand name drugs. Although legally bound to authorise generic substitutions, in practice pharmacists do not always do so. One reason for this is that pharmacy staff receive financial rewards on the total value of sales, providing a greater incentive to sell brand name products.
The Peruvian government targeted and signed the FTA with the US that strengthened the requirement. One drawback of the FTA may be that it could delay developing local generic drugs owing to a five-year enforced requirement of data exclusivity. According to this stipulation, until a five-year period elapses, data exclusivity prevents DIGEMID from utilising confidential trial data submitted by the inventor company to gauge the efficacy and safety of generic drugs.
While the specific measurement may be uncertain, the sale of counterfeit medicines remains an issue in Peru. DIGEMID estimates the sales of counterfeit drugs are around 20% of total drug sales.
LEADING PLAYERS: The pharmaceuticals manufacturing sector, though small, mostly produces generic drugs. A leading player in the industry, US-based Bristol MyersSquibb recently acquired Abeefe – Peru’s most prominent local pharmaceuticals company, which produces a variety of respiratory, dermatological, anti-infective, non-prescription and prescription products.
InkaFarma (based in Peru), Química Suiza (Peru), Farmindustria (Peru), Boticas Fasa (Peru) and Bayer ( Germany), remain significant players in the sector. The leading pharmaceuticals player, previously Chilean-owned InkaFarma, was recently sold to Interbank, and Boticas Fasa will make their way to the provinces.
Between Boticas Fasa and InkaFarma, the chains account for an accumulated one-third of the pharmaceuticals market share. While these chains will most likely retain their market shares and continue leading the industry, competition from smaller players will emerge due to the impact of the 2009 FTA. Owing to the pressures of the FTA, Peruvian companies will face increased competition due to increased foreign investment in local pharmaceuticals production. Additionally, foreign players which may want to gain access to Peru’s small but emerging market will also likely play an important role in the coming period.
OUTLOOK: The Peruvian market remains attractive with a stable political environment, steady economic growth, an expanding middle class, the government’s initiative to strengthen investments in the health sector and the consolidation of the 2009 FTA with the US. While those key components continue to influence significant regulatory changes and development strategies, the process will work to the benefit of communities of patients, pharmaceuticals firms and the government’s larger health care initiatives.
Owing to a transparent process and a robust regulatory framework, Peru will experience new market competition forced by policy changes. These will be especially based on government efforts to delineate between brand name and generic drugs, and to reduce the availability of counterfeit drugs in the market, which represent 20% of total sales.
As the universal health care scheme expands, competition among pharmaceuticals companies and long-term business prospects will drive a significant reduction in counterfeit drugs. By providing clearer regulations, guidelines and expectations, new prices for drug registration fees and approvals may encourage a more transparent process concerning product inclusion in the market and may assist in the reduction of low quality drugs. Human capital may pose some minor setbacks in the coming years and could affect the transformation process in the Peruvian pharmaceutical sector. Mindful of this, the government will pay special attention introducing education and training pilot programmes to institutions as DIGEMID, to ensure successful implementation of new projects and schemes.