Opportunities in Latin America’s Healthcare Sector 2016

In a time of economic instability, private and foreign investors have the opportunity to grow their presence in select healthcare markets. The following report delves into three contextual elements to understand healthcare trends in the Latin America, three major burdens countries in the region are all grappling with, and four targeted opportunities for healthcare providers.

Contextual elements

• Currency Devaluations — As shifts in the Chinese economy continue to cause fluctuations in currency markets, all the major main players in Latin America’s healthcare industry have felt the impact of weakening local currencies. Despite dollar-denominated purchases becoming ever more expensive, a lack of local manufacturing leaves many countries with no alternative but to import form abroad. The private sector will have to be cost-efficient to remain flexible and competitive.
• Corruption — Corruption in the healthcare sector has always been a reality, but more so now in troubled economic times. Incidences such as counterfeit products and embezzlement by public figures and private companies adds unnecessary disparities to the healthcare systems of the region. Transparency and accountability are needed to mitigate these practices.
• Pubic-Private Partnerships (PPPs) — with the public sector falling short on infrastructure demands, private enterprises are needed to intervene and complement healthcare service provision, especially in rural areas. Diagnostic imaging and IT health solutions are some of the bright spots, as evidenced by the PPPs that were struck in 2015. Brazil’s change of heart when it opened up its hospitals to foreign investment constitutes one of the biggest opportunities for capital and medical equipment companies.

Major Burdens

• Ageing Population — A growing portion of Latin America’s population is ageing fast as the region reaches the apex of its demographic transition. This has accelerated the increase in healthcare expenditures, while public health institutions are no longer capable of assuming the burden of caring for the elderly. Alternate solutions related to home healthcare may present opportunities for care providers, nursing homes, and medical equipment suppliers providing products that can meet the needs prompted by these demographic changes at a reasonable cost.
• Chronic Diseases — Brought about by the region’s epidemiological transition, non-communicable diseases (NCDs) now account for the majority of deaths in the region. Yet, because of the prevailing biomedical model and a limited focus on primary care, these diseases remain largely unaddressed. Greater emphasis needs to be placed on prevention in order to ease the burden that NCDs place on healthcare systems. Diabetes and cardiovascular diseases are of particular concern, with high prevalence in the majority of Latin American countries. The situation gives medical device and capital equipment manufacturers the opportunity to pioneer the shift towards legitimizing preventative care in the region.

As China shifts its focus towards domestic consumption, it has unfavorably impacted global commodity trading.1 The currency depreciation experienced throughout Latin America reflects falling demand for their export commodities and is putting the region’s long-established dependency on Chinese demand under greater scrutiny (see graph). The region’s economic stagnation is expected to linger through 2018 as regional economies are expect to post only modest GDP growth of less than 3% — well below the robust expansion seen from 2003- 2012.2

Slow growth and weaker currencies leave the region at a disadvantage in regard to dollar-denominated goods. With the majority of medical devices being imported into Latin America, manufacturers and distributors must revisit their pricing regularly in order to ensure they remain both competitive and profitable. Meanwhile, healthcare systems address cost increases through “rearview-mirror” budget planning, making for a challenging balancing act. Industry and government institutions are each defending their respective interests, often resulting in a tug-of-war between public spending and costcutting initiatives, as was the case with Brazil’s healthcare budget throughout 2015.3

Though the economic instability of the region will continue to constrain public health systems, Latin America’s total healthcare expenditure is expected to reach 7.7% of GDP by 2017.4 Future growth will depend on the private sector’s flexibility, and companies’ ability to cater to individuals seeking healthcare outside the scope of the public sector.

With private expenditure representing 48% and 57% of the Brazilian and Mexican healthcare markets respectively, these are the largest private markets in which to thrive.5-7 Mexico’s rebound since its economic slump in 2011 reflects the vitality of healthcare markets. Mexico’s healthcare spending grew by nearly 10% in 2012, a direct result of the expanding private sector.9 Brazil’s novel policy change in 2015 to open private hospitals to foreign investment also exemplifies the need for expanded healthcare provision and the role of the private sector in meeting this need. Other countries have also seen strong growth within the private sector, notably Chile, Argentina, and Nicaragua.7-9

As the second largest and most dynamic medical device manufacturer in Latin America, Mexico is also showing promise. Thanks to its geographical proximity to the U.S. and its lower manufacturing costs, the country has become the fifth largest exporter of medical devices and remains an enticing choice for mid-sized medical device companies wanting to establish operation in the region.

Unethical business practices have a heavy influence on the healthcare systems of Latin America. Theft, bribery and extortion have led to monetary losses in the billions. According to Transparency International’s 2014 Corruption Perception Index, the extent of the damage is severe enough to classify two-thirds of the region’s 31 countries alongside the world’s most corrupt nations.1 And yet the region can ill afford anything that would further constrain its healthcare system by limiting available resources, lowering the effectiveness and efficiency of services, or lowering quality of overall care. Even though engaging in corruption presents significant risks to companies – with the risk of a tarnished reputation and billion-dollar corporate fines among the most severe, unethical behavior will continue to play a role in Latin America.

“I have yet to hear of one country in Latin America that does not have an issue with the role of corruption.”
Leading medical device manufacturer

Much of the corruption stems from political figures and unethical behavior in the public sector. The prevalence of state-owned or state-controlled healthcare institutions have led to compliance challenges regarding anti-bribery laws.

• In Mexico, kickbacks on government contracts can reach 25% to 30% of project value in the form of cash and other material goods such as computers, cars, land, constructions, homes and political favors.
• In Honduras, the vice-president of Congress, Lena Gutierrez, and some of her family have been charged with fraud, crimes against public health and falsification of documents. They are suspected of having links to a company that allegedly embezzled the state by selling poor-quality medicine at inflated prices.2
• In Guatemala, political corruption in the health system has directly led to loss of lives. Authorities arrested 17 people, including the head of the Guatemalan Central bank, in an ongoing investigation into fraud at the Instituto Guatemalteco de Seguridad Social (IGSS). The scandal reveals that IGSS employees and the head of the Bank of Guatemala stood to make 15% in kickbacks. These persons have been charged with fraud, bribery, conspiracy, influence peddling, illegal collection of fees, illicit association and insider trading. Charges of culpable homicide could be filed as the scandal resulted in the deaths of at least five kidney-failure patients.3

Corruption goes beyond bribes and kickbacks. There are cases of individuals and entities often billing the government for services that were never rendered or even selling expired medications in altered packages.4 In Ecuador, such behavior has become a major issue for the healthcare system. Guayaquil’s Teodoro Maldonado Carbo Hospital

As they strive to provide healthcare to large populations characterized by vast income disparities, Latin American governments struggle with the tradeoffs between accessibility and quality of care. Brazil, for instance, possesses some of the region’s most renowned healthcare institutions, but the majority of the country’s public healthcare system suffers from poor planning and understaffing. With few exceptions, most Brazilians complain of long wait times in the public system.1

Mexico also faces challenges with a lack of public-private partnerships and poor distribution of resources — public institutions often overlap by geography and unnecessarily duplicate services; they also have yet to reach a consensus on patient portability.2 These legacy systems fall well short of addressing the growing healthcare pressures of an ageing population.

The lack of infrastructure and misallocation of resources nevertheless offers opportunities for the private sector, especially in countries such as Brazil, Mexico, Chile, and Colombia, where healthcare expenditures are rising. Companies who can offer high-quality care and treatment at a reasonable cost stand to make significant gains.3

Source: The World Bank

However, private sector providers face challenges of their own. Private institutions in Mexico, for example, face a shortage of nurses because they offer lower wages and benefits compared to the pay on offer in the public sector.2

While there is no perfect solution, governments can set the stage for private companies to complement — and in some cases offset — rigid and slow public health systems. Rules and regulations will need to evolve as a result, and already some countries have set up new frameworks to enable greater private participation in healthcare provision. Encouraging local solutions and alternatives to imports is particularly relevant given weakening currencies and grim economic outlook expected until 2018.

• Leading this trend is Brazil, where in early 2015 President Roussef announced that foreign companies could invest in private hospitals, thus helping to expand private care and shifting part of the financial burden away from the public sector. Private equity funds Carlyle Group and GIC Holdings invested over $600 million in the Rede D’Or São Luiz hospital chain, to construct new hospitals and expand current facilities.4

Latin America is experiencing steady and significant ageing of its population – largely driven by the expansion and modernization of healthcare provision and the ensuing rise in life expectancy. The confluence of continued technological progress and dropping fertility rates has led to growing concerns about the sustainability of all publicly financed social welfare programs, particularly healthcare.

Latin America’s geriatric base is a pressing issue for healthcare systems, both public and private. In 2010, 10% of the region’s population was over 60 years old. By 2040, this number is expected to more than double, reaching 21%.1 The phenomenon is not unique to Latin America – other countries dealing with similar issues include the United States (where projections indicate that 22% of the population will be over 60 by 2040) and Japan (where 25% of the population is currently over 60 years old).2,3 The burden of ageing demographics has led the Japanese healthcare system into a crisis, which serves as a cautionary tale to even the best managed health care systems elsewhere.

As the number of working-age adults decreases as a proportion of the total population, the ageing of the population will result in a net economic burden, particularly when considering that seniors account for a disproportionate amount of healthcare costs. These costs will be partially responsible for Latin America’s expected rise in healthcare expenditures, increasing an average of 4.6% per year through 2018.4

Chronic diseases are the principal cost driver associated with ageing population, as over 80% of adults over 60 have at least one chronic disease.5 Such diseases require long-term treatment and routine visits for lifestyle management. The growing number of “empty nesters” is a segment of interest as they seek greater independence and invest more in their health than previous generations, resulting in higher “out-of-pocket” expenditure.

However, private sector providers face challenges of their own. Private institutions in Mexico, for example, face a shortage of nurses because they offer lower wages and benefits compared to the pay on offer in the public sector.2

While there is no perfect solution, governments can set the stage for private companies to complement — and in some cases offset — rigid and slow public health systems. Rules and regulations will need to evolve as a result, and already some countries have set up new frameworks to enable greater private participation in healthcare provision. Encouraging local solutions and alternatives to imports is particularly relevant given weakening currencies and grim economic outlook expected until 2018.

In a culture where family bonds play a central role, the home healthcare market presents vast opportunity, particularly as an alternative to building more long-term care facilities. Home care solutions are expected to grow by 8.7% between 2015 and 2020.6

Infectious diseases in Latin America are quickly becoming a thing of the past. The most resilient diseases, such as AIDS, tuberculosis, and malaria account for less than 10% of deaths in the region.1 Chronic diseases, on the other hand, are the principal causes of death for countries in the advanced stages of their epidemiological transition, such as Chile, Argentina, Mexico, Brazil and Uruguay.1 Other countries in the region are expected to follow suit, thus elevating the burden region-wide.2-3

These non-communicable diseases (NCDs) place a large strain on healthcare resources due to the regular and sophisticated treatments they require. This is particularly true when considering higher age groups and the health complications that ensue. With a growing geriatric base, these factors compound each other, further emphasizing the challenged associated with chronic diseases.

Given the nature of chronic diseases, patients will continue to seek treatment involving long-term care. Yet the levels of dissatisfaction with public health systems is such that many seek out the services they need privately with out-of-pocket expenditures. Private care providers and equipment suppliers can capitalize on this trend to strengthen their presence in key markets.

Prevention and awareness are the main strategies to combat chronic diseases, and, indeed, public healthcare systems have been seeking focusing on such activities to maximize returns on taxpayer-funded expenditures. Outreach programs in the form of social events and international collaborative efforts have been successful. The 2014 World Diabetes Day in Mexico City is an exemplary model for the kind of prevention the region needs. Involving more than 15,000 people, the International Diabetes Foundation (IDF) aimed to educate the local population about lifestyle choices and also provided services such as simplified blood sugar testing, healthy cooking workshops, and exercise classes.4 The region is ripe for similar awareness-raising events, such as “World Hypertension Day”.

Awareness programs remain as a cost-effective way to gain traction with at-risk populations and avoid the sophisticated treatment of chronic disease management. The key to their success is empowering local communities and ensuring proper outreach to unaware populations by focusing the event on crowd-pleasing activities with tangible health benefits. Properly designed efforts can potentially unearth the large number of undiagnosed or uneducated patients, and significantly prevent costly health expenditures. According to the Diabetes Atlas, estimates show that of the 392 million patients with diabetes in the world, 46% are undiagnosed.5 The Prospective Urban

Now recognized as a worldwide epidemic, obesity is responsible for negative effects not just health-wise but also from a cultural and social standpoint – and Latin America is no exception. Obesity is the fastest rising non-communicable disease (NCD) in the world, and now afflicts over 56% of adults in Latin America — well above the global average of 34%.1 As a leading indicator of future health problems, the spread of obesity cannot go unmanaged. Populations stand to gain long-term health benefits that protect them against the burden of chronic diseases.

Eating habits, globalization, stress, and sedentary lifestyles are the root causes for the prevalence of obesity in Latin America. Drastic dietary changes are the most obvious sign of the epidemic across the region. Following in the footsteps of North American eating habits, the sale of ultra-processed foods grew by 48% between 2000 and 2013.2 Sedentary lifestyles are due to the growing work constraints and busy schedules associated with urbanization, as well as the lack of space for physical activity. The double burden of malnutrition creates the unique situation where nutritional deficiency exists alongside obesity. Food insecurities and low incomes propel this double burden, such as in Mexico and Argentina.3

Latin America is home to some of the highest obesity rates in the world. Mexico, most famously, surpassed the U.S. in 2013 as the world’s most obese country. It is expected that Mexico will continue to see a steady rise in its obese population given the high proportion of its population considered overweight. In 2015, over 70% of Mexico’s overall population and 57% of children were considered overweight.4 Other Latin American countries such as Venezuela, Argentina and Chile possess similar rates.5 This places an enormous burden on the healthcare sector, as obesity is a precursor to more severe health issues.

“Obesity is a huge problem, but people don’t die from obesity. People die from health problems related to obesity.”
Leading medical device manufacturer

The same high-fat and sodium diets that lead to higher body mass indices also cause plaque buildup, hypertension, inefficient insulin uptake, and musculoskeletal conditions.6 Though one of the easier risk factors to manage, the conditions arising as a result of obesity place a huge strain on Latin America’s healthcare systems, most notably in the form of cardiovascular diseases and diabetes.

Products that can monitor, record and display health statistics such as blood pressure, glucose levels, calories, and weight can influence behavior and reverse the effect of harmful non-

Technology penetration in Latin America has progressed at break-neck speed. Internet and smartphone usage rates are now on par with North America, Europe, and Southeast Asia. Already home to over 155 million smartphone users in 2015, the region is expected to maintain growth rates of over 20% per year in the near future. By 2019, it is estimated that 42% of the population will possess a smartphone device, and the majority will have Internet access.1-3

Successful technologies will soon permeate daily life to promote simplicity and convenience. These benefits of technology are desperately needed in the healthcare sector, where the ageing population, rise in obesity, and increase in chronic diseases have accelerated demand for expensive, sophisticated and long-term treatments.4 The need is all the more acute as public health sector resources are severely strained.

Two target demographics stand out for the adoption of effective healthcare technologies: the “technology converts” and the “digital natives,” who between them are forecasted to represent 75% of Latin America’s population by 2020.

As the population ages, more people are subject to the chronic diseases, such as cancers and arthritis, where complications can arise and require multidisciplinary care.5-7 These are usually taxing on the healthcare systems, and the patients themselves. Ageing persons will benefit from diagnostic and monitoring equipment promoting remote (or home) healthcare, which will allow for the management of chronic diseases at a distance. The home healthcare market is expected to grow by 8.6% annually and will reach a value of $17.5 billion by 2020.8 The services and products within the market (e.g., blood pressure and blood glucose monitors, hospice care, therapy) will bring services usually administered at a doctor’s office to patients directly, therefore increasing convenience for all parties. Anybody interested in maintaining a closer watch on their health in order to facilitate prevention and promote early detection will have the means and the tools to do so.

Countries with concentrated use of mobile technologies are the most attractive target markets. Argentina, Brazil, Chile, Colombia, Mexico, and Peru account for approximately 84% of all smartphone users region-wide,1 making them ripe for adoption of mHealth software solutions.

• Wearable devices (“wearables”) such as fit-bands, smart watches and augmented reality glasses are “gadgety” elements that will help bring population health management to the everyday lives of consumers. Surveys show a preference for using these devices to improve health by eating and exercising more smartly, and tracking medical information.9

Examining medical device import trends offers intimate insight regarding the pressures and demands affecting the industry. This analysis reveals opportunities for global players and regional leaders alike.

In 2015, imports of capital equipment for the medical field contracted slightly from $5.2 billion to $5.1 billion year-over-year (YoY). Despite stagnant numbers, there are still a number of profitable product classes in response to the region’s epidemiological transition, where ageing populations and a pervasive obesity epidemic have left countries facing a high prevalence of non-communicable diseases (NCDs). Deaths stemming from chronic diseases are projected to reach 84% by 2030, this is—and will continue to be—the primary driver for capital equipment imports in coming years.2

Mexico, Brazil, Argentina and Colombia account for over 80% of the region’s import and sales of capital equipment. All of these countries have made efforts to revitalize their healthcare systems that present opportunities for manufacturers, distributors and integrators alike.

In spite of the worsening economic downturn, the Brazilian government allocated funds towards teaching hospitals and improving specialty services in 2015; Mexico has initiated plans to streamline their medical imports as well as proposed initiatives to migrate systems to electronic medical records (EMRs); and Argentina has initiated their National CyberHealth Plan to expand patient outreach.

Manufacturers, distributors and integrators can expect sustained interest in capital goods, led by diagnostic and patient monitoring equipment. Given the continued need for capital equipment as well as the financial constraints of payers, second-generation and certified refurbished equipment may gain traction.

In Mexico, infusion pumps rank as the dominant product class for the country’s imports, displaying a 7% YoY increase. Breath-enhancing machines (such as ventilators and nebulizers) as well as defibrillators experienced the highest growth, with a 20% YoY increase (to reach a market value of $98 million), and a 23% YoY increase (to reach a market value of $9.4 million), respectively. Other product classes showing significant growth are blood pressure monitors, with a 2% YoY increase to reach a market value of $11.6 million. Such gains are not exclusive to Mexico. Brazil’s highest-growth product class, electrocardiograph machines, increased 28% to reach $4.0 million. The country also saw growth of 6% in ultrasound machines, reaching a market value of $107 million. Meanwhile, Colombia displayed a 5% YoY growth in MRI machines, reaching $15 million by year-end 2015.

Suppliers should heed the cardiorespiratory-centric nature of Latin America’s imported capital equipment; such focus is not

As urbanization and medical technology advancements extend life expectancy and decrease the need for acute care, long-term strategies and solutions are required. Equipment and device manufacturers will witness greater growth from products that privilege mobility, portability and care outside of traditional healthcare facilities.

Despite the current unfavorable economic climate, high growth is anticipated in diagnostic and patient monitoring equipment. Latin American countries are expected to lead global growth of X-ray devices through 2019.1 Additionally, the capnography equipment market is expected to grow at by 15% annually through 2021, with Brazil, Mexico, Colombia and Argentina at the forefront.2 Growth is also expected in products related to blood-glucose monitoring and insulin delivery, with growth estimated of 6.3% per year to reach $2.3 billion by 2020, led by Brazil and Mexico. Growth in these areas is a direct response to the region’s epidemiological transition: the rise in respiratory diseases, diabetes, and cardiovascular disorders requires the necessary equipment to manage and monitor symptoms.

Of particular interest among certain medical devices is the growing share of products that emphasize digitized automation and/or portability. For instance, the analysis of medical equipment imports reveals that portable X-ray machines represent nearly 20% of all the X-ray machines coming into the Mexico in 2015, a market segment expected to grow by 7.6% per year through 2020.3 Similarly, there is a growing preference for electronic blood pressure devices, as manual sphygmomanometers are steadily being phased out by versions that require less human intervention. Simplicity and convenience are the main drivers, with bracelet-type blood pressure devices growing their presence, enabling patients to read their blood pressure at the click of a button.

Portable and mobile products focused on the monitoring and prevention of chronic diseases, with easy-to-use features, will have a strong competitive advantage across Latin America. This can be achieved through two families of products: wearable devices (wearables) and home care equipment.

The traction wearables are gaining in Brazil and Mexico foreshadows opportunities in the region to come. Brazil is the