Since taking office in December 2018, AMLO has made it clear that improving the efficiency of government spending is a top priority, and this means reshaping how the government is managing purchases in all industry sectors, including healthcare. The rules of the game are changing. The risks are high for all stakeholders, particularly established players and patients. Let’s review some key numbers for Mexico’s healthcare system:

• Healthcare expenditure: 5.5% of GDP
• Public healthcare expenditure: 10.4% of government spending
• Total hospital beds: 167,000
• % of hospitals belonging to the public sector: 82%

The public sector represents over 80% of hospital beds in Mexico and approximately 60% of the revenue of established players, whether these be medical equipment, medical device, pharmaceutical or consumables manufacturers. The public sector is big business, where winning tenders is a critical component of maintaining the topline. Manufacturers often partner with distributors to leverage local contacts and broaden reach. And in a country where kickbacks are a common business facilitator, it is not surprising to see AMLO’s anti-corruption policies seek to reshape purchase processes.

Main Structural Changes to Public Tenders

1. Tenders are consolidated further. Government tenders are a common practice that are generally organized by type of institution, state, or region. These are being consolidated and centrally managed, thus reducing the number of overall tenders and increasing the stakes for the participants. The theory is that with greater volume and higher stakes, participants will be enticed to offer more competitive pricing, thus squeezing profit margins. In doing so, the opportunities for corrupt practices will also be more limited.
   
2. Efficiencies are sought to reduce volumes. Authorities are speculating that greater consolidation of tenders will lead to better management of purchased goods. As such, consolidated tenders are of lesser volume then the sum of their previous parts.
   
3. Distributors are being squeezed out. Manufacturers are called in to participate directly in tenders, while distributors are sidelined. The objective is to reduce costs by eliminating distributors and their margins. Additionally, international manufacturers generally have stricter anti-corruption policies. The Mexican government plans to manage the logistics directly, ranging from warehousing to distribution.
   
4. International products are called in to lower costs. Participating in government tenders was typically reserved to companies whose home country had a free trade agreement with Mexico. As such, many international companies, notably those from Asia, were excluded from potential government sales. Opening tenders to companies from all countries is expected to place further downward pressure on pricing.

Affected Stakeholders

These include products with proven and established quality standards, the patients who rely on them, the doctors who use them, the companies who manufacture them and the providers who distribute them. More specifically, these changes will affect:

• Patients dependent on innovative products and/or with time-sensitive cases
• Patients of lesser financial means who are dependent on public healthcare
• Physicians, who are used to products with proven outcomes
• Manufacturers of products with high IP content
• Providers of value-added solutions
• Distributors focused on the public sector

Additionally, the overall healthcare system will become less efficient as the Mexican government tries to become the sole distributor of products to public hospitals. This will further cripple the system’s ability to move to value-based care.

From the product side, the burden on the healthcare ecosystem will increase as lesser quality products—which are typically less efficient and have higher failure rates—are used by patients and the physicians who treat them.

Said risks also threaten the production and value chain: specifically, established manufacturers and distributors. The combined effect of such policies is expected to reduce the potential market for medical equipment, medical devices, pharmaceuticals and consumables by over 50%.

The consolidated tender of medicines (for the second half of the 2019 fiscal year) is already showing signs of inefficiency. The primary points of concern include:

1. Some maximum acceptable prices are lower than those of previous tenders
2. Open international bidding
3. Delivery dates are unreasonably tight
4. Commercial procedures (payments, terms and conditions of sale) are unclear

Such variances can discourage companies from participating in the tender, thus creating a shortage of products in the market.

How Companies Can Adjust to AMLO-Care

In the process of adjusting to these policy shifts, manufacturers must change the way they look at the market. The topline value will be affected so dramatically that historic viewpoints will no longer be relevant. Instead, metrics such as gross profit and market share will become more appropriate and reflect performance more accurately.

In a market with limited performance indicators, measuring and tracking market share can be very tricky. Thankfully, GHI developed ShareScope, which is a unique market tracking solution with over 90% accuracy when measuring market size and market share of medical equipment in Latin America, market size and market share of medical devices Latin America, as well as market size and market share of pharmaceuticals and consumables for Latin America. ShareScope may be the measurement standard your company needs to evaluate performance, track the competitive landscape, assess the threats of Asian products and set your goals for the upcoming years.

Contact one of our Solutions Advisors to see if ShareScope is right for you.