Health & Education
On the heels of a decade-long implementation of universal insurance, Mexico’s healthcare market now stands as the second largest in Latin America after Brazil and the 11th largest in the world. Robust demographic and economic growth, combined with an improving regulatory framework and public health initiatives, are driving an average annual growth in the sector of 4.7%. At this pace, the industry will reach a market value of $27.9 billion by 2020, according to consultancy firm GlobalData.
Since the creation of a universal coverage model in 2006, Seguro Popular, the publicly subsidized health insurance plan, has added 24 million people to its network. The number of interventions covered by the plan has increased threefold in that period, while the amount of drugs included has grown 300%. Today, 55.6 million people—or 96.7% of the population—are covered by one or more public institutions.
The Peña Nieto government, which adopted the reform mid-stream, has put healthcare front and center in its plan to transform Mexico from a manufacturing base to an innovation-driven economy, with a raft of new incentives for drug R&D. The recent opening up of the Mexican Social Security Institute to clinical research, for example, is specifically aimed at enabling access to and support for innovative medicines. On the regulatory side, the successful push to have Cofepris recognized as National Regulatory Authority of Regional Reference for medicines and biological products by the Pan-American Health Organization (PAJO) and as Functional Regulatory Agency for Vaccine by the World Health organization (WHO) is making Mexico’s health sector more competitive in attracting foreign investment.
Mexico’s healthcare landscape is being shaped by organic transitions as well, including an epidemiological shift from communicable diseases to chronic degenerative diseases, such as cardiovascular disease, respiratory disease, and metabolic disorders. This shift has been linked to Mexico’s growing obesity rate, which recently passed the US to be the highest in the world. The government is addressing this threat to public health and the public budget through a campaign to prioritize preventative treatment over curative models. Between 2009 and 2013, some 22.8 million affiliates received preventative health-risk screenings through Seguro Popular.
Despite the successful reforms of recent years, challenges remain. Increasing demand for healthcare combined with strained public finances, exacerbated by falling oil prices, mean that demand for quality medical infrastructure is outstripping supply. On the quality side, the public health network is highly fragmented, often functioning like a series of isolated clusters with different prices and standards of care. Unifying payment systems and outcome assessments are a stated policy priorities of the Peña Nieto administration. On the supply side, the government is looking to the private sector to fill the gaps. Currently there are 2,988 private hospitals in Mexico, accounting for nearly 2/3 of institutions.
The pharmaceutical industry represents 1.2% and 7% of Mexico’s GDP and manufacturing GDP, respectively. Although the industry pales relative to automotive, which represents 15% of manufacturing GDP, the Ministry of Economy recently classified pharmaceutical as an “emerging sector.” With a number of major initiatives to boost capacity for drug research in draft phase, the sector is set to play an ever more important role in the country’s economy.
Mexico’s pharmaceutical industry boasts over 350 domestic and multi-national companies manufacturing medication. It accounts for 1.5% of the country’s GDP and 25% of its healthcare spending. Patent medicines represent 51% of the market in price terms, followed by generics (35%) and over-the-counter (OTC) products (14%). Mexico is also Latin America’s largest pharmaceutical exporter, thanks in large part to the North American Free Trade Agreement (NAFTA). On the domestic front, approximately 80% of all drugs sold are produced in country, the rest being imports. According to COFEPRIS, the regulatory body for the pharmaceutical industry, Mexico has the largest penetration of generic drugs of any country.
As of 2015, the value of the Mexican pharmaceutical market was $19.4 billion and is expected to grow at a CAGR of 8.7%, reaching $29.4 billion by 2020. A mix of rising life expectancy, growing household income, and an increase in chronic diseases, is driving growth in pharmaceutical expenditure per capita. In addition to this epidemiologic transition, drug companies are benefiting from a market cycle that is seeing many branded drugs lose exclusivity. This promises a windfall for Mexico’s largest pharmaceutical companies, which primarily manufacture generics.
In terms of state support, COFEPRIS is currently enacting a series of reforms aimed at simplifying licensing operations for producers. The government is also developing “biotech clusters” to foster collaboration between manufacturers, universities, and other research institutions.
Representing just 0.3% of GDP and 1.7% of manufacturing GDP, Mexico’s medical devices industry is eyeing significant growth prospects. According to ProMexico, the segment is expected to see 5.3% CAGR between 2014 and 2020, fueled in equal parts by growing demand at home and abroad. Production in 2014 stood at $15.2 billion, making it the ninth-largest exporter worldwide and the largest in Latin America.
Last year, 2,344 economic units were produced mainly in Baja California, Chihuahua, Coahuila, and Mexico States. The main investors in the sector were from the US, Germany, and Italy. Exports were valued at $7.7 billion in 2014, with over 90% of units going across the border into the US. Stable US economic growth and a stronger dollar signal promising years to come.
FDI in the sector is thin but growing. Total FDI in 2014 reached $150 million. The accumulated amount over the last decade is approximately $1.7 billion, with nearly $1.5 billion coming from US companies alone. Mexico offers a particularly attractive value proposition for US investors, with lower operation and labor costs at every level of specialization. Compared to the US, Mexico offers 18.9% saving on manufacturing costs for the medical device industry, 7.8% saving on precision components, and 39.3% savings on product testing, according to ProMexico.
A major part of the industry’s competitive offering is a medical devices cluster in Baja California. The cluster accounts for 33% of the country’s total exports in the sector and hosts over 80 companies.
Another variable driving growth in Mexico’s health sector is medical tourism. An increasing number of American citizens, particularly those living in border states, are traveling to Mexico for elective treatments not covered by US insurance and for sun, sand, and sea recovery destinations. Many analysts believe coverage disruption resulting from the implementation of the Affordable Care Act (ACA), commonly know as Obamacare, is attracting even more medical tourists from the US. Dental and cosmetic are the most popular procedures, with particular growth in the number of seniors traveling for crowns, false teeth, and dental implants, which cost on average about half as much in Mexico.
The Ministry of Health has announced plans to capitalize on this trend, with initiatives to train and recruit bilingual nurses and put forward more private hospitals for accreditation by the Joint Commission, the US-based healthcare accrediting agency. Ultimately, the government is aiming to reach 650,000 annual medical tourists by 2020.
Large chains, such as Angeles Hospitals, are specifically marketing to medical tourists. Their network includes 28 hospitals around the country, 230 operating rooms, 2,550 beds, 11,000 physicians, and 15,000 specialists.
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