Broadening healthcare access in brazil through innovation

Broadening healthcare access in Brazil through innovation is an Economist Intelligence Unit research report, sponsored by Roche.. Making the healthcare sector more effective—and innovati

Sponsored by

Broadening healthcare access in Brazil through innovation is an Economist Intelligence Unit research

report, sponsored by Roche The Economist Intelligence Unit conducted the research and analysis and wrote the report The author was Daniel M Branco and the editor was Katherine Dorr Abreu

The Economist Intelligence Unit would like to thank all those who contributed their time and insight to this project

November 2010

Preface

rising investment in physical infrastructure, but serious shortcomings in its healthcare sector represent one of the key constraints on attaining developed-country standards of prosperity Making the healthcare sector more effective—and innovative—will require sweeping changes to the business practices of healthcare providers and life sciences companies

Global demand for commodities and an expanding domestic market are powering growth of Brazil’s diversifi ed economy In the last 20 years, the country has put its economic and political house in order, adopting stable policies that have given investors confi dence to establish and expand businesses A burdensome bureaucracy and tax regime, and underinvestment in infrastructure remain signifi cant constraints, but unfavourable comparisons with the dramatic growth rates of other emerging powerhouses such as China and India are not entirely appropriate: per head income levels in China and India are much lower than in Brazil Thanks to its solid policy mix, fi nancial system and economic diversity, Brazil came through the fi nancial crisis of 2008-09 almost unscathed The Economist Intelligence Unit forecasts a rise in real GDP growth of 7.8% in 2010, only in part as a result of spending in the run-up to the presidential election in October this year

0 2 4 6 8 10 12

Brazil’s economy will outpace neighbors’ through 2020

(% change in real GDP)

* Forecast Source: Economist Intelligence Unit

Brazil Argentina Mexico India China U.S.

Long-term economic prospects are also favourable: we forecast an annual average GDP growth rate of 4.4% over the next decade By 2030, Brazil is expected to have the fi fth-largest economy in the world, valued at US$3.7trn Its population will grow from an estimated 197m in 2010 to 220m in 2030 The middle class is expanding, and this is feeding demand for consumer goods as well as for better education and healthcare Nearly 60% of all households in Brazil now earn between US$5,000 and US$10,000 annually,

a fi gure that is expected to grow until 2020 Conditional cash transfer programmes such as “Bolsa Família” have helped to improve the lot of the very poor, encouraging families to keep children in school and to make sure they are vaccinated Indeed, Brazil’s notorious income inequality has declined in the past decade as a result of these policies, although it remains high by global and even regional standards

The country is reaping the benefi ts of a young population Brazil’s potential workforce—those between

15 and 64 years old—is expected to continue to expand more rapidly than the overall population before peaking in 2029 This “demographic dividend” will spur growth, but its impact will depend on the country’s ability to use its resources effectively This depends to a large extent on the quality of Brazil’s workforce—how healthy and skilled it is

Although Brazil has made signifi cant efforts to improve the health of the population, more is needed The healthcare sector faces several challenges to achieve the goal of universal access to good-quality healthcare and a competitive life sciences industry The following sections deal with three of those challenges:

l ineffi cient provision of care in both public and private sectors;

l lack of innovation;

Brazil’s economy among most unequal in the world

Gini index*

* The Gini index measures the extent to which the distribution of income among households or individuals in a country deviates from a perfectly equal distribution

0=absolute equality, 100=absolute inequality Most recent data available

Source: World Bank

Sweden India US Mexico China Argentina Chile Brazil

25.0

36.8

40.8

46.1

46.9

51.3

54.9

57.0

Brazil’s healthcare system: the gap between aspiration and reality

In theory, Brazil has one of the most inclusive healthcare systems in the world The 1988 constitution guaranteed universal and comprehensive care, from basic prevention to organ transplants To meet this obligation, which includes effi cient and effective access for all, it created the Sistema Único de Saúde (SUS), a government-run public healthcare system

In many ways, SUS is a model of universal care

Municipalities and states are given autonomy to administer healthcare as needed, while the federal government provides fi nancial and technological support And the system has seen success The nation’s HIV/AIDS programme, for example, is considered one

of the best executed in the world Only 1% of Brazil’s population lives with AIDS, well below the world average Looking at the broader picture, SUS can be considered an accomplishment for Brazil

For the individual relying entirely on the system, however, the picture is quite different There are only 1.3 doctors per 1,000 inhabitants, one-half of whom work in the private sector, and just 2.2 hospital beds per 1,000 inhabitants

Healthcare spending in Brazil as a percentage of GDP compares favourably with that in other Latin American countries, yet healthcare indicators show that it is not garnering the necessary results The Economist

Intelligence Unit estimates that in 2009 8.4% of Brazil’s GDP was spent on healthcare by the private and public sectors, compared with 9.3% in Argentina, 7.3% in Chile and 6.4% in Mexico Nevertheless, infant mortality

Brazil’s indicators show healthcare system’s weakness

Sources: Economist Intelligence Unit; World Health Organisation 2009 data.

India

Brazil

China Mexico Argentina US Italy Canada Spain

Infant Mortality (per 1,000 births) Number of Doctors (per 1,000) Number of hospital beds (per 1,000)

30.1 0.6

22.6 1.3

2.2 20.2 1.7

2.5 18.4 2.2

1.1 12.1 3.2

4.0 6.2 3.3 3.0 5.5 6.0 3.9 5.0 1.9 3.4 4.2 4.6 3.4

Healthcare indicators by region in Brazil

Infant mortality (per 1,000 births) 1

Mortality by infectious and parasitical diseases 1

Mortality by conditions originating in prenatal period 1

Number of doctors (per 1,000) 2

Number of hospital beds (per 1,000) 3

1 Source: DataSUS, 2006 fi gures 2 Source: DataSUS, 2007 fi gures 3 Source: DataSUS, 2005 fi gures

is estimated at 23 per 1,000 births in Brazil, higher than that of Argentina, Chile, Costa Rica and Mexico, and life expectancy, although improved, is among the lowest in

Regional differences within Brazil are stark In the wealthy south and south-east regions, infant mortality rates are 13.3 and 15 respectively, in sharp contrast to the poorer north-east and north regions, with 29.8 and 22.8 respectively Access to healthcare remains limited despite programmes such as Bolsa Família, a focus on prevention and primary care, and innovative efforts such as the pooling of municipal resources to provide services that a single municipality would not be able to fund

The main reason for these challenges is that SUS has been inadequately funded Private plans, conceived in the constitution as supplemental to public insurance, have become a parallel system used by those who can afford to pay for care About 22% of Brazilians pay for private health insurance; the remainder depend on SUS Yet the government accounts for only 44% of the

country’s total healthcare spending The remaining 56% is private, and of that, two-thirds is paid out

of pocket by consumers In contrast, among OECD countries, governments account for 70% on average of all healthcare spending

Brazil’s life sciences industry is signifi cant, but it is not a leader in innovation Both domestic and multinational companies fi ll the country’s pharmaceutical and medical technology needs Brazil boasts the tenth-largest pharmaceutical market in the world, but per head spending on pharmaceuticals is just one-half of the levels in Mexico and only 5% of the levels in the US According to ANVISA (Agência Nacional

de Vigilância Sanitária, a semi-autonomous regulatory agency), there are 1,398 pharmaceutical manufacturers

in Brazil, and a 2009 report by ABIMO (Brazilian Association of Manufacturers of Medical Devices and Materials) identifi es 448 manufacturers of dental, medical and diagnostic equipment and materials

1 Brazil’s relatively low life expectancy also reflects the country’s high murder and accident rates.

Brazil’s constitutional guarantee of universal healthcare is not being fulfi lled According to analysis by André Medici, senior health economist at the World Bank, almost 20% of Brazilians were not covered

This can be explained to a signifi cant degree by insuffi cient funding and ineffi ciency in the provision of healthcare

Limiting people’s access to healthcare can help public and private insurers make ends meet in the short term, but simply delays the day of reckoning In the end, keeping people away may only aggravate the problem: inadequate treatment results in sicker people, requiring more expensive care This approach clearly undermines the goal of keeping people healthy

In Brazil, both the public and private sectors suffer from insuffi cient funding SUS has been underfunded since its inception in 1988 A tax on fi nancial transactions, designed specifi cally to support healthcare, was later revoked after funds were mostly diverted to other purposes A constitutional amendment (EC-29) approved in 2000 defi ned minimum contributions to healthcare for all levels of governments, but neither the federal nor state governments have fulfi lled their obligations

According to a congressman, Darcisio Perondi, the leader of the Frente Parlamentar de Sáude (a non-partisan group in Congress focused on health issues), EC-29 brought greater stability to the public funding of healthcare but requires urgent reform “Ten years ago, the federal government accounted for 75% of total public healthcare spending, which corresponded to 10% of its tax revenue Today, it accounts for 48% of total spending and contributes just 7% of its tax revenue In addition, only ten states meet their obligation.” The burden for fi nancing healthcare thus falls on municipal governments According to

the quality of care varies widely, refl ecting their relative wealth

The private sector has moved to fi ll the gap in the public healthcare system Originally, private plans were to provide supplemental coverage, according to the Brazilian constitution Today, these plans, regulated by the Agência Nacional de Saúde Suplementar (ANS), cover 43m people, up from about 30m in

2000 They are the primary if not only coverage used by the privately insured

But funding is also a problem in the private sector, and many health plans and hospitals have closed down as a result In 2000 there were more than 2,000 registered health plan operators; today, there are fewer than 1,200 Health insurers have raised their premiums by more than the overall infl ation rate,

Challenge 1: Ineffi cient provision of care

2 http://www.

monitordesaude.blogspot.

com/August 1st 2010.

3 http://www.

saudebusinessweb.

com.br/noticias/index.

asp?cod=71618

albeit less than healthcare infl ation ANS limits premium increases, differentiating between individual plans (contracts between individuals and insurers) and collective contracts (those between corporations and insurers) Nevertheless, raising premiums is only a short-term solution Restrictions on premiums can further reduce access; plans have worked around them by creating long waiting lists (a practice that was recently regulated by ANS) and limiting the therapies they cover Meanwhile, hospitals face their own funding challenges and have restricted access to capital, in part because no foreign national can own equity in Brazilian hospitals

Focusing on hospitals, which can account for up to 70% of costs in private health plans, can provide large returns in terms of optimising the use of available resources by Brazil’s healthcare providers, from government-run community health units to technologically advanced private hospitals Hospitals are diffi cult to manage because of their complexity and the confl icting fi nancial interests of stakeholders In Brazil, this has been aggravated by ineffi ciency, which results in part from those confl icts and in part from the lack of professional management

According to ANAHP (National Association of Private Hospitals), for example, materials used by doctors account for 35% of a hospital’s total costs Yet doctors are usually self-employed professionals with no responsibility for the hospital’s fi nancial sustainability They are trained to provide their patients with the best possible care, regardless of costs High-quality care is often equated with more technology and more intervention, although there is growing evidence that quality is not directly linked to cost

Hospitals, in turn, are usually paid by the quantity of procedures and materials used No hospital is paid to get the best results and, in fact, very few measure outcomes This misalignment of interests is not restricted to Brazil, of course, but scarcity of funding makes it even more important to avoid costs that result from confl icting interests

Making the most of little: India explores new models

India faces many of the same challenges as Brazil and provides

an example of an innovative approach to healthcare The country

is leveraging its role as a contract researcher and manufacturer

of generic drugs to increase the value of its output, for example

by developing branded generic drugs and new formulations for

existing drugs Through “reverse pharmacology” it is developing

and launching medications based on its traditional treatments at

a fraction of the cost of drugs developed by Western companies—

such as Glenmark are already operating in Brazil and looking to

expand this business model there

India has also made innovations in the provision of healthcare

The 1,000-bed Narayana Hrudayalaya Hospital in Bangalore provides

high-quality yet very inexpensive heart surgery Its surgeons, who

are salaried, carried out 3,174 cardiac bypass surgeries and operated

on 2,777 paediatric patients in 2008, more than twice the volumes achieved in leading specialised hospitals in the US Their success rate

is higher than that of their counterparts in New York State, and the mortality and hospital-acquired infection rates equal those of the best hospitals worldwide The hospital reports a 7.7% profi t margin, higher than the average for US hospitals, but charges US$3,000 or less per surgery, compared with US$5,000-7,000 in private hospitals

in India and up to US$50,000 in the US With further changes in processes, negotiations with suppliers and creative partnerships,

By applying such an innovative perspective, Brazil can leverage its own competitive advantages to raise its global profi le

4 Preparing for a Demographic Dividend roundtable, Strategy+Business,

May 2010.

5 Wall Street Journal, November 2009; Health Economics, Wharton School of

Business, July 2010.

Proposed solutions

Improving the public healthcare system must begin with the full implementation of EC-29 This will help to ensure that all states and municipalities have adequate resources to meet the needs of their population

To improve its effi ciency and stretch existing resources, Brazil’s public healthcare system should adopt public-private partnerships (PPPs) more widely A study by the World Bank found that hospitals structured

as PPPs have made more intensive use of installed capacity, hired fewer medical services, increased patient turnover and reduced average cost per patient At the same time, they follow more protocols

to achieve medical excellence and use better-qualifi ed personnel, thus improving the effectiveness of existing resources

In Brazil, hospitals operating under a PPP model have been successful, particularly in the city of São Paulo World Bank data show that they achieve better outcomes than non-PPP hospitals, with higher yearly discharges per bed (60 per year compared with 46), lower length of hospital stay (3.3 days compared with 5.2 days), fewer C-sections (25.5% compared with 77.1%), lower cost per patient (R3,300 compared with R3,600), higher occupancy (80.9% compared with 72.1%) and lower intensive-care unit

to the needy For example, Albert Einstein Hospital is leveraging its renowned medical and managerial expertise in managing the 300-bed public hospital of M’Boi Mirim, one of the city’s poorest districts The use of sophisticated management tools, ranging from disease management (remote follow-up of chronic patients) to cost-effectiveness controls to novel medical reimbursement models, can help health plans that survive the current wave of consolidation ensure their sustainability Some service providers have already identifi ed opportunities: Fleury, Brazil’s second-largest diagnostics company, has partnered with Healthways, the largest disease management company in the US, to provide Brazilian payers with disease management services Penetration of such services in Brazil is still very small (0.09% of the privately insured population compared with 4% in the US), but is growing SUS can also benefi t from these tools, which would improve its effi ciency

As Brazil’s healthcare system becomes more effi cient and better managed, more of its companies are likely to gain global stature DASA, Brazil’s largest diagnostics company, is already the world’s fourth-largest in revenue Others can follow suit

6 http://siteresources.

worldbank.org/INTLAC/

Resources/257803-1269390034020/EnBreve_

156_Web_Port.pdf

Aside from a few islands of excellence in areas such as green energy, aerospace and agribusiness, Brazil does not have a highly innovative economy It punches well below its weight on the global stage: a 2009 study by the Economist Intelligence Unit ranked the country 49th out of 82 countries in innovation performance, behind Russia (39th) and China (46th) Although the country is the

eighth-largest economy in the world, its investment in research and development (R&D) is less than 1% of the global total, according to the National Association for Research and Development of Innovative Companies (ANPEI) Brazil is ranked only 24th in patent registrations, according to the World Intellectual Property Organisation (WIPO)

Brazil’s life sciences industry underperforms other sectors, registering few innovative drugs and devices In fact, only 3.2% of Brazilian

companies’ patent registrations are related to healthcare and life sciences, according to a study by São Paulo-based Prospectiva Consultoria This is despite the fact that of the patents registered by Brazilian

universities, 25% are related to healthcare and life sciences, a much higher percentage than for companies This suggests that knowledge produced in academia is not fi nding its way into the market

These are symptoms of a very young industry Laws to promote innovation and safeguard intellectual property were only passed in the last 15 years From 1945 to 1996, Brazil did not recognise international patents on drugs, and for many years it actually forbade patenting

of molecules developed in the country Even today, the government leverages the exception in article 31 of the World Trade Organisation (WTO) Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS), which allows for cancellation of patent rights under certain conditions, to press companies to manufacture drugs needed to fulfi l social policies in Brazil

Brazil’s Intellectual Property Law was passed in 1996, but more progress is needed to change the attitudes and structure of an industry that grew by copying intellectual property developed elsewhere The law

Challenge 2: Lack of innovation

Brazil’s R&D gaining ground—but slowly

(R&D expenditures as % of GDP)

Source: World Bank, 2007 figures.

South Korea

Japan

US

France

Canada

UK

China

Brazil

India

Turkey

Argentina

Mexico

Indonesia

2007 2000

3.47 2.39

3.45 3.04

2.67

2.75

2.10

2.15

2.03

1.91

1.84

1.86

1.49

0.90

1.02

0.94

0.80

0.77

0.71

0.48

0.51

0.45

0.50

0.37

0.05

0.07