LATAM Healthcare Outlook

Latin America’s healthcare spending will resume its rise as a percentage of GDP, but market prospects will continue to be affected by patent disputes and currency shifts.

Healthcare spending shrank in dollar terms in Latin America during 2009, thanks to recessions and currency depreciation in some of the six countries covered by the Economist Intelligence Unit’s aggregated forecasts. Total spending recovered well in 2010, rising by nearly 19% to over US$772 a head, according to EIU estimates. Average annual growth will slow to 6.7% over the remainder of our five-year forecasting period.

2006b 2007b 2008b 2009b 2010b 2011c 2012c 2013c 2014c 2015c
Life expectancy, total (yrs) 73.2 73.4 73.6 74.0 74.3 74.5 74.7 74.9 75.2 75.4
Male 69.8 70.1 70.5 70.7 71.0 71.2 71.4 71.6 71.9 72.1
Female 76.7 77.0 77.2 77.4 77.7 77.9 78.1 78.3 78.5 78.8
Infant mortality rate (per 1,000 live births) 21.2 20.5 19.9 19.3 18.8 18.2 17.7 17.2 16.6 16.2
Doctors (per 1,000 pop) 1.7 1.7 1.7 1.8 1.8 1.8 1.8 1.9 1.9 2.0
Healthcare spending (US$ per head) 469.8 551.9 640.9 629.1 772.4 918.0 980.4 1043.7 1110.9 1162.6
Healthcare spending (% of GDP) 7.1 7.1 7.2 7.7 8.0 8.0 8.1 8.2 8.3 8.3
Pharmaceuticals sales (US$ bn)d 41.0 47.5 54.1 52.1 57.4 59.3 62.2 64.4 66.9 70.1
Pharmaceuticals sales (% change) 16.7 15.9 13.9 -3.6 10.1 3.4 4.8 3.6 3.9 4.7
(a) EIU calculation. Latin America: Argentina, Brazil, Chile, Colombia, Mexico, Venezuela. (b) Economist Intelligence Unit estimates. (c) Economist Intelligence Unit forecasts. (d) Sales at manufacturers’ prices.
Source: Economist Intelligence Unit

 

Spending as a percentage of GDP will remain at 8% in 2011 and will rise to 8.3% by the end of our forecast period. Pharmaceutical spending growth, which decreased by 3.6% in 2009, recovered well in 2010 and is expected to increase by 3.4% this year. Average annual sales growth will continue to rise steadily throughout the forecast period.

Our forecasts have been affected by the dollar exchange rate, which has been volatile in many countries. The Mexican peso for instance, weakened by around 30% between August 2008 and August 2009, before appreciating again in 2010 and 2011. Nevertheless, the rise in healthcare spending is real enough, and the region’s healthcare sector will see steady improvement over the forecast period, with life expectancy rising along with the number of doctors, while infant mortality falls further. Indeed, average spending on healthcare as a percentage of GDP in Latin America remains higher than in Asia, the Middle East and Sub-Saharan Africa and higher than in the Transition economies of Central and Eastern Europe. However, despite increased spending throughout the region, the quality of healthcare and access to it will remain uneven across the region during the forecast period.

Of the Latin American countries examined by the Economist Intelligence Unit, Ecuador and Peru will continue to spend the least amount per capita on healthcare. Despite an average annual growth rate of 6.5% between 2010 and 2015, Ecuador’s per capita spend on healthcare is forecast to remain very low at just US$366 towards the end of the period. Peru, meanwhile, will see expenditure rise by over 5% a year to just US$347 per capita by 2015. While this is far higher than the US$45 per capita expenditure forecast for Pakistan, the lowest spender in Asia, it illustrates the huge gulf that exists between Latin America’s best and worst performers.

The EIU forecasts that Chile, Brazil and Argentina will spend the most per capita on healthcare over the five-year period to 2015. Chile’s expenditure will rise by 7.4% a year from the 2010 level to reach US$1,411 per capita in 2015. Mexico will see fast growth in dollar terms, with an average yearly increment in per capita spend of just under 5.6% to reach US$828 in 2015.

Interest and investment from the patented drug industry will continue to focus on Brazil and Mexico, which will account around 78% of Latin American pharmaceutical sales. While government investment in healthcare is expected to grow over the forecast period, government policies will also continue to focus on making drugs more affordable. National health authorities will continue to engage in tense price negotiations with pharmaceutical manufacturers. They will also pursue hardball tactics such as preventing patent extensions on expensive proprietary medicines and issuing compulsory licenses, as permitted under WTO TRIPS regulations.

While compulsory licences, which allow the production or import of generic versions of patented medicines under certain specified circumstances, have previously been issued by Brazil, some other countries in the region have been wary of upsetting international governments and trade lobbies. But the announcement in November 2009 by Ecuadorean President Rafael Correa that he would permit the use of compulsory licences on several unspecified medicines could be just a taster of what might follow during the forecast period. Rather than condemning the decision – as has happened with other countries in the past – a group of leading global drug manufacturers accepted Mr Correa’s terms.

As well as attempting to improve their public image, drug firms are also starting to accept that the high levels of poverty in Latin America might justify the practice of compulsory licensing in some cases. Moreover, multinational drug firms are well aware that they must cooperate with national governments – many of which are attempting to extend social health insurance – if they are to benefit from the region’s projected growth.

Argentina

Argentina has one of the more developed healthcare systems in Latin America, although growth slowed in 2009 as spending was hard hit in dollar terms by currency problems. Argentina has recovered however, and its spending will climb rapidly to US$1,488 by 2015 as the peso stabilises against the dollar and the economy recovers from recession. Despite some problems, Argentina has some of the region’s better health indicators, reflecting high spending by regional standards at 9.3% of GDP. Infant mortality has fallen steadily to 11.9 per 1,000 births and the country has 3.2 doctors per 1,000 people – the highest number in Latin America. By law, everyone must receive medical cover but in reality a volatile economy and ageing population means the system is over-stretched, with big regional disparities. Ongoing reform efforts centre on reducing corruption, making regional coverage more consistent and improving care for the half of the population lacking private insurance.

Chile

Chile spends the second most per head on healthcare at US$893 per head. This will remain high by regional standards with expenditure rising at over an average of 8.2% a year from an estimated to US$1,411 in 2015. Although Chile will be overtaken by Argentina as the highest spender on healthcare by the end of the of the forecasting period, continual growth will be driven by the implementation of Chile’s Plan Auge healthcare reform plan for universal access. The plan has already allowed millions of low-income Chileans to gain access to treatment since it was introduced in 2004. Thanks to this, Chile’s healthcare indicators are among the best in the region and will continue to improve over the forecast period, with life expectancy at birth rising over 78 years by 2013. The resilience of the healthcare system was demonstrated by the response to 2010’s earthquake, when after initial delays the country rolled out an impressive rescue and vaccination programme.

Despite Chile’s high spending on healthcare, pharmaceutical expenditure will remain low compared to Argentina, Mexico and Brazil. Despite strong growth average annual growth of over 13%, total pharmaceutical spending will reach only US$3.06bn by 2015 compared to US$9.83bn in Argentina. This is largely thanks to the dominance of local generic producers in the Chilean market, which keeps prices low. Local laboratories account for around 60% of the total market and foreign laboratories for the remainder. Chile’s pharma market will also be contained with the help of its recent free-trade agreement with China and an economic complementation agreement with India, which are helping to bring in cheaper pharmaceutical imports.

Brazil

Brazil has a rather less developed health system, reflected in wide disparities between rich and poor, one of the highest infant mortality rates in the region and lower life expectancy than in Mexico, Venezuela, Argentina and Chile. Spending looks respectable at 9.1% of GDP (expected to rise to 9.2% by 2015) but this masks the effects of currency and economic cycles. Growth slowed considerably in 2009, but with the economy booming and the currency appreciating, spending surged by just under 25% in dollar terms in 2010. Overall, spending should rise by an annual average of 6% a year to reach US$1,402 per head by 2015. Spending on pharmaceuticals, already by far the region’s highest, is set to continue rising by an annual average of 4.5% a year, to nearly US$36.3bn by 2015.

More than this is needed to improve health provision, however, and the government is pushing through a number of measures. More doctors are being trained, for example, with the country’s 1.3 doctors per 1,000 people just half of the OECD norm. Public health provision is being modernised, with a programme to establish health centres in all of the country’s 5,560 municipalities. To supplement additional state spending, the government is also looking to involve more private companies, particularly private insurers. It is also forming partnerships with equipment suppliers, which will sell medical services to the health service.

Mexico

Mexico, like Argentina and Brazil, is looking towards increased private provision as it tries to introduce a better health service. Spending is gradually increasing but remains low, even by regional standards, at a forecast 6.6% of GDP and US$686 per head in 2011. This is expected to increase to 6.9% of GDP and US$828 per head by 2015. A stretched budget means the country cannot afford to raise spending sufficiently to fund a rapidly ageing population, let alone to improve sometimes unacceptable levels of healthcare.

In many ways the government has stretched itself as far as it can already, raising spending from below 5% of GDP in the 1990s. Hence the drive for private money, both through encouraging people to take up private insurance and through joint ventures over equipment and infrastructure (although the last will be held back by the credit crunch for a while). Growth for private companies could prove explosive, with less than 5% of Mexicans taking out commercial insurance at the moment.

Venezuela

While Mexico and Argentina boost private sector involvement, Venezuela’s attempts at health reform rely heavily on expanding state provision. Buoyant oil revenues have failed to raise spending, which accounts for just 4.7% of GDP. This is one of the lowest levels in the region. However, health indicators are on a par with the rest of Latin America. Plans by the Socialist president Hugo Chavez to hike spending were derailed by the economic crisis. Spending dropped from US$544 per head in 2009 to US$398 in 2010. However, the EIU expects that the economy will return to growth in 2011. According to the Venezuelan government, GDP grew by about 4% in the second quarter of 2011, compared to the same period in 2010. Consequently, although spending as a proportion of GDP is expected to remain at 4.7% for the duration of the forecast period, it will increase in US dollar terms. Per capita expenditure on healthcare is forecast to rise by a total of 20% from an estimated US$398 in 2010 to US$501 in 2015. That equates to an average annual growth rate of 4.2%.

Nevertheless, government efforts to spread healthcare into poorer areas have been hit by lack of money, and this is unlikely to improve significantly in the period to 2015. As a result, public health provision remains weak, and people rely increasingly on private provision, despite the left-wing rhetoric. Private expenditure of health already accounts for over half of all healthcare spending and this proportion is expected to rise in the forecasted period. Bowing to the inevitable, the government abolished value-added-tax on medical services back in 2004 to encourage private market development. Yet Mr Chavez also seems to be doing his best to discourage foreign investors in the pharma market. In 2009 he announced plans to ‘invalidate’ patents on some drugs so that generics makers could issue cheaper copies. There are also murmurs that some drug-makers, and even some multinational plants in the country, could be nationalised.

Healthcare spending (US$ per head)
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Argentina 467 560 694 731 850 1,015 1,137 1,266 1,402 1,488
Brazil 499 612 732 749 983 1,170 1,236 1,294 1,351 1,402
Chile 623 704 723 694 893 1,075 1,187 1,279 1,344 1,411
Colombia 228 281 316 326 400 462 506 547 575 600
Ecuador 165 181 208 227 247 279 295 319 341 366
Mexico 514 562 597 506 598 686 733 781 811 828
Peru 140 172 187 210 252 284 299 311 325 342
Venezuela 348 377 527 544 398 499 487 499 501 501
Source: Economist Intelligence Unit

 

FROM THE ECONOMIST INTELLIGENCE UNIT

September 26th 2011