Healthcare Workshop Takeaways: MNCs prepare for changes in the Brazilian healthcare system

Last week in São Paulo, FSG hosted a workshop session for its healthcare cohort. The event, focused on the Brazil healthcare sector, was designed to identify current opportunities and risks while also establishing a consensus view on the future drivers of value in the Brazil healthcare space.

These are some of the key takeaways from the event:

  • Brazil’s healthcare spending will only gradually return to pre-crisis levels: 69% of executives present in the room believed that Brazil’s healthcare market would only return to its pre-crisis level after 2018, while 31% believed it would return to its pre-crisis size in 2018. FSG currently forecasts the private sector to return to its 2014 levels by 2019, while the public sector only fully recovers by 2021.
  • The biggest short-term threat (outside of further political disruption) is a pricing hit from the private sector: As most multinationals have shifted marketing efforts to the private sector to recuperate revenues lost by renewed pricing pressures in the public sector, the biggest current threat is to be found in the new market power held by private payers and providers. Not only has supply increased while demand has contracted, but private payers have accelerated market consolidation and vertical integration during the crisis, thus accumulating greater bargaining power in their relations with suppliers
  • The private sector in the Southeast is the largest current opportunity for growth: When asked, 75% of executives present said that at the current moment, the strongest demand growth was coming from the private sector in the Southeast. This is not surprising considering that the region represents 55% of the country’s GDP, and states such as Minas Gerais (+1.07% MOM) and São Paulo (-0.37% MOM) have either already seen retail sales move into growth territory or are nearly there. Yet, a small group of executives pointed to the private sector in the South of the country as the current strongest opportunity. In fact, during the recession the Southern states on average lost only 1.7% of insured individuals, while the Southeastern states lost an average of 6.4% of insured individuals.

Multinationals operating in Brazil will need to develop new skills to capture demand in an evolving market

  • Market prioritization and adapting product/pricing mix were the keys to driving top-line growth between 2002 and 2014: Following a review of the major trends seen between 2002 and 2014 in Brazil’s healthcare sector (a period of high growth and profitability for suppliers), executives present were asked to identify the key strategies for capturing demand during this period. The top two responses were market prioritization and product/pricing optimization (respectively)
  • The crisis has shifted companies’ focus to adapting the channel and designing new stakeholder engagement models: After a similar review of the crisis, executives were also asked to identify the key strategies for capturing demand between 2014 and 2016. The answers shifted dramatically, with channel adaptations and designing new stakeholder engagement models coming in the first two positions
  • The next ten years will require a sharp focus on adapting new value-added services, while continuing to evolve stakeholder engagement models: Finally, after a review of long-term drivers and scenarios, executives identified the keys to capturing growth over the next decade as adapting value-added services and once again innovating on stakeholder engagement models

The clear message is that multinationals in the Brazilian healthcare space have had to shift from a focus on capturing rapid growth with fast growing prices, to optimizing operations and adjusting product offerings to match customers’ constrained budgets. Indeed, many companies in Brazil feel as though they were unable to adapt fast enough and consequently lost market share to smaller more nimbler competitors. Moving forward, the focus will need to be on value provision amid continuing tight budgets but growing demand for access and quality of care from Brazil’s growing and ageing population. While multinationals are well positioned to lead this evolution in strategy, it will be critical to begin building the skills necessary to meet these evolving demands today.

Given current political and economic uncertainties, multinational would do best to develop long-term scenario and contingency plans

While the current and future pressures on demand and costs in the Brazil healthcare system point to a forced movement to a greater implementation of value-based healthcare, there is the risk for a push back from reactionary forces. In the workshop, such a scenario was discussed, and it was determined that such an outcome would likely restrain greater experimentation with new system designs and reimbursement models, while forcing the public sector to take an even larger burden of total system financing (driving a consequent shift in focus to expanding access while controlling prices). Of the executives present, a full 41% believed this was a likely outcome considering the current political and economic uncertainties of the market.

Thus in Brazil, while the base case signals a move towards a system demanding greater value from suppliers (according to 59% of executives), multinationals will need to continue to track the key signposts of system evolution and have a plan in place to be able to develop the capabilities necessary to deliver value in world’s 5th largest healthcare system no matter the ultimate outcome.

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