Value-based healthcare creates opportunities & challenges for healthcare companies in LATAM

Last week, Frontier Strategy Group hosted a group of executives from the pharmaceutical and medical device industries at our annual LATAM Healthcare Cohort executive workshop. The discussion centered on both the short-term outlook for healthcare companies in Latin America, as well as the long-term challenges and opportunities the region’s healthcare markets will offer over the coming decade. These are the key takeaways from the session:

  • Confidence in Latin America’s recovery is growing: 71% of executives stated that their confidence in the prospects for Latin America has improved somewhat or significantly, as economic conditions in recession-hit markets such as Argentina and Brazil begin to stabilize, while a feared slowdown in Mexico has yet to materialize. In particular, all executives surveyed during the session were at least somewhat confident that the region would escape recession, after two years of economic contraction driven primarily by Brazil
  • FX depreciation remains a risk to margins and competitiveness: Healthcare multinationals continue to confront challenges to pass depreciation costs to payers, customers and local partners, with Argentina becoming a particularly challenging market relative to previous experiences
  • Incremental public spending increases expected over the next eighteen months: 75% of executives expected that increasing spending on current public healthcare priorities will drive overall healthcare expenditures in Latin America, while 25% expect that growing out-of-pocket spending by the middle class will be the major driving factor
  • Executives fear spending cuts in Argentina and Mexico: While the worst of public spending cuts in Latin America may be over for markets such as Brazil, medical device and pharmaceutical companies fear that persistent budget cuts in Argentina and Mexico may undermine their performance in 2017 and 2018. Over a third of executives consider falling government spending the main barrier to tapping into the healthcare opportunity in Latin America
  • Arbitrary pricing and reimbursement policies are a major barrier to growth: 66% of executives consider the lack of transparency on pricing and reimbursement decisions as one of the major barriers to tapping into the healthcare opportunity in Latin America. While governments single out the need for cost-effective solutions, often enough decisions are made based more on short-term budgetary demands than on a holistic approach to long-term healthcare costs

Multinationals will need to prepare for major healthcare market shifts

  • Alternative pricing and managed entry agreements have had mixed success: While some companies have been able to successfully implement public-private partnerships with governments, they remain time consuming to negotiate and have proven difficult to manage. Companies cite a lack of political will, lack of sufficient data collection, lack of training for healthcare professionals and of technical knowledge of policymakers as ongoing challenges for the implementation of value-based reimbursement models in the region
  • Adjusting local portfolios in the long-term to focus more on integrated cost effective solutions will be necessary: While corporate strategies obviously differ from company to company, most expect that shifting the value proposition they offer to payers, patients, and providers will be even more of an imperative over the next decade, though some markets and therapeutic areas will be more affected than others. The future is trending toward more integrated product and service solutions for public and private payers
  • Multinationals will need to reevaluate channel partnerships and key account management: As integrating value-added services becomes more important, a majority of our clients expect that provision of these services needs to be done directly, at least for key accounts, while 25% believe that it should be done through local partners and distributors. This will require a much greater focus on building up key account management capabilities and upgrading the quality and competence of channel partners across Latin America

Multinationals will need to prepare for major healthcare market shifts

Multinationals will need to evaluate whether governments will prioritize cost-cutting, expansion coverage, or improving the quality of care over the next decade. While value-based healthcare is an increasingly important goal in the region given persistent fiscal constraints, whether payers have the sufficient sophistication and political will to implement this effectively remains in question.

May 2, 2017

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