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Carlyle bought a stake in Brazilian hospital chain Rede D’Or São Luiz for $600 million in April. Here the Esperança hospital in Recife, Pernambuco. (Photo: Rede D’Or São Luiz)
Wednesday, June 3, 2015
Special Reports

Brazil: The Healthcare Opportunities

Brazil will need an additional 13,000 hospital beds by 2017.

BY GUILLAUME CORPART

Healthcare is an economic and social priority in Brazil; and will remain one for the years to come.  Since 2014 healthcare has become the number one priority in public opinion, ahead of issues such as violence, security, corruption, education or unemployment. 

Over 80 percent of new healthcare consumers come from the emerging middle class.  In light of this, private insurance companies and care providers have adapted their offering to meet the demands of their “first time consumers”.  

While foreign companies have operated in Brazil for many years, the government has only recently opened up the hospital market to foreign entities (see section: “Recent developments”).  Such a move will increase interest in the sector and attract investors eager to capitalize on Brazil’s underfunded hospital space.

Further favoring investment in Brazil is the long term (20-30 more years) trend of favorable demographics.  The demographic dividend created by fewer mouths to feed in a household, frees up disposable income to i) consume more health insurance and ii) utilize the private healthcare system which provides superior service to the public one.  Brazil is only now commencing its phase of optimal demographics, which, if enabled to flourish in a prosperous political climate, could result in the fastest growing healthcare opportunity in Latin America.

It is estimated that by 2017 Brazil will need an additional 13,000 hospital beds.

In light of this, one must keep in mind that Brazil is a complex market in which to do business.  The World Bank’s Ease of Doing Business ranking positions Brazil 120th out of 189 countries.  Brazil also has the region’s most complicated tax code, with up to 70 different taxes to comply with.  Part of this complexity can be seen in how the healthcare system is managed, in part private and in part public. 

AN INTERTWINED RELATION

By law, every Brazilian citizen has the right and access to public healthcare, provided by the Unified Healthcare System (SUS – Sistema Unico de Saude).  However, there are vast discrepancies between public care facilities.  Depending on location, a patient may have access to world-class care or a rudimentary countryside clinic. 

The biggest problem facing the SUS is the lack of funding.  The system was initially conceived to rely on additional taxes, which were never implemented.  The private sector was invited to provide supplemental coverage to the public infrastructure through Public-Private-Partnerships (PPPs).  Today, the largest hospitals in the country are philanthropic and have a public ward (SUS) as well as a private ward. 

The public sector now focuses on offering primary care, such as clinics and emergency units.  Through outsourced service contracts, the public sector relies on private institutions to provide care in hospitals, outpatient clinics, diagnostics and therapeutic services.  Given the discrepancy in the quality of care, the private sector has grown to supplement and even replace public care – at least for those who can afford it.  In 2000, government spending accounted for 75 percent of total healthcare expenditure; in 2014, this number dropped to under 50 percent.

The public and private healthcare sectors are so intertwined that they have become interdependent.  On the one hand, the SUS could not give coverage to the population without relying on the private sector.  At the same time, the private sector could not exist without the volumes contracted by the government.

Private insurance has become commonplace, covering 27 percent of the population.  While insurance plans remain expensive for individual contributors, private insurance is most often contracted in group plans; becoming a valuable perk in corporate employment packages.  However, private insurance is also a source of contention.  Many of the private insurance plans do not cover some of the more expensive procedures, shifting the burden back to the underfunded SUS. 

FRAGMENTED PRIVATE CARE

The private hospital market is regionalized, with no group owning more than 1 percent of the market based on the number of beds, or having national coverage.  Such fragmentation becomes problematic when dealing with issues such as electronic medical records (EMR), information exchange, patient files, system compatibilities and other IT elements.  The southern part of Brazil is generally wealthier and has access to a wider range of hospitals and doctors – over 70 percent of Brazil’s doctors are in the South and Southwest regions of the country. 

The private insurance market is also fragmented, with the 7 largest private health insurance companies (each with over 1 million lives insured) holding less than 30 percent of all beneficiaries. 

The combination of these factors results in the need for greater access and coverage to healthcare, fueled by lower operating costs.  It is estimated that by 2017 Brazil will need an additional 13,000 hospital beds.  Achieving broader coverage can only be attained through a more efficient system. 

Until recently foreign businesses were not allowed to have ownership in Brazilian hospitals.  This impaired the sector’s ability to fully develop.  However, this changed in January 2015 by announcement of President Dilma Rousseff.  Weeks later, private equity funds such as Carlyle Group and GIC Holdings began investing hundreds of millions of dollars in acquiring minority shares of private hospitals in Brazil.  Further M&A activity is imminent and will likely strive at increasing industry consolidation.  

Greater industry consolidation will bring with it the need for the integration of management systems, increased standardized metrics and reporting, greater emphasis on international benchmarks and more transparency.    Health IT, Medical imaging, EMR and interconnectivity will also benefit from these trends.  Pressure to keep costs down will continue to exist and will also be a determining factor in the ability to win voluminous SUS contracts.  In light of this and the ageing population, home care is expected to become more common moving forward. 

Guillaume Corpart is the Managing Director of Global Health Intelligence and a veteran of market intelligence and strategy consulting in emerging markets.  gc@globalhealthintelligence.com |www.globalhealthintelligence.com

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