This month, Frontier Strategy Group hosted an event for regional Latin America executives from the pharmaceutical and medical device industries. The event focused on how healthcare multinationals can respond to changing economic conditions across Latin America. Below are the key takeaways from this discussion:
Growing fiscal headwinds are impacting government spending and policies in the healthcare sector
Overall healthcare spending will continue to increase, driven by strong demographic, socioeconomic, and epidemiological growth drivers that point to growing demand for healthcare products and services. However, as the region confronts declining commodity prices and weakening internal growth fundamentals, the government is reacting in ways that are challenging to short- and medium-term growth and profitability mandates for healthcare companies:
- Healthcare budget cuts across federal, state, and municipal entities, particularly impacting spending in Brazil and Mexico
- Increasing use of reference pricing and price controls by governments, with Colombia offering the most extreme example for both pharmaceutical products and medical devices
- Growing centralization of public tenders, with governments coalescing more public purchases of pharmaceutical and medical devices around fewer tenders, often increasing pricing pressure on suppliers
- Growing delays in registration approvals for new products, with governments increasing health economics requirements and documentation
Greater value and price sensitivity in private healthcare markets
Changing economic conditions are also driving changes in private healthcare markets, which are expected to see growing demand as public healthcare systems suffer budget constraints. Healthcare multinationals are experiencing significant challenges in private markets:
- Rising price sensitivity by payers and patients, with a growing focus on cost-effectiveness rather than a focus on quality of healthcare solutions
- Growing liquidity issues with private payers, as an increasing number of payers and providers face financing challenges
- Decreasing relevance of traditional wholesalers and distributors, with a greater focus on integrators that offer value-added services and solutions to payers and providers
Shifting commercial imperatives for healthcare multinationals
Healthcare executives understand that their go-to-market strategies need to evolve to bolster their ability to outperform in these market conditions. The following are some of the main commercial imperatives healthcare companies will confront in Latin America:
- Spending on preventative diseases will become an increasing priority for governments, and private payers and providers
- Greater coordination and centralization of public purchases will increase pricing pressures
- Partnering with local and national governments is a growing necessity
- Sales pitches will have to be focused on health outcomes and cost effectiveness, not just quality
- Increasing FDI will drive greater vertical integration and payer consolidation
FSG presented five strategies that we believe multinationals should deploy in Latin America now in order to maintain growth and protect profitability: (i) deepen portfolio allocation capabilities, particularly at the subnational level; (ii) support channel performance; (iii) cut costs but maintain investment; (iv) divest from non-priority businesses; and (v) focus on value creation through enhancing value-added services.
FSG clients can contact their account manager for a full copy of the presentation. Not a client? Contact us to learn more.