Brazil’s healthcare system: A slow march towards progress
By Nick Mitilenes, MBA/MS ’21
With over two hundred million citizens across eight million square kilometers, Brazil is one of the world’s largest countries and most challenging when it comes to healthcare delivery. Despite being a global powerhouse in many respects, it is still in its infancy in regards to healthcare. The constitutional right of universal, free healthcare is incredibly progressive, but implementation of this lofty goal has been compounded by austerity measures, political instability, high rates of poverty, and a global pandemic.
Nevertheless, improving health outcomes in Brazil indicate that a bright future is on the horizon, including several opportunities for entrepreneurs interested in navigating the complex dynamics of public health in an emerging market. As a member of both the Cornell Executive MBA/MS in Healthcare Leadership program and Cornell’s Emerging Markets Institute, I have found studying Brazil’s healthcare economics and dreams of a brighter future to be extremely rewarding.
Brazil’s healthcare is split between two distinct systems, public and private, both of which leave much to be desired. The Unified National Health System (SUS), established in 1988 by the declaration of healthcare as a human right in the new Federal Constitution, emphasizes the importance of access, non-discrimination, and equality for all across a comprehensive healthcare ecosystem. The tenets of SUS are enforced by the National Health Committee (CNS) but ultimately carried out regionally through cooperative federalism. Regardless of region, healthcare is to be “free and available to all,” representing an enormous financial and implementation burden on the state for the 75 percent of the population utilizing the public option. “Free,” in this case, means no cost-sharing provisions for basic services (such as preventative and immunizations), as tax revenues ultimately are what fund the public option.
With such a substantial portion of the population covered by SUS, yet only 8.3 percent of GDP spent, many hoping for superior service turn to private plans. Any portion of care provided by public resources to private beneficiaries must result in reimbursement back to SUS, only driving up costs further for this group; this is a common practice given that the barrier between sectors includes the inability to share medical records. A severe recession in 2014 and years of political unrest, including the 2016 impeachment of President Dilma Rousseff, resulted in high unemployment as well as damaging and deeply unpopular government-instituted austerity policies capping across-the-board spending and cutting programs like disease surveillance. Unemployment has resulted in decreased tax revenues and falling federal contributions to healthcare spending, only perpetuating the cycle further.
The private sector has seen reform over time, particularly in 2000 with the establishment of the National Regulatory Agency for Private Health Insurance and Plans (ANS), which instituted government-regulated private insurance plans for the 25 percent of citizens opting out of SUS options. As a result, the proportion of citizens opting for private options has risen and, like the United States, employer-based insurance dominates the market. This system is the second largest in the world by number of beneficiaries. While hospitals in the private sector suffer from some of the same quality issues, leading to long wait times, they tend to be much less primary-care focused and cater to specialists.
Ultimately, private plan beneficiaries pay a steep price, with out-of-pocket payments making up a majority of total spending in the sector, skewed towards pharmaceuticals despite consolidation and economies of scale amid growth in prescription drug use. In the event that any SUS beneficiaries opt to use private services, this would not be covered, only reinforcing the barrier between the two sectors, which seems to create more harm than good.
Challenges with financial sustainability
Several factors indicate possible trouble on the horizon for the financial sustainability of this system. With an infrastructure based on primary care (SUS) or hospital-based care (private), there is little discussion of geriatric medicine and long-term care, a significant problem for Brazil’s aging population—and something that is already proving to cause immense increases in cost and other challenges around the world (in Japan and China, for example). For a public system funded primarily through tax revenue, a rapidly aging population means further reductions in revenue that otherwise might be used to make the necessary investments to manage costs.
Other present-day factors driving up costs significantly include, but are not limited to, unnecessary procedures, healthcare IT modernization, and poor organization, resulting in a misallocation of resources. In addition, a rise in vector-borne illnesses and the COVID-19 pandemic have further stressed the healthcare infrastructure, both through cost of care and lost tax revenues due to increased unemployment and loss of productivity.
Over the past 20 years, healthcare spending per capita has increased and the level of municipal expenditures has risen while federal expenditures have slowly fallen as resources are shifted elsewhere (to debt burden and entitlement programs, for example). In comparison to others in Latin America and upper-middle-income countries, Brazil spends the least on healthcare and has some of the highest out-of-pocket costs for its citizens.
Because of this, solutions need to be put in place prior to additional anticipated drops in federal funding, as individual states and municipalities cannot afford further resource constraints. In particular, the 20-year austerity measures should be repealed and replaced with more targeted ways to reduce overall spending, ideally through improved outcomes and reduced inefficiency. The march towards progress will undoubtedly be hampered by increasing economic difficulties. But finding ways to improve funding sources for the public sector and creating a more robust private option will ultimately mean better care and reduction in the total cost of SUS.
Opportunities for attractive returns through public health investment
Substantial opportunities exist for cost containment and improved health outcomes across the entire population as well as economic opportunities for both government and private investors, despite constraints established by the Federal Constitution. Several growth markets are evident, such as digital health (telehealth, for example) and pharmaceuticals, though none appear to match medical device growth, estimated at more than 14 percent in 2018, handily outpacing overall healthcare spending growth. While this growth isn’t exclusive to the private sector, the positive effect on health outcomes has been overshadowed by excess placement and inefficient utilization in both systems.
Due to the siloed nature of the public and private systems, electronic medical records (EMR) systems represent one of the greatest challenges and opportunities to reduce rising costs due to inefficiency. Significant efforts should be made to ensure “meaningful use,” not merely system placement. Despite significant utilization, with 81 percent reporting EMR use in 2017, lack of communication between the public and private systems results in redundant testing and procedures. Furthermore, high utilization statistics likely don’t reflect the vast number of rural patients without access to more sophisticated providers. Nor do they reflect any actual utilization of EMR data to improve productivity and outcomes, reduce waste, or avoid errors, to name a few benefits common to countries with effective EMR use.
Based on this, one of the largest business opportunities is also the one that might stabilize the SUS: expansion of private insurers that properly incentivize providers to leverage diagnostic technologies and EMRs to efficiently focus on presentation and timely treatment. Acquisition of insurer Amil Participacoes by UnitedHealth Group for $4.9 billion and Notredame Intermedica by Bain Capital for $620 million in the past decade are strong indicators of the opportunity that exists in Brazil’s highly-fragmented private insurance market: The seven largest insurers cover only 29 percent of beneficiaries and the largest, less than 8 percent.
If EMR data and practice automation can be properly leveraged, significant opportunity exists to decrease the cost of care by reducing unnecessary services (which are undoubtedly climbing with the rise in diagnostic equipment placement). This is similar to how Optum, a subsidiary of UnitedHealth Group that is a large pharmacy-benefits manager, operates clinics in the United States. Clinical diagnostic laboratories also present an opportunity, due to high margins, and as is evidenced by significant M&A activity. In conjunction with using EMRs properly, diagnostic testing in general has the potential to drastically reduce downstream healthcare costs by identifying emerging health situations early on, provided that overutilization is avoided. Given that additional resources are unlikely to become available soon due to a challenging economy, increasing efficiency is paramount.
If Brazil is to continue its trend of favorable health outcomes and emerge as a leader in Latin America, austerity measures aren’t the answer. Leveraging technology to identify areas of inefficiency, put more of the population to work in high-quality jobs, attract more citizens into the private insurance market via those jobs, and attract new international investment, is the best way to reverse damaging economic trends affecting healthcare. Consolidating private insurers and using data to avoid waste while also incentivizing the use of preventative services are ways to help make a difference, though much more will need to be done to keep Brazil’s ambitious vision alive. To start, perhaps President Jair Bolsonaro can avoid some of the drama that plagued his predecessors. Given his widely criticized response to the COVID-19 crisis, though, this remains to be seen.
About Nick Mitilenes, MBA/MS ’21
Nick Mitilenes is a student in the Executive MBA/MS in Healthcare Leadership class of 2021 and an Emerging Markets Institute Fellow. He is president of Eurofins NTD Genetics, a clinical genetics laboratory and subsidiary of Eurofins Scientific, a global leader in laboratory testing services. Nick holds a BA in molecular biology from Colgate University and is a Diplomate in Laboratory Management (American Society for Clinical Pathology). His academic interests include health policy and management, laboratory medicine, competitive strategy, and healthcare innovation.