Protection of health has been a constitutional right in Mexico since 1983 and the country has achieved reasonable success in offering universal healthcare to its population. However, providing universal healthcare coverage to all its citizens is not an easy task for the Mexican government. In an effort to make universal healthcare a reality, Mexico has undertaken several reforms in recent years that stand to make an impact in the coming year, consolidated purchasing being key among them.
In a move toward strengthening and improving the Mexican health system, Mexico implemented its consolidated purchasing strategy in 2013. The main objective behind this strategy is to generate considerable healthcare savings by reducing overall healthcare costs and guaranteeing timely supply of medicines at more affordable rates. In the last three years, this strategy has generated an overall savings of around 11 billion pesos ($554 million).
An estimated 50 billion pesos ($2.5 billion) has been allocated for the annual consolidated purchase of medicines for 2016–2017, with an expected savings of around 1 billion pesos ($50 million). The IMSS led the process of consolidated purchasing of medicines with the participation of around 39 public institutions and agencies including the Ministry of Health, Ministry of Public Service, ISSSTE, PEMEX, SEDENA, Mexican Navy, OECD, the COFEPRIS and leaders of Chambers of Commerce, as well as manufacturers and distributors of health supplies.
The consolidated purchasing is likely to have a positive impact on Mexico’s economy as this strategy has increased the participation of small and medium-sized enterprises, promoting competitiveness in terms of quality and cost of medicines. This strategy has also ensured a greater level of transparency in the public procurement of medicines giving less chance for corruption as well as budget optimization. Having a clear picture of where the money is spent and on what it is being spent will in turn help the government to standardize and optimize spending and effectively budget for the future. Another ancillary advantage with this strategy for the government is better compliance with regulations leading to a streamlined procurement process with an appropriate tender framework. At the same time, the strategy will ensure timely procurement and access to medicines.
Although this cost-containment strategy ensures increased access to medicines, it also creates numerous challenges for drug manufacturers. First and foremost, during public tenders, the bargaining power of the Mexican government increases, resulting in further discounts, affecting manufacturers’ margins. Usually, the tender process includes participation of multiple purchasers buying medications in bulk from various suppliers. The bulk purchase of medicines potentially results in a decrease in price per medication and an overall lower cost for the government. Apart from this, the Government will have an option to choose the lowest bidder, thus paving the way for competitive pricing.
The Mexican pharmaceutical market is dominated by generics and low-priced unbranded drugs and in recent years, the government has taken action to stimulate greater use of generics. As would be expected, during the public tendering process, bids are focused on the generic rather than the brand name. Considering Mexico prefers lower-cost options, the Government will thus opt for a generic drug rather than a branded alternative.
The consolidated purchasing strategy also has the potential going forward to limit access to certain medications and might restrict the choice of medicines for patients as it limits the opportunity for physicians to substitute certain drugs. The costs may also be shifted onto patients if the medications they require are not part of the consolidated purchases, thereby requiring co-pays or that patients pay out-of-pocket for the entire cost of these medications.
By driving the uptake of lower-cost and generic therapies over newer, innovative pharmaceuticals, Mexico’s current approach to pharmaceutical cost-containment may also fail to achieve long-term healthcare cost savings. For instance, while containing healthcare costs has obvious benefits, it may have a detrimental impact on innovation. Cost containment policies that reduce healthcare costs by working to shrink drug developers’ profits may have a dampening impact on innovation. This in turn might restrain innovative pharmaceutical firms from entering the Mexican market.
While healthcare savings can be of substantial importance to the Mexican economy, cost-containment policies like consolidated purchasing may discourage investment in and development of innovative medicines, which can fulfil unmet medical need and curb healthcare costs over the long term. Hence, focusing on short term cost savings at the expense of long-term savings and health gains could ultimately compromise on the healthcare needs of the Mexican people. With an increased emphasis on consolidated purchasing in 2016–2017, the impacts of this policy are increasingly critical.
This blog is part of a series of posts from DRG’s global market access team examining challenges facing pharmaceutical firms in different countries in 2017. See our other blogs as they are added here (https://decisionresourcesgroup.com/tag/2017challenges/).