Multinational Monitor

OCT 2004
VOL 25 No. 10

FEATURES:

A People's Health System: Venezuela Works to Bring Healthcare to the Excluded
by Peter Maybarduke

Managed Care Goes Global: Latin America Confronts the Multinational Health Insurers
by Celia Iriart, Howard Waitzkin and Emerson Merhy

INTERVIEWS:

Nursing Power: California Nurses’ Collective Advocacy for Patients and Nurses
an interview with Rose Ann DeMoro

Physicians Rx For An Ailing Healthcare System
an interview with Claudia Fegan

NHS, Inc: The Accelerating Marketization of the UK's National Health Service
an interview with Allyson Pollock

DEPARTMENTS:

Behind the Lines

Editorial
The Right to Healthcare

The Front
Justice DeLay'd - Flu Profiteers

The Lawrence Summers Memorial Award

Names In the News

Resources

Managed Care Goes Global: Latin America Confronts the Multinational Health Insurers

By Celia Iriart, Howard Waitzkin and Emerson Merhy

For two decades, a tidal wave of market-based “reform” has washed over the Latin American health sector.

Arguing that “mismanagement” — not a lack of resources or other pressures — was the main cause of public health sector problems, starting in the 1980s the World Bank, InterAmerican Development Bank and International Monetary Fund (IMF) aggressively demanded that countries marketize and privatize healthcare.

In its 1993 World Development Report, Investing in Health, the World Bank argued that the inefficiencies of public-sector programs hinder service delivery. The report called for the expansion of private insurance schemes, privatization of public services and promotion of market competition. The Bank has made numerous loans to support managed care initiatives that convert public health institutions and social security funds to private management and/or ownership.

Multinational insurers have rushed into the region to take advantage of the new opportunities available in Latin American healthcare insurance. For these firms, at least, privatization has been a success.

The market-based approach is supposed to spur more efficient management of resources, since excess services are controlled and financing is directed toward providers of presumably higher quality care.

However, public health advocates in the region report that marketization and the shrinking of the public sector have introduced new inefficiencies and irrationality in the healthcare system, with troubling results for public health in Latin America.

INSURANCE CO.'s INVADE THE REGION

The results of World Bank healthcare restructuring loans, and the market-obsessed ideology promulgated by the Bank and the other international financial institutions, are evident throughout Latin America. Countries have reduced state participation in the financing, administration and delivery of services, while enhancing the role of the private sector.

For example, in Argentina, Decree 578/93 obligated public hospitals to obtain contracts with the social security and private sectors, as well as to collect user fees from people without social security or private coverage. Other decrees deregulated social security institutions, decreased the healthcare services that the participants received through salary contributions, and increased out-of-pocket costs to participants.

In Brazil, the government changed a law that had restricted foreign ownership of any Brazilian health-related service or insurance concern to 49 percent; foreign businesses may now own up to 100 percent of these companies.

Multinational corporations have capitalized on the privatization trend, gaining a significant foothold in the region by purchasing established companies in Latin America that sell indemnity insurance and prepaid health plans, establishing joint ventures, and entering into agreements to manage social security and public sector institutions.

Private national and multinational businesses operate as middlemen between social security institutions and providers, performing billing and administrative work. This administrative work brings in a high rate of reimbursement, in some cases 20 percent or more of the managed funds.

Meanwhile, private insurance markets are growing, as wealth has become more concentrated in the region. Increasing numbers of wealthy people have opted out of the public system and for additional private insurance.

Those corporations operating in healthcare are able to do so without regard to national boundaries, thanks to “free trade” within the region, especially in the countries of the Common Market of the South (known as Mercosur, the group’s membership includes Argentina, Brazil, Uruguay and Paraguay). If the Free Trade Area of the Americas (FTAA) is adopted, this could be the case for all of Latin America.

The list of investors in Latin America includes some of the largest insurance companies in the United States. Others are subsidiaries of European insurance corporations. The main multinational companies operating in Latin America include Aetna, CIGNA, the EXXEL Group (a Latin American private equity fund), the American International Group (AIG), International Medical Group (IMG), Prudential and International Managed Care Advisors (IMCA).

By 1999, Aetna International had already put together health plans with 3.3 million members in seven Latin American countries. The CIGNA International healthcare unit enrolled 1.5 million members in five countries. And AIG attracted more than 300,000 health insurance customers in the region.

Multinationals have invested heavily in Argentina and Chile, less so in Brazil, and are in the very early stages of entering Ecuador.

During the late 1990s, Aetna International invested more than $510 million in Latin American healthcare ventures. Since 1997, CIGNA has invested $475 million overseas, mostly in Brazil. Both Aetna and CIGNA have reported more than $800 million in Latin American healthcare revenues annually. These corporations tend to buy shares in several companies within each country and then to merge them, sometimes with the participation of local investors.

While access to healthcare for the poor is shrinking, the investments are paying off for the corporations. Between 1996 and 1999, revenues of multinational healthcare corporations grew much faster in Latin America than in the United States, a period of slow growth in managed care earnings. During this period, AIG’s revenues in Latin America increased 20 percent annually on average.

The multinationals are working to expand their business operations into the medical social security and public sectors in Latin America, since the scope of the private market is somewhat limited. (This trend has also been seen in the United States, where the private insurance market is saturated. As a result, they have pushed for policy changes that allow them to provide insurance to enrollees in the Medicare and Medicaid programs.)

In contrast to the United States, pension plans for many employed workers in large private or public enterprises in most Latin American countries are publicly managed. Employers and workers contribute to what are called social security funds; workers without coverage and the unemployed rely on public sector institutions, including public hospitals and clinics.

Throughout Latin America, social security systems have become very large funds, managed by the government or by publicly regulated agencies. And North American executives see management of these funds as new and major sources of revenue. For instance, a managed care executive whom the EXXEL Group recruited from Indianapolis has noted: “It’s a very lucrative market. … The real opportunity here for an investor-owned company is to develop tools in the prepagas [private prepaid] market in anticipation of the obras sociales [social security] market.”

MANAGING A LACK OF CARE

As in the United States, critics of managed care in Latin America argue that establishing the profit motive as the guiding principle of the healthcare system has restricted access for vulnerable groups and diverted funds towards administrative costs and investor return, and away from clinical services.

Co-payments required under managed care plans have introduced new barriers to access and increased the strain on public hospitals and clinics. In Chile, approximately 24 percent of patients covered by the ISAPRE (Instituciones de Salud Previsional) managed care organizations receive services in public clinics and hospitals because they cannot fford required co-payments, according to World Health Organization statistics. And indigent patients undergo lengthy means testing; at some hospitals in Argentina, the rejection rate for such applications averages between 30 and 40 percent.

Public hospitals in Argentina that have not converted to managed care principles face an influx of patients covered by privatized social security funds. For instance, in 1997, public hospitals in the city of Buenos Aires reported approximately 1.25 million outpatient visits by patients covered by the privately administered social security fund for retired persons. Before turning to public hospitals, these elderly patients often had not been able to access healthcare at the privately administered hospitals due to co-payments, or they had been refused treatments by private practitioners because the healthcare providers had not been paid by the social security fund, among other bureaucratic failures.

And as for-profit managed care organizations have taken over the administration of public institutions, increased administrative costs have diverted funds from clinical services. To attract patients with private insurance and social security plans, Buenos Aires’ public hospitals have begun to hire management firms that receive a fixed percentage of billings. Meanwhile, co-payments are being demanded for vaccines and other preventive measures that create barriers for people to receive services. In Argentina, the Ministry of Health reports that the number of private vaccination facilities grew 94 percent between 1980 and 1995.

Privatization and cutbacks in public sector budgets also have undermined support for preventative programs. As a result, illnesses that had declined or disappeared — such as cholera, leptospirosis, dengue fever and typhus — have reemerged as epidemics in Latin America. National health indicators in Argentina have shown that pulmonary tuberculosis in children under 5 years of age increased 153 percent between 1991 and 1996 and childhood diarrhea increased 41 percent during the same period (the population of children under 5 increased by only 12.5 percent in this period). In Buenos Aires, the richest and most populous province in the country, polio immunization coverage decreased 23.3 percent between 1992 and 1998, and DPT (diphtheria, pertussis, tetanus) vaccination coverage decreased 24.4 percent. This deterioration occurred despite a strong growth rate during those years in the Argentinean economy, averaging 5.5 percent annually.

Finally, Latin American managed care organizations have also attracted healthier patients, while sicker patients gravitate to the public sector. In Chile, the ISAPREs have aimed to capture and enroll younger workers without chronic medical conditions. As a result, only 3.2 percent of patients covered by the ISAPREs are more than 60 years old, in comparison to 8.9 percent of the general population and 12 percent of patients seen at public hospitals and clinics.

HEALTH INEQUITY AND ITS DISCONTENTS

There is every reason for Latin American countries to anticipate that reforms which open the door to managed care companies will likely result in the same inequities caused by managed care companies in the United States and in some European countries. After taking huge profits and helping undermine public healthcare systems, managed care organizations and health insurance companies leave when profit margins fall.

In the United States, companies have operated Medicare and Medicaid managed care programs for a number of years, and then left these markets — leaving people without coverage and health providers bankrupt. Managed care organizations (MCOs) have exited from Medicare and Medicaid programs in multiple geographical areas in the United States. Data gathered by the Centers for Medicare and Medicaid Services on withdrawals from the Medicare program showed that by 2001, Aetna had withdrawn from Medicare managed care markets in 11 states, affecting an estimated 355,000 members. CIGNA withdrew from Medicare markets in 13 states, affecting more than 100,000 members. According to a recent estimate, MCO pullouts affected more than 2.2 million beneficiaries between 1998 and 2002.

Lending agencies and managed care organizations cannot point to many reform successes in Latin America. However, failures are systematically presented as problems of the state, such as corruption and lack of technical capacity. Problems are regularly blamed on not properly introducing market-based reforms, or not going far enough.

The explosion of the Argentinean financial crisis in late 2001, which was clearly tied to pursuit of International Monetary Fund policies, illustrates the hazards of undermining the public health infrastructure. In 2002, Argentina had an official unemployment rate of 26 percent, and public hospitals remain crowded with middle and working class patients who lost their jobs and, therefore, their health insurance.

Working conditions in Argentina in healthcare are similarly grim. In public hospitals, healthcare workers toil under precarious conditions. During the most acute periods of the crisis, salaries were arbitrarily cut and payment was not guaranteed. In addition, salaries were not paid in the national currency, but in parallel bonds issued by provincial and national governments. There continue to be regular shortages of most basic medications and supplies, including those for disease prevention and screening.

The still-gathering momentum behind privatization of the healthcare sector notwithstanding, there is growing popular opposition to the paradigm shift from healthcare as a right to a market-based model. Social and political movements are growing to resist market fundamentalist policies, and in some cases focusing on protection of the public health sector and resistance to privatization and multinational corporate incursions.

Most notably, perhaps, in El Salvador, a coalition of healthcare workers, peasant groups and students have worked together to organize large-scale strikes and popular mobilizations that have blocked healthcare privatization.

As popular movements gain renewed strength in Latin America, and increasingly help elect more progressive governments to power, there is hope that the trend of healthcare privatization may perhaps be stemmed.


Celia Iriart and Howard Waitzkin are professors at the University of New Mexico. Emerson Merhy is a professor at the University of Campinas in Brazil. This article is drawn from a chapter in Sickness and Wealth: The Corporate Assault on Global Health (Cambridge, MA: South End Press, 2004).

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