The Red Flag Group®
Latam healthcare

LATAM is catching up to improve healthcare regulations

LATAM is catching up to improve healthcare regulations

To understand the current state of regulatory affairs in Latin America (LATAM), it is important to consider that this region covers an extensive area that houses 26 countries with common (or at least similar) historical, language and cultural backgrounds. For example, the political climate and tolerance to corruption are different between Panama, Venezuela and Brazil. LATAM nations have been productive and competitive for international trade, particularly in the healthcare industry, as for decades they have supplied raw materials and manufactured products or finished products to the rest of the world.

The relevance of the healthcare industry in LATAM not only lies in the fact that research and development of medical technologies and pharmaceutical products save and improve millions of lives on a daily basis; but also, that this region comprises an extensive market with lower costs compared to other regions and larger jurisdictions (like the US, Canada or Europe). Additionally, medical practitioners and pharmaceutical professionals in countries like Chile, Argentina, Brazil and Mexico have solid academic preparation and strong professional credentials, as well as a capacity of offering good-quality and expedited services. Moreover, a vast majority of LATAM jurisdictions have implemented universal or expansive-coverage healthcare systems, while local governments have promoted initiatives and partnerships with companies in the private sector to improve infrastructure and service-delivery frameworks. For LATAM, the growing demand for healthcare products, including pharmaceuticals, has increased opportunities for foreign investment and provided traction for industrial growth and socio-economic development is driven locally and regionally. Reports from think tanks and international organisations like the World Bank note that it has been since the 1990s and 2000s, that providers of services and facilities, and device manufacturers, have been able to find valuable market opportunities. This is coupled with reforms aimed at improving the quality of healthcare as a public service while offering universal healthcare coverage.

Despite the fact that this large market has shown positive changes as of recently, regulation standards in this region have lacked consistency among its different jurisdictions. Such lack of consistency can be seen in the various aspects and phases of the industrial and market activity: going from production, including the quality-control phase, to the distribution and trade (both at large and small scale) of healthcare products; including pharmaceuticals, clinical equipment and medical devices. It is also worth noting that regulations in the regional healthcare sector have evolved slowly and that there are three main approaches used by governments and professional bodies to maintain and improve the quality of healthcare facilities and services:

  1. Licensing (mandatory): this sets a minimum level to ensure an environment with minimum risk to health and safety, in alignment with relevant health and safety regulations
  2. Certification (voluntary): which can be set by national professional or specialization boards, to demonstrate that individuals have competence in a speciality area, and/or that organizations have services, technology and capabilities beyond the minimum required under the licensing phase.  This could be a type of ISO certification for a medical laboratory
  3. Accreditation (voluntary): which sets a maximum achievable level to stimulate improvement over time, in alignment with best practices in an industry and region. Along with the Certification phase, it helps to prove competence or capabilities beyond the minimum required for obtaining and keeping or renewing a license.  An example could be a hospital being accredited for a certain type of treatment or a high level of care standard.

These approaches are not mutually exclusive, and might even be complementary. However, they may also differ on whether they are mandatory or voluntary. Since the early 2000s, it has been possible to classify regulatory approaches in at least three categories, in the Latin American region:

  1. Countries that have laws and regulations effectively enforced by specialised authorities. In this group we can include Brazil, Mexico and Argentina;
  2. Countries that have new or limited regulations, or limitations in their enforcement. In this group, we can include Peru, Colombia, Ecuador, Uruguay and Guatemala. For instance, in countries of this category it is possible to trade products, even before the obtention of product licenses or approvals;
  3. Countries that have minimal regulations. In this group, it is possible to include mostly the rest of Latin American countries. In the case of countries falling in this category, it is not necessary to file registration submissions before the regulatory authorities.

In addition to the classification noted above, the Latin American region has the potential for the development of a rich, comprehensive and consistent regulatory framework. LATAM comprises a very large market, and the trend of implementing more effective regulations has tended to expand. According to a review issued by the Pan American Health Organization (PAHO) and the World Health Organization (WHO) for 2012-2017, both organisations are optimistic in their outlook on the current state of healthcare affairs in the Americas, as they have noted that the majority of jurisdictions across all the Americas region have aligned their domestic regulations and standards, in order to accommodate to guidelines of the Agenda 2030 for Sustainable Development, implemented by the United Nations (UN) in recent decades.

The region is ripe for consolidation of efforts to create some unifying frameworks for regulation in the healthcare industry but there are challenges. It is important to note the legal, integrity and business risks relevant to the industry, compliance culture, and geopolitics of the region: this includes the trafficking, smuggling, piracy and illicit alteration of drugs, which prevail as endemic problems.

Moreover, laws, regulations and bureaucratic processes in this region have evolved very slowly, as legal and regulatory enforcement approaches in most of LATAM jurisdictions have tended to follow a reactive, rather than proactive, or even preventive, stance. This is all on top of the other common risks that are inherent to the industry, such as corruption and bribery in governmental dealings and licensing processes; conflicts of interest and anti-competitive behaviour, data privacy concerns, fraud, intellectual property protection, and health and safety violations. All these issues entail serious liabilities, such as the considerable likelihood of facing civil and administrative actions, criminal prosecution and large fines, in addition to reputational damage for companies and individuals involved. Monitoring and evaluation have also constituted a weak control in the region. The need for oversight can also be a driver for more effective regulations and serving the public interest. Regulatory authorities must be trained and encouraged to collect, monitor and cross-check data to verify compliance. Concerning integrity risks and regulatory enforcement cases, some jurisdictions in which we have identified serious violations and instances of investigations, enforcement and sanction processes include primarily Mexico, Brazil and Colombia.

Particularly in the case of Mexico, The Red Flag Group’s business intelligence has shown that, since April 2016 a group of large distributors of healthcare and clinical products, especially laboratory and biochemical equipment, have been subject to a long-term investigation conducted jointly by the Federal Commission for Economic Competition (COFECE) and the Competition Committee of the Mexican Congress. Some of these distributors faced allegations and are suspected of being involved in collusive and other anti-competitive practices which generated more than USD 500 million in revenue coming from irregular state contracts, in detriment of the public treasury. As of February 2019, the investigation process is ongoing; however, it has already reached an advanced stage, and the COFECE has publicly stated that it confirmed the existence of anti-competitive practices conducted by some of the entities investigated, further noting that it will publish its results soon and that enforcement actions are expected to take place within the next few months.

Another case of remarkable efforts undertaken in LATAM, especially in the southern cone, includes advances achieved by the four member nations of the Common Market of the South (MERCOSUR): Brazil, Argentina, Uruguay and Paraguay, which altogether have achieved success in regulatory cooperation. This has been the case in the recognition of pharmaceutical and clinical products. Since the 1990s, regulatory officials have proposed and implemented harmonized standards for the production, trade and quality-control of medical products (under a system similar to that of the CE mark, implemented by the member countries of the European Union). In particular, members of MERCOSUR may have the same registration requirements; however, for certain products, such as medical devices, approval is required for each country, even if quality standards are harmonized. The MERCOSUR quality standards (also known as Buenas Practicas de Fabricacion, BPFs) were based on other standards of international and global scope, such as ISO-9001 and the US Food and Drug Administration’s Good Manufacturing Practices, among others. Under regulations proposed and implemented, devices are classified according to the health and safety risks they are prone to pose, in a three-level scale: Class I, for low risk; Class II, for medium risk; and Class III, for high risk. Under this system, the registration of medical devices is mandatory and have a validity of up to five years.

But aside from enforcement actions and the implementation of new regulatory standards, another aspect which merits attention, as it can offer valuable opportunities and wide room for innovation, is the need for promoting and implementing incentives to invest, innovate, and improve the quality of production and the delivery of products and services, in various aspects and different stages. In the last decade, regulatory improvement efforts not only have been focused on strengthening the stewardship role of the government authorities in overseeing the industry but also include incentive programs to invite players from the private sector in offering a service of public interest. This is typically done through fiscal and financial stimulus, sponsorship and knowledge-transfer programmes, as well as partnerships with entities in the public sector, including with academic institutions with vast research experience and strong focus in the different fields of healthcare, biotechnology, and medical practice.

Lastly, what can companies in the healthcare industry do with all of this information to mitigate risks, when it comes to local and regional compliance in healthcare matters?

  • Conducting due diligence on third parties that will supply goods, perform services on their behalf, or represent brands and interests in any way before clients and end-users. This, bearing in mind that corruption and bribery; anti-competitive behaviour; and health and safety breaches due to lack of controls in the production, distribution and/or use of products can still remain as some of the major risks prevailing in the region and industry;
  • Stay updated on changes to laws and regulations where they intend to do business with their third parties. This is especially true, considering that the political and socio-economic landscapes of Latin American countries have gone under important changes in the last couple decades, even if the evolution of regulatory frameworks has been slow when compared to the pace of reforms undertaken in other regions;
  • Make good use of legal, regulatory and economic instruments offered by regulatory authorities for following best practices and increase standards of ethical conduct. This may include taking part in the proposal and implementation of new certification and accreditation schemes; as well as engaging in consultations, partnerships and sponsorship programmes, including some that offer fiscal or financial incentives;
  • Bear in mind that the context of regulatory affairs in Latin America is unique, due to its geo-political and geographical landscape, as most of the countries and territories which form part of this region consist of developing and newly-industrialized nations (in this second group, we can refer to the larger economies of the region, namely Mexico, Brazil, Chile and Argentina);
  • Follow best practices prevailing across the industry at both regional and global levels, and seek to attain, update and/or upgrade industry certifications on a regular basis.