An MD&DI September 1997 Column
With a strong economy and the backing of its president, Chile's expanding emphasis on health care signals an increasingly strong export market for U.S. medical device manufacturers.
Chile is home to South America's most dynamic and open economy, and its attractiveness as an export market should not be judged by its relatively small population of 14 million. What makes Chile so appealing, particularly for manufacturers of medical devices and supplies, are its regulatory transparencies, stable political system, entrepreneurial work ethic, and increased privatization of health-care services.
Citizens cruise through a shopping district, open only to pedestrian traffic, in Santiago, Chile.Photo by Lanchile Airlines
For the past 14 years, Chile's economy has expanded at an annual rate of more than 6%, reaching 7.2% in 1996. Even when the devaluation of the Mexican peso rippled through Latin America in 1994, Chile's economy maintained "slowed" growth of 4%. With a stable exchange rate, mild inflation, and a savings rate of 28%, Chile remains a magnet for direct foreign investment. More importantly, Chile's per capita gross domestic product (GDP) reached $5100 last year, which is an important milestone; health industry studies indicate that medical device expenditures increase dramatically when per capita GDP rises above $4000.
An analysis of the best export prospects conducted by the U.S. Department of Commerce found that medical devices and supplies ranks eighth in terms of specific sectoral demand in Chile. Moreover, medical device export growth rates, depending on product category, are expected to increase from 5 to 20% in the near term. Chile's medical technology market reached approximately $310 million in 1996. Almost entirely dependent on foreign suppliers, Chile imports nearly 90% of its medical devices and supplies, primarily from the United States, Germany, and Japan. Medical devices and supplies imported from Brazil are on the rise in Chile as well, and U.S. manufacturers should anticipate increased competition from Chile's South American neighbors.
|Product Category||1994||1995||1996||Total '94-'96||% Change '94-'96|
|SIC 3841: Surgical and Medical Instruments||$12,416||$11,548||$13,647||$37,611||9.91%|
|SIC 3842: Surgical Appliances and Supplies||$9,926||$10,808||$10,838||$31,572||9.19%|
|SIC 3843: Dental Equipment||$1,789||$2,355||$2,598||$6,742||45.22%|
|SIC 3844: X-Ray and Irradiation Equipment||$5,516||$4,929||$5,811||$16,256||5.35%|
|SIC 3845: Electromedical Equipment||$12,505||$14,017||$16,825||$43,347||34.55%|
Table I. Dollar amounts (in 000) for U.S. medical device and supplies exports to Chile for 19941996.
The United States is the leading foreign supplier of medical devices and supplies in Chile, maintaining about 40% market share. U.S. Department of Commerce export figures show that between 1994 and 1996, medical device exports totaled $135 million, an 18% increase during that time period. Electromedical equipment led all product categories in dollar value in 1996 with $16.8 million in sales, while dental equipment experienced the greatest rate of growth--45% between 1994 and 1996 (Table I). Whether the United States is able to maintain its market share depends on several factors, such as Chile's continued commitment to increased privatization of the health sector and possible accession to the North American Free Trade Agreement (NAFTA). Additional factors include sectoral developments in the Asia-Pacific Economic Cooperation (APEC) bloc, of which Chile is a member, and its continued participation as an associate member of Mercosur, a regional customs union formed by Brazil, Argentina, Uruguay, and Paraguay.
THE CHILEAN HEALTH-CARE SYSTEM
Chile's constitution states that the government has an obligation to "promote, protect, restore health and rehabilitate the health status of individuals." From the beginning of his administration, President Eduardo Frei has made a commitment to improving both the accessibility and quality of health care for all Chileans. To accomplish this, his administration doubled public spending for health care to approximately $2 billion in 1996 but kept it under the rate of GDP growth to avoid stoking inflationary pressures. Competing priorities--primarily the country's infrastructure development--also served to keep spending beneath GDP growth levels. More importantly, Frei's government opened Chile's health-care delivery system to private-sector participation. These two factors should serve to increase both demand for and consumption of medical devices in the near future.
Currently, the public health system covers 67% of the Chilean population, while private health insurance covers 27%. The remaining 6% represents the military and police force, both of which are regulated by the Ministry of Health. The gap between public and private coverage is expected to shrink as incomes increase among the general population, fostering a demand for better health care. Public health-care services are provided by two principal agencies: the National Health Services System (Sistema Nacional de Servicios de Salud [SNSS]), which covers 27 services across the country, and the National Health Fund (Fondo Nacional de Salud [FONASA]). FONASA provides supplementary low-cost health insurance to public- and private-sector employees. Under both plans, employees contribute 7% of their income to fund the program, which accounts for approximately 40% of total funding; the remaining funds come from direct government transfers and user fees. Government-run hospitals and clinics are the primary mechanism for health-care delivery, accounting for 80% of all hospitals and nearly three-quarters of all medical device purchases. The move toward privatization, however, will probably presage a decrease in these numbers, as the Chilean health-care sector seeks greater efficiency and improved service delivery through greater reliance on private-sector hospitals and clinics.
Until recently, the Central de Abastecimiento (the Central), a unit within the SNSS, played a significant role in purchasing medical devices and supplies for Chile's public hospitals; however, the Chilean Ministry of Health announced changes to the Central's role designed to increase competition and transparency in the procurement process. Public hospitals are now encouraged to purchase medical devices and supplies straight from manufacturers or their agents and distributors, and U.S. suppliers can try to access this market directly. The Chilean military and police force, funded separately from the public sector, also represent an important direct market.
The National Association of Prepaid Health Insurance Plans (Asociación Greminal de Instituciones de Salud Prevional Chile [ISAPRES]), is a nonprofit association that provides private-sector health insurance to more than 3.8 million Chileans. ISAPRES's primary objective, according to executive president Rafael Caviedes, is to promote the development and enhancement of the private health-care systems and prepaid medical insurance plans. As in publicly funded programs, participants in ISAPRES contribute 7% of their income to join and receive basic coverage and can contribute more if they would like specialized care. Copayments for services vary from 10 to 30%. To foster freedom of choice, participants in government-sponsored insurance programs can opt to enter ISAPRES, and lower-income earners are beginning to enter the private insurance market. Most of ISAPRES's subscribers tend to be in the middle- and upper-income brackets, but Caviedes expects the number of lower-income earners to increase in the future. He speculates that as Chile extends its private insurance coverage to include lower- and middle-income brackets, the need to control costs will instigate a move toward managed care versus fee-for-service.
Chile's public health network includes 180 hospitals, 345 surgical centers, and more than 2250 rural medical clinics. Public hospitals in Chile are ranked according to levels of complexity, with Type 1 being the highest and Type 4 the lowest. There are currently 20 Type 1 public hospitals in Chile. Although the number of public hospital beds is decreasing as a result of increased private-sector investment, public-sector health-care facilities are expected to increase demand for specialized equipment, particularly through bank funding earmarked for multilateral development. In June, the World Bank granted a loan to the Chilean government to modernize a state-owned hospital in Santiago through the acquisition of medical imaging equipment, including x-ray machines, echotomographs, and echocardiographs.
Chile's private health-care system is considered to be the best in Latin America. Although it currently supports only 37 private hospitals, there are more than 900 clinics, polyclinics, and medical centers in Chile and an additional 500 clinical laboratories. The number of privately supported hospitals, clinics, and laboratories is expected to increase because of the reasons previously stated.
REGULATORY AND TRADE ISSUES
The Chilean government has not yet imposed regulatory requirements on medical devices; however, in March 1997, the Chilean Congress modified Law 19.497 of the sanitary code that covers medical devices and supplies. Specifically, the Congress altered Article 101 of the code, which regulates "Articles of Medical Use," i.e., instruments, apparatus, disposables, and other implements used in the diagnosis, prevention, and treatment of illness in humans. The article states that any company that "makes, imports, markets, or distributes these items must conform with certification and quality standards." The Public Health Institute of Chile is responsible for overseeing medical devices and will, according to the law, rely on technical standards and specifications used by international organizations and foreign entities (e.g., FDA) to determine what sort of controls and quality testing will be necessary. The new law also gives the Director General of Health some discretion in exempting from tariffs products "that promote social assistance, education, or scientific investigations." This provision could affect U.S. companies in two ways. First, in the event of emergencies or catastrophes, medical devices could be exempted from tariffs. Second, products used for educational purposes, such as telemedicine systems, could likewise be exempted.
The modified law was approved, but the regulations are not ready for implementation, and by all indications, will not be ready until the end of the year. While the intent of the law is unclear and at times ambiguous, there are indications that the Institute of Public Health is considering GMP-style quality certifications for both domestic and foreign suppliers. Until then, Chile will continue to rely on "certificates of free sale" for imports from the United States, which are easily obtainable from FDA. Since U.S. medical devices and supplies are considered the best in the world, and given that Chile is moving toward a transparent and open economy, it is unlikely that the regulations will have a negative impact on U.S. exporters. The U.S. Commerce Department will monitor the implementation of the regulations and will address industry concerns should they impose unnecessary burdens.
Chile generally has few barriers to imported goods, and foreign firms operating in Chile are subject to the same protections and restrictions as local firms. All goods imported into Chile, including medical devices and supplies, are subject to an 11% tariff, although many products from Chile's South American trading partners benefit from lower tariffs. All goods sold in Chile are subject to an 18% value-added tax (VAT). Import licenses on goods worth more than $3000 are required by the Central Bank of Chile in order to track trade data; otherwise, the normal documentation (e.g., bill of lading, freight insurance) applies. Although the Chilean government prohibits the importation of used passenger and cargo transportation vehicles, used ambulances are exempted.
With respect to standardization, Chile's National Standards Institute (Instituto Nacional de Normalización) includes ISO 9000 standards and promotes their adoption among the limited number of domestic producers. U.S. companies are advised to find qualified agents and distributors in Chile, which can be done through the U.S. Foreign and Commercial Services agent and distributor program.
REGIONAL AND INTERNATIONAL INTEGRATION
Chile hopes to become a signatory to NAFTA in the near future. Chile's accession would be an asset to U.S. firms, which would gain a competitive advantage over their European and Japanese competitors through the elimination of the 11% import duty. The Clinton administration is committed to working with Congress to achieve a fast-track bill, as the president noted in his State of the Union address. Fast-track legislation requires a straight up-or-down vote free of amendments and is critical to any future trade agreements.
Chile is ready to adjust its trade and economic regime to the disciplines of free trade. A comprehensive agreement with Chile would mean that U.S.-inspired trade and economic disciplines would be applied to a Latin American pioneer of economic reform and a key player in Latin America trade integration. Other countries are now giving Mercosur serious consideration. The European Union has signed a framework agreement with Mercosur, and Bolivia has undertaken steps to join. In the APEC forum, Chile will benefit from tariff reductions and economic integration with other countries as medical devices become incorporated as one of the sectoral initiatives.
Telemedicine is gaining widespread acceptance in Chile. The United States is the global leader in telemedicine technology, and U.S. firms should take note of telemedicine developments in Chile. Telemedicine is particularly well suited for a country like Chile, which is nearly 3000 miles long and has a high concentration of the health-care facilities in Santiago. Chile's private sector is leading the way in developing and implementing telemedicine applications in the country. For example, the radiological department of Indisa, a privately owned hospital in Santiago, is using telemedicine to save time, space, and money. Saval Laboratories, a pharmaceutical company, developed a telemedicine network between its Santiago offices and 14 clinics in the rural regions north and south of the city. The purpose of the network, according to Gonzalo Munita, medical director, is to assist general practitioners in the rural clinics in making proper diagnoses by connecting them with appropriate specialists in Santiago. Munita expects Saval's network to grow to more than 20 clinics in the near future.
The U.S. Department of Commerce has a variety of export promotion programs that U.S. companies can access in order to increase exports to Chile. For those interested in the Chilean medical device and supplies market, please contact:
Duaine A. Priestley
International Trade Specialist
U.S. Department of Commerce
International Trade Administration
1401 Constitution Ave. NW, Rm. 1015
Washington, DC 20230
E-mail: [email protected]
Senior Commercial Officer
Embassy of the United States of America
Av. Andres Bello 2800
Phone: +56 2 330 3312
Fax: +56 2 330 3172
Chile offers an attractive market for medical device manufacturers on several fronts. The nation is committed to an open trading system based on the rule of law and the principles of free trade. The relatively transparent regulatory environment makes it that much easier for U.S. manufacturers to enter this market and compete effectively. Moreover, the move toward privatization, the strong commitment to modernization, and the trend in rising incomes all serve to stimulate an increased demand for quality health-care services.
The author wishes to thank Alonso de los Rios, Baxter, Chile; and Roberto Franzroy and German Wendt, advisors in the Cámera de la Industria Farmeceútica de Chile AG, who contributed information for this article.
Duaine A. Priestley is an international trade specialist for the U.S. Department of Commerce, Washington, DC.