The Brazilian healthcare sector is undergoing significant transformation, driven by escalating medical loss ratios (MLRs) and the resulting pressures reverberating across the entire value chain. Insurers, providers, distributors and medtech companies are all struggling with the challenges posed by these rising costs.
Insurers have traditionally managed to sustain MLRs by passing medical inflation costs on to beneficiaries and employers. However, the post-COVID-19 period has seen MLRs reach unprecedented heights, with no signs of abating. This led to a marked decline in profitability for many insurers between 2019 and 2023, with some operating at a loss. In an attempt to recover margins, insurers have increased prices, which in turn has placed additional financial strain on companies and beneficiaries. Insurance premiums are now outpacing company profits, prompting human resources departments to urgently seek cost-cutting measures.
To manage claims and control costs, insurers are implementing short-term initiatives such as fraud control and stricter claim approvals, alongside long-term strategies like vertical integration and enhanced patient journey management. Nonverticalized players seek ways to improve efficiency and control costs, while verticalized players must maintain efficiency without compromising care quality. The sustainability of the sector remains a long-term issue, with premiums rising faster than inflation, risking regulatory backlash.
Providers, initially buoyed by post-pandemic pent-up demand, are now facing their own set of challenges. Increased “glosas,” declining product margins and extended payment terms have compounded their difficulties. Independent hospitals, in particular, have been more adversely affected due to their weaker bargaining power in pricing negotiations. While hospital capacity has returned to 2019 levels, new expansions and revenue growth are expected to be more challenging, especially in less-attractive regions with a significant Unimed presence.
For hospital chains like Rede D’Or, maintaining average ticket prices per bed is becoming increasingly difficult due to expansion into these less-lucrative areas. As a result, alternative models, such as partnerships with Unimed, are emerging to navigate these competitive landscapes. Partnerships, particularly in Unimed-dominated areas, can be key for hospitals. Larger players are improving efficiency and gaining scale, while independent hospitals continue to suffer from increased denial rates, decreasing margins and extended payment terms.
Distributors are also feeling the pressure. They are looking at demands for price adjustments, improved service levels, extended cash cycles and heightened compliance scrutiny. The deteriorating fundamentals of the industry are evident in the financials of large consolidators, which are grappling with profitability and liquidity concerns. Some distributors are encountering bankruptcy risks. However, those distributors that manage to successfully steer through these challenges may emerge better positioned to gain market share in the future. New models are crucial for survival but challenging to implement.
Retailers, although somewhat insulated from immediate pressures, are attempting to reposition themselves in care provision. In Brazil, large companies are moving toward business-to-consumer offerings and gradually shifting toward business-to-business services, mirroring trends observed in the U.S. Large pharmacy chains are becoming one-stop healthcare hubs, blending retail convenience with primary care, potentially reducing sector cost pressures and easing financial strains for payers and patients.
Medtech companies are also struggling to increase prices despite their multinational headquarters’ plans to do so. They are exploring alternatives such as direct sales to shorten the supply chain, but they often lack the competitive skills to do so effectively. This opens opportunities for distributor mergers and acquisitions or service by logistics operators.
Additionally, low-cost medtech has entered the market, including the premium hospital segment, increasing price pressure on multinationals. Medtechs face medium- to long-term challenges from low-cost competitors, the expanding influence of Pharmaco and the need for efficient models. Consolidation among medtech’s main clients (hospitals and payers) and increased competition from low-cost players are all adding to the pressure.
In summary, the Brazilian healthcare sector is facing a period of significant transformation, driven by increasing MLRs and the resultant pressures across the value chain. Insurers, providers, distributors and medtech companies are all adapting to this new reality by implementing various strategies to navigate the challenges. Stakeholders will need to stay agile and innovative to thrive in this evolving landscape. As the sector continues to adapt, it remains to be seen how these dynamics will reshape the future of healthcare in Brazil.
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