Rogerio Marcondes Barros, General Manager of Salog S.A. sits down with United World to talk about the company’s strategy and its plans to grow outside Lima and Callao.
How was the trajectory for setting up SALOG, the first PPP in the Health sector in Peru, and what challenges did you have to face?
We have a strong expertise on doing innovative business, in the end of ninety’s, we've started in Brazil a company named FUNCIONAL HEALTH MANAGEMENT.
It’s a pharmacy benefit management that works very similar to the United States model, we give access for medical advices and medicine and disease management programs for about 15 million people connect with 30.000 pharmacies.
When we’ve started this challenge we didn’t image how difficult it would be, it’s not too easy to break the status and implement a new concept, two decades after, we´ve arrived in Peru in a very similar experience, again we´ve started an innovative business that is changing the reality of the health care system in this country.
In 2008 we found out that the health security system (ESSALUD) was interested in carrying out a Public-Private Partnership (PPP) in hospitals, a new way to doing business in health care, we got here in Peru and asked them if they had thought about medical supplies and medications, which both add up to 25% of the health care costs, without a good management of those costs the system doesn’t work cost efficiency.
We offered for Essalud, infrastructure, systems and new process for controlling all the supply chain of medicines and medical material.
Our proposition was building a distribution center under international standards, to invest in systems, processes and human capital, in order to get that chain moving.
We started that in 2010 and now Essalud has the best public health care infrastructure in all of Latin America.
Out great advantage was being able to do this under the umbrella of the PPP, which allows us to invest in the long term, a contract that is independent of the different administrations and very strong in terms of institutionally.
Regarding the financial structure, another challenge, an innovative deal financed through one bond issue BANK OF AMERICA MERRILL LYNCH (BAML), the transaction has been assessed by the rating agency FITCH RATING risks, the same that has been granted investment grade BBB- to the operation.
Our PPP model and structure have been considered as an innovation deal, receiving recognition IFC- WORLD BANK, as one of the main initiatives in emerging markets.
Patricia Elliot, Executive Director at FONAFE, mentioned some further investment and expansion into new hospitals and health infrastructure. After having consolidated in Lima and Callao, what is the strategy for the company?
The idea is to finish the process in Lima and Callao, which is 50% of our volume of health security, get the total control of the contract and delivery the full result that we are able for, which includes a high level quality of service with the maximum cost save in all the supply chain.
The idea is simple: when a patient does not receive their medications on time, it is very probable than will not complete their treatment, this will contribute to the complication of her health condition and turning the health system enviable, that are the challenges that we are dedicated.
By the other side, the complex model that we work is giving us a very strong and specific know how, we are becoming more and more specialized in social infrastructure, we are not a logistics operator, we work focus on hospitals supply, and our expertise is managing the fluxes inside them, with process, people and systems, that register al the transactions on real time and promotes a collaborative Planning Forecasting an Replenishment systems that works for an ideal planning, the right product on the right place with the right quantity.
We follow the product step by step until it reaches the patient of the doctor, respecting the cold chain or any other specific requirement, and for the next year we are planning to invest in automations systems for hospital supply, we are also bringing another products that we work in Brazil like vaccines programs to give access and control the spends, medicines assurance, disease management programs, Pharmacy management and others.
In terms of new business we had associated in a consortium to build a cluster of health, it’s a project for the Ministry of Health to attract private investment into Peru.
For example, international search laboratories have partnerships with countries for technology transfer. They transfer technology to countries like Brazil, Mexico, or Argentina, and Peru could be an attractive partner.
The project consist of a health complex with units specialized in research, quality, clinical trials, and five pharmaceutical plants for hi-tech products in biology, vaccines, and oncology.
The idea was to make a huge investment in infrastructure and equipment, and then attract the laboratories to transfer technology for the public system, it’s a chance to develop local market in association with Peruvian industry and foreign companies that will develop economy grow and diversify with employee generation, exportation, and foreign inversion, in Peru only 5% of the GDP is allocated to health care, way below countries like Brazil or Argentina which are closer to 10%.
People tend to think that private players entering the healthcare system means that it is being privatized. How do you communicate to the general public that you are here actually to save money for the state; what are the lessons learned?
Essalud and The Ministry of Health have made a brilliant work implementing the concept of PPPs in health system; in fact Peru has about 8 projects on this modality recently.
It’s only the beginning, I think there is a lot of experience in the word that could be sharing, but the foreign examples has to be adapt, each project has your particularity, and people have to understand that the PPP is not outsourcing or a privatized program, it’s an important alternative to generate quality, security, sharing ricks, to implement standers and KPIs that will contribute to make model that can be followed, otherwise saves money and delivery quality of services.
In our case we are responsible to manage about 25% of de costs, this is what medicines and material medical represents on health system, we are very good results and on the way to save about 40% of the health expense, that represents in our contract about U$ 50 million a year, in fact a good save that can save lives and improve the quality of attention for the 5million people covered by our contract.
The manly thing that we have learned in this period is that, The PPPs are 5% inspiration and 95% hard work, being the first project in the health sector generate high expectations but also a lot of prejudice.
People think it is a privatization model and doesn’t understand the real sense of the contracts, problems in some sense expected, that obligates a continuum communication and a strongly sense of institutionalization, it’s a continuous process of changing management in all the levels of the contract, everybody have to work for the contract, and is necessary look for academical and advisory support, in our case we have closed agreements with universities, professional entities, we invested in staff training and the improvement of the labor conditions.
Govern, health professional, unions of workers, politician and the society has to believe in this model and support the contracts.
Everybody knows that it can be improved, this is part of the business, to build better contracts, better relationship, better results, it’s a continuous challenge that had to be worked for all the stakeholders and Peru is pioneer and has a successful experience with international regardless.
Based in your personal experience, what would you say on how attractive Peru is for investment?
Compared to other Latin American countries, Peru is very friendly for doing business, for example, the last period of presenting co financed private initiatives, Peru had 147 PPP projects presented, 32 of them were in the health care sector, the government's capacity for assessment and consulting was overflown, it was a little frustrating but shows that there is an eagerness for investing and a lot of project to develop.
The focus on PPPs tend to be in infrastructure, but in health systems is not enough, this component is just the first step, the problem comes after, to contract specialists, doctors, nurses, pharmaceuticals, and administrate the current costs.
The investment on infrastructure and equipment represents on year of the current costs (opex) to manage an hospital, for example, so it’s very important to focus on projects that gives expertise, quality off assistant and effective control of the operating costs.
How would you describe Salog?
Salog is a merger from the private and public expertise, it is the evidence that the public and private sectors can walk together, making results and solving problems together, for building a better health systems.
Nowhere in the world are enough resources available to face the health problems, we cannot do everything for everyone, unfortunately is exclusionary system, when we built alliances like that we certainly are contributing to decrease this gap and promote quality of life for the citizens.
We have already achieved many successes, the impacts of this 5 year trajectory are strong, but we are confident that we can deliver more, to the extent that the PPP model consolidates and reaches its fullness, this is the challenge of all stakholders and I am sure that we will achieve it.