Jumping through hoops
Bringing healthcare innovation to Latin America
Regional fragmentation creates important barriers for the arrival of healthcare innovation in Latin America. Platforms helped to bridge this gap in biotechnology. Emerging digital platforms will play a similar role in health-tech.
On 25th January 1990, Avianca Flight 52 from Bogota to New York crashed, killing 73 of those onboard, including all of the cockpit crew. The plane ran out of fuel whilst circling JFK awaiting a landing spot. Exactly what happened that day has never been conclusively proven. It seems that the plane was manned by competent and experienced crew members, who were well aware of the low fuel levels before the crash happened. One of the most broadly touted theories is that the Colombian pilots did not assert themselves sufficiently with US air traffic control while waiting to land and didn’t question them when they were put to the back of the queue.
The disaster has been interpreted as a failure in cultural understanding. Geert Hofstede, the Dutch social psychologist, identified five dimensions of national culture, one of which he called power-distance: the degree to which less powerful members of a society accept that power is distributed unequally. Societies exhibiting a high power-distance accept a hierarchical order in which everybody has a place, those with a low power-distance believe that power and inequalities can be challenged. Given the fate of Avianca 52, it’s no surprise that Colombia is identified as having a high power-distance and the United States a low power-distance. One can imagine that the Colombian pilots may have been reluctant to challenge the perceived authority of the air traffic controllers, while the American controllers would have expected just that kind of challenge if they were required to take action. One can safely assume that if all the participants had known how critical the fuel condition was, they would have acted differently. But the decision was fragmented and depended on several independent actors, who were not easy to align.
At a first glance, this tragic event may not seem to have much to do with the difficulties of bringing healthcare innovation to Latin America, yet it is quite instructive. It illustrates how failing to understand differences among cultural paradigms can result in negative outcomes. This happens more often that we would like or are probably even aware of, and in more dimensions that are apparent in casual observation.
As healthcare outcomes are determined more and more by patient behavior as well as appropriate care programs, healthcare innovators cannot assume that an approach that was successful in one region can simply be “exported” without considering local cultural factors. It is one thing to assume that a drug will have similar biological effects in the region as it did in the United States or Europe: most regulatory agencies will accept clinical data generated outside the region. But what happens when the innovation is a digital therapeutic that acts through suggesting different behavior for the patients? Can we safely assume that the same cues that worked in Berlin will work in Lima?
This also translates into business models. B2C models that empower consumers to take their own decisions are pervasive in the United States. The plane disaster suggests, conversely, how pervasive the acceptance of hierarchy and authority figures (or high power-distance, in Hofstede’s words) is in much of Latin America, a paradigm that translates perfectly to the doctor-patient relationship. To this day, the doctor’s authority and autonomy is rarely questioned, by patients or anyone else. Their perceived power and position in the ecosystem mean that the physician’s endorsement and support is essential for healthcare innovation to be successful: consumer-focused developments of recent years cannot be truly impactful in the region unless the healthcare professional sees real value.
Previously, these cultural barriers were less important for the transmission of new developments. A few decades ago, the majority of this innovation came from global pharmaceutical companies, who carried out large-scale research studies and recuperated the vast costs involved by launching their new products internationally. Given that they tended to have infrastructure on the ground across the world, they could rely on local teams to ensure that these innovations got to diverse markets without obstacles.
However, at the turn of the millennium, the panorama changed. Innovation in genetics and digitalization was accompanied by an inflow of venture capital keen to make money from the promise of biotechnology and biopharma. Gradually barriers came down for researchers keen to focus on narrower populations and more specific diseases, and the move towards smaller scale clinical studies combined with strong capital flows meant that ambitious start-up Davids could begin to play alongside the established industry Goliaths.
Smaller companies have been able to exploit their natural advantages: greater agility, greater focus, the ability to specialize in areas such as orphan diseases that are unattractive to big pharma. Research suggests that small research teams are more disruptive and innovative than larger ones. And results to date seem to back up the idea that small is beautiful. The 2019 edition of an annual study of pharmaceutical innovation by Deloitte noted that the majority of new compound approvals were now coming from companies outside of the 12 biggest industry players. These outsiders, smaller and newer companies, were also increasingly active in sponsoring clinical trials. An IQVIA study noted that 72% of late-stage pipeline activity in 2018 was from biopharma start-up companies.
So, greater competition, good news? Not necessarily for those in Latin America hoping to benefit from developments in healthcare technology. While the multinationals, in whose hands innovation had previously rested, tended to have regional and local operations across the globe, the firms that are most successful in healthcare innovation today may barely have a head office. With limited resources, when thinking about expansion beyond their home turf they need to prioritize. And Latin America, representing 6% of the world’s population and 7% of its GDP, is not necessarily top of the list when compared to North America, the EU or the fast-developing economies of Asia.
Given lower average prices in Latin America, products and services tend to need to be sold at a high volume to be able to generate revenues comparable to those in other potential markets. Yet the particular fragmentation and complexity of healthcare market in Latin America makes this difficult. Different countries work to different models and combinations of public, private and trade union sponsored care; there are countless care providers, payers and regulators; and each of the over thirty countries of the region has a different set of rules for registration and commercialization of healthcare products - and sometimes more than one.
In Latin America, the complexities of the market combined with the economic reality mean that it is extremely difficult for niche businesses to reach customers at a reasonable acquisition cost, making market entry just too expensive and the returns just too low for businesses without cheap, high volume models (see Exhibit 1).
Other structural factors make potential market entrants think twice: six Latin American countries fall in the World Justice Project’s bottom 30% in terms of the strength of the rule of law, including the continent’s second biggest economy, Mexico. There are ongoing worries about intellectual capital: until the early 1990s, patent protection was absent in Latin America, allowing a still-buoyant group of local pharmaceutical firms to copy innovative products from abroad.
Fragmentation also has a cultural dimension. While some cultural traits can be considered “Latin American”, the region is far from homogenous, geographically or culturally. Its seven most populous countries combined (not including Brazil) have a population of a similar size to the United States, but present far greater geographic and cultural complexity for those looking to enter the market. When we include Brazil, diversity expands even further, adding an entirely different language, one of the world’s most populous cities and one of its most striking income inequalities, with some people enjoying the most sophisticated healthcare on Earth and others without access to modern medicine.
Open platforms have traditionally been the solution for these issues. Companies that specialize in licensing cutting edge biopharmaceuticals have emerged throughout Latin America (as well as Asia, Eastern Europe and Africa) to bridge the gap between specialized producers of niche technology and the complexity of the region. Based on the concept of open innovation, these players simply outsource their product pipeline to several companies and focus on providing localization and commercial services. With broad footprints, specialized field forces and support services, they act as platforms where products from different companies can co-exist and exploit a common infrastructure. These platforms, which connect and integrate multiple vendors and customers, make things easier for potential market entrants in two big ways. On the one hand, by providing them immediate access to many and different customers by simply adding their product to an existing commercial platform, they remove the prohibitive customer acquisition costs involved in entering a new market from scratch. On the other hand, they can ensure that the products or services offered are relevant and adapted to local and regional tastes and habits.
A similar model looks likely to emerge in digital health. Earlier digital health innovations were aimed at hospitals and payers and focused on improving efficiency at an administrative level. They needed big infrastructure investment in hardware, software and data centers and since they were generally siloed and fully customized, each participant required the services of highly skilled programmers to implement and maintain the technology. But more recent innovation is the perfect candidate for a platform model. It tends to be cloud-based and generates its value through integration with other services; forming part of a platform not only enables but enhances and optimizes the value it can provide. Similar to its bricks and mortar cousins, digital health companies are small, nimble and fast. It would be daunting for them to attempt to disembark in a new geography on their own. But by using a platform, they can exploit the region’s opportunities with considerably less effort and risk.
As we move into a world where analysis of big amounts of data becomes more critical to the practice of medicine, the ability to exploit digital innovation quickly and effectively is key to ensure better outcomes and bringing costs down. As was the case in biotechnology, emerging digital platforms have the potential to bridge time, distance, the affordability of healthcare and the expectation gap between consumers and clinicians. And critically, since platforms provide the opportunity to integrate, analyze and summarize data using analytics and AI tools, they can make new applications useful and attractive at the center of the Latin American healthcare ecosystem.
Geert Hofstede carried out his pioneering work on national cultures in the late 1960’s. Five decades of globalization later, we are still a long way from one unifying planetary culture. Most would argue that this is not desirable, and that cultural diversity is essential to preserve the cultural richness of mankind. Fragmentation, as the natural byproduct of this diversity, may be here to stay. Open platforms can provide the connective tissue to bridge this gap.