The state of health in Ecuador

If in the good times the state has taken the option of a public-private healthcare system, what will happen in lean times like now? Español.

Gerard Coffey
11 January 2016

Quito, Ecuador. Flickr. Some rights reserved.

A strong state. This is one of President Rafael Correa’s successes: the return of the state as a major economic player. Such is the perception, and in the regime’s early years there probably was some reason for thinking that this was indeed the case. The reality today, however, is quite different and it does not match with what is, in fact, an increasingly irrelevant impression.

Let us take the national health system as an example. The evidence offered in a recent report by the Economic and Social Rights Centre, Privatización de la Salud en Ecuador (Heathcare Privatization in Ecuador), suggests that while the healthcare system is outwardly public, the role of the private sector is increasingly a leading one, and its revenues are growing accordingly. Is this a contradiction? Maybe, or perhaps a tale of two realities.

It is an undeniable fact that since 2007 the Ecuadorian State has increased direct healthcare spending through the Ministry of Public Health and also, indirectly, through the Social Security Institute (IESS). It has been a sharp increase - from US $ 2,298 million in 2000 to US $ 6,760 million in 2013 - but it still falls short of meeting the requirements set in the country’s Constitution: an invesment totaling 4% of the GDP  and an annual increase of no less than 0.5%.

Another ambivalent fact is that while the Ministry of Health has been building new hospitals, the IESS has reduced its operating centers and increased contracts with private clinics and hospitals by one thousand per cent. Arguably, patients are now being concentrated in the new, larger hospitals, but whatever the explanation, the result is that the number of medical units is shrinking when it is still essential to decentralize healthcare coverage, especially in rural areas. As the CDES report says, "uneven geographical development processes are being generated, particularly between rural and urban areas, but also between privileged cities and the rest of the country." Here is an interesting fact: according to the report, 91% of the healthcare staff work in facilities located in urban areas.

Another matter of concern is that while public health spending has grown by 92% from 2007 and 2013, in the last year families were still accounting for 45% of total spending: the third highest percentage of all countries in South America. And while, on the one hand, the direct contribution of families diminished by 12%, on the other hand the funding of the healthcare system has been maintained through a sustained – albeit necessary- increase in tax revenues and contributions from the Servicio de Rentas Internas (Internal Revenue Service – SRI) and the IESS. It is the Ecuadorian citizens who are paying, as always.

What is worrying is that much of this new public investment - financed by tax revenues and the contributions of the social insurance affiliates – ends up in the hands of a private sector dominated by large conglomerates. This is an incoherent situation. A most important public service for all Ecuadorian citizens is enriching a number of diversified economic groups which are interested in healthcare for business purposes, more than anything else.

The big providers

“What is happening here?” I ask CDES researcher and autor of the report Pablo Iturralde. “How come so much money goes to large economic groups when the government is always talking about public services, and has benefited from an enormous amount of available financial resources in recent years?"

What happens, according Iturralde "is that although the resources for the sector have grown considerably, healthcare appears to have lost some of its weight in the national budget compared to other areas such as road building and hydropower, education, urban development and housing. And together with the growth in public expenditure, there has been a strong increase in the demand for services, partly as a result of the enlargement of gratuity and the extension of healthcare coverage to spouses and children of Social Security affiliates. As a result, investment has been inadequate, and private sector involvement in providing healthcare services has expanded through contracts signed with the IESS - from 27 in 2008 to 345 in 2012".

This has come at a cost. Recent data of the government’s outstanding debt with private providers confirm this. Raúl Alcívar, president of the Asociación Nacional de Clínicas y Hospitales Privados del Ecuador (National Association of Private Clinics and Hospitals of Ecuador - ACHPE) reckons that it amounts to nearly 400 million. Could these resources have been used to significantly expand the coverage of the public healthcare system? Or is this debt really another loan that should be registered as domestic public debt?

In any case, there is no doubt that the profitability of the private sector in the healthcare system is currently in the increase: the profits of the eight main service providers grew by one thousand percent – from US $ 2.6 million to US $ 26 million - between 2011 and 2012. Even worse, revenues from sales of medical and hospital services are concentrated in very few hands. Eight hospitals and clinics, says the report, 'represent 1% of the sector, but they account for 40% of the total healthcare market revenue'.

Pablo Iturralde states that "the most disquieting aspect is that these service providers are controlled by traditional power families. Among them: Carolina Eljuri Neme and Walter Wright Duran Ballén (Hospital de los Valles); the Valverde family (Clínica Kennedy); López-Ordóñez (Hospital Metropolitano); Roberto Gilbert Febres-Cordero (Clínica de Guayaquil). All these families have interests in other economic sectors such as real estate, communications, marketing, and insurance." And their involvement in the healthcare sector is by no means philanthropic.

Another fine piece of information from the report is this: some of the economic groups linked to the healthcare sector have ties with offshore-domiciled foreign partners. Whatever happened to the State policy in force when Carlos Marx Carrasco was head of the SRI and he declared war on tax havens? Silence is the answer. The report notes, in addition, that the income tax paid by the economic groups operating hospitals and clinics that dominate the sector in Ecuador averaged only 1.54% of their revenue in 2014, according to the SRI. These are surprising data indeed.

"When the tax burden of large private healthcare providers is lower than that of small providers – explains Iturralde -, it means that those who are less able to compete are paying more in income tax. This is an unfair distribution of wealth and one of the reasons why this is happening is the use of tax havens." According to Iturralde, the problem is widespread, and global, but it affects especially the so-called Third World because it facilitates capital flight to the industrialized countries. "I cannot say that in the aforementioned cases there is an intention to evade taxes in this way. The presumption of innocence must be respected, but the facts do raise some serious questions. We need more information, more transparency. "

Is the private sector participation circumstantial?

Is the growing participation of the private sector due to a delay in creating the necessary infrastructure, or is it the real aim of State policy to create a mixed system where – as President Rafael Correa said - the State ends up taking care of the bone (catastrophic diseases) and leaves the chunk to the private sector [i]?

The facts seem to indicate that the latter is the most likely explanation. Although the Ministry of Public Health has built new hospitals, few have the capacity to take in patients: the vast majority of them have no beds at all. At the same time, the IESS has been closing its small centres, especially in rural areas, a policy that leads to a concentration of the system. It is a reversal of the decentralization logic the government used to talk about in its first term. Iturralde believes that "it has been easier for the State to hand over patients to the private sector than to compete with it."

The aim of the private sector is profitability and in the rural areas income is low, if it exists at all; and when the State reduces its presence, patients are forced to seek services in the cities. "What we have here - says Iturralde - is a tension between economic calculation and the right to health. I am not suggesting that you should have the same number of centres in the country as in the cities, but the gap is very wide and it does not fit a strategy aimed at meeting the needs of the population. "

The long-term sustainability of the system

Will the State be able to meet those needs in the long term? That is the million dollar question. The demand is almost insatiable, the needs are pressing, and the solutions are difficult. How to balance the demand with the resources available, both for the building or infrastructure adaptation and for wages? The fate of the Ecuadorian public healthcare system will undoubtedly depend on many factors, but one of them is undoubtedly the possibility of increasing the transfer of resources to the State through taxes.

"I believe it is certainly feasible to keep the system under public control through redistributive measures," says Iturralde. "For example, when we developed the C Plan regarding the exploitation of the 43 ITT block at the Yasuní National Park, we calculated that raising taxes for the richest one hundred by only 1.5 percent, we would collect as much as the oil revenues of the block. The principle should be to finance the healthcare system with taxes on income stemming from large property wealth".

What concerns our researcher is this: "if in the good times the State has taken the current public-private system option, what will happen in lean times like now? The chances are that the private sector will assume more power within the system and exert pressure so that the regulatory and economic conditions play in its favor ".

It is hard to disagree with him. The mere threat by hospitals to withdraw or reduce their services would put nearly unbearable pressure on the State. There is also the risk of increasing surgery that is not strictly necessary, for example Caesarean sections, which are highly profitable, or that drugs be prescribed according to their profit-earning capacity, or that some 'agreements' be offered to their dealers.

It is ultimately the citizens, through their contributions to the SRI or the IESS, who bear the costs. The country may be in financial trouble – whether you call it a crisis or not is irrelevant - but even in difficult times it is possible, and perhaps more necessary than ever, to implement redistributive policies, and not to bow to the pressure of resorting to neoliberal policies, as Juan J. Paz y Miño C. has pointed out recently in the Guayaquil newspaper El Telégrafo [ii]. This could perhaps ensure the future of the public healthcare system in Ecuador.

In the end, the only solution to avoid unaffordable debt with private hospitals and clinics is to build more public infrastructures. The problem is that right now resources are scarce, there is no political will to do so, and debt to the private sector is growing.


[i] Referring to the decision not to recognize the debt to the IESS of US $ 1,700 million for medical services, President Correa said: "this alleged debt is the result of a law that wanted the Government to take charge of the catastrophic illnesses of its affiliates, with the aim of privatizing social security. That is, private business gets the chunk and the State is left with the bone." El Ciudadano 2015, quoted in the report Privatización de la Salud en Ecuador, Page 12

[ii] Paz y Miño says: "The crisis should be an opportunity to deepen the redistribution of wealth and touch the most powerful sectors. Not to behead social achievements. There are historical experiences to back this up, such as FDR’s New Deal (1933-1945), when in the throes of the worst crisis in US modern history, it was decided to raise taxes, particularly on income, increase spending and public investment, prohibit layoffs, supervise banks, and arrest speculators. There are also Ecuadorian experiences, such as the July Revolution (1925), when in the midst of the cocoa crisis it was decided to audit banks, to create the Central Bank, to establish the income tax and a tax on corporate profits, to reform the inheritance and land taxes, and to pass the first laws on minimum wages, working hours, individual contracts, strikes, unions, collective bargaining, dismissals and severance payment. All this required political will and not to yield to pressures from the rich layers of society."

This article was first published by Lalineadefuego.

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