Painel Abramed 2019 - Inglês

049 3 Health market: the private and the public

050 3ABRAMED HEALTH MARKET: THE PRIVATE AND THE PUBLIC PANEL Health market: the private and the public In Brazil, the health market is presented as a heterogeneous, fragmented and >> asymmetrical system, in which the private and public sectors operate, offering and financing heatlh goods and services. In the area of public health, according to the Federal Constitution of 1988, “Health is everyone’s right and the State’s duty”. Thus, it was established by the Unified Health System (SUS), one of the largest public health systems in the world, conceptually allowing full, universal and free access for the entire population of the country. Approximately 10 years later, supplementary health market guidelines were established with the creation of the National Supplementary Health Agency (ANS) and Law no. 9,656 of June 3, 1998. Thus began the process of regulating the private health care system and the duplicity of care systems: the public system, characterized by the SUS, which according to the Constitution was the duty of the State, and the private system, whose freedom of action was guaranteed by the Constitution itself and regulated by the creation of the ANS.

051 The private market is distributed among individual agents or companies, who < pay individually or collectively for health plans or insurance. This is a diversified market, resulting from the formatting of the various products offered (health plans), the quality, the marketing region and the availability of health resources. On the other hand, there are health service providers, such as hospitals, clinics, laboratories, pharmaceutical industry, among others, acting in an intersectoral and interdependent manner. Health market structure in Brazil - private and public Abramed Elaboration Ministry of Health Population Unified Health System CFM - Federal Council without health (SUS) of Medicine insurance or plan Health plan or Private Health Plan & Physicians insurance Insurance (Operators) - beneficiaries Private Hospitals and laboratories National Agency ANVISA - for Supplementary National Health Health (ANS) Surveillance Agency Pharmaceutical Suppliers of medical Medical Supplies industry material and Distributors equipments

052 3ABRAMED HEALTH MARKET: THE PRIVATE AND THE PUBLIC PANEL “1,024 active operators with beneficiaries in Brazil, of which 740 are medical and 284 exclusively dental. ”

053 Supplementary Health Market Structure in Brazil Operators In March 2019, there were 1,024 active operators with beneficiaries in Brazil, of which 740 are >> providers of medical and hospital services and 284 exclusively dental, according to the National Supplementary Health Agency (ANS). Medical groups and cooperatives lead the supplementary health market accounting, respectively, for 39% and 37% of the number of beneficiaries in the sector. Most companies operating in the sector (425 medical and 218 exclusively dental) have up to 20,000 beneficiaries. In this sense, international experience reveals that the size (number of beneficiaries) of these operators may be insufficient to maintain their economic viability, given that the scale of a health insurance plan should guarantee the possibility of risk dilution resulting from the occurrence of costly accidents. Table 05 Distribution of operators by size of beneficiaries, by management type (Apr/2019) Source: Cadastro de Operadoras e Sistema de Informações de Beneficiários/ANS TABNET.Abramed Elaboration. No beneficiaries Small Medium Great Total 157 Modality (up to 20,000) (from20,000 to (more than 100,000) 100,000) Self-management 5 116 8 138 33 Medical cooperative 4 26 116 34 288 142 Philanthropy 2 12 2 40 3 Medical group 21 78 26 246 425 2 49 Health Insurance Company - 74 Hospital doctor 32 144 241 74 740 Dental cooperative - 218 24 7 105 Group dentistry 20 15 179 18 - Exclusively dental 18 643 44 22 284 Benefits Administrator 151 - -- Total 201 285 96 1,024

054 3ABRAMED HEALTH MARKET: THE PRIVATE AND THE PUBLIC PANEL “Since the creation of ANS, there has been a systematic reduction in the number of operators ” The number of operators grew rapidly in the decades prior to the regulation of the sector in the early 1970s. However, since the creation of ANS (2000), there has been a systematic >> reduction in the number of registries of medical-hospital operators and exclusively dental care in the supplementary health market. Graph 12 Operators of active private health plans with beneficiaries (Dec/1999 - Apr/2019) Source: Cadastro de Operadoras e Sistema de Informações de Beneficiários/ANS TABNET. Abramed Elaboration. Untill dec/99 1,380 apr/19 740 Untill apr/19 dec/99 284 441 Medical Exclusively dental

055 Health plan and insurance operators are constituted according to Collegiate Board Resolution RDC 39, October 2000, Art. 10, which defines the segmentation and classification of the operators according to the following modalities: Administrator Normative Resolution RN 196/2009: self-management or philanthropic institutions. legal entity proposing the contracting of a collective Dentistry group Companies or entities that plan as a stipulant or providing services to legal entities contracting private collective health care operate exclusively dental plans, except those plans. classified as dental cooperative. Medical cooperative Nonprofit corporations Philanthropy Nonprofit entities that operate incorporated under the provisions of Law No. 5,764 of December 16, 1971, which operate private health private health care plans and have obtained a care plans. philanthropic certificate from the National Council of Social Assistance (CNAS) and a federal public utility Dental cooperative Non-profit Partnerships, statement from the Ministry of Justice or a state or municipal public utility statement from the state and established under Law No. 5,764 of December municipal government agencies. 16, 1971, operating exclusively dental plans. Specialized health insurers For-profit >> Self-management Normative Resolution RN companies that sell “health insurance”, provided 137/2006: A legal entity governed by private law that they are constituted as companies specialized that, through its human resources department or on this type of service. Law 10,185, of February 12, similar body, operates a private health care plan. 2001, framed health insurance as a private health The non-economic private entity that, linked to care plan, and the specialized health insurance the sponsoring, instituting or maintaining public or company as a health care plan operator, for the private entity, operates a private health care plan. purpose of Law 9,656 of 1998. A legal entity governed by private law for non- economic purposes, established as an association, which operates a private health care plan exclusively for members of a particular professional category. Medical group Companies or entities that operate private health care plans, except those classified as administrators, medical cooperatives,

056 3ABRAMED HEALTH MARKET: THE PRIVATE AND THE PUBLIC PANEL It is noteworthy that between 2015 and 2018, introduction of the regulatory framework, the < the number of compulsory cancellations resulting trend towards consolidation in the sector from non-compliance with ANS requirements was immediate, allowing operators to comply corresponds to 67.9%. In contrast, voluntary with regulatory requirements, especially with cancellations have been decreasing and regard to solvency, access guarantee and represent 32.1% in the same period. With the quality of care rules. Table 06 Number of registrations canceled according to type of disqualification in the supplementary health market (1999-2019) Source: Cadastro de Operadoras e Sistema de Informações de Beneficiários/ANS TABNET. Abramed Elaboration. Period Compulsory Voluntary Total 1999-2002 195 421 616 2003-2006 97 209 306 2007-2010 270 128 398 2011-2014 171 94 265 2015-2018 127 60 187 2019 7 5 12

057 Income, expenses and loss ratio Revenues grow more than expenses >> Compensation revenues13 from medical-hospital operators totaled R$192.1 billion in 2018, an increase of 9.1% over the previous year, according to ANS data. For the second consecutive year, the most rapid increase in revenues was compared to healthcare expenses, which totaled R$159.8 billion and grew 7.2%, on the same basis of comparison. Table 07 Revenue, healthcare expenditure and loss ratio according to care segmentation (R$ billion - 2014/2018) Source: Sistema de Informações de Beneficiários/ANS TABNET. Abramed Elaboration. Medical 2014 2015 2016 2017 2018 Effective consideration 123.8 140.4 158.5 176.0 192.1 Events/Indemnifiable Claims 105.2 118.7 135.6 149.1 159.8 Loss ratio (%) 85.0 84.6 85.6 84.7 83.2 Exclusively dental 2014 2015 2016 2017 2018 Effective consideration 2.7 3.0 3.1 3.3 3.5 Events/Indemnifiable Claims 1.3 1.4 1.5 1.5 1.7 Loss ratio (%) 45.7 46.7 48.3 4.9 47.4 13 Revenue from tuition payments for individual and collective plans.

058 3ABRAMED HEALTH MARKET: THE PRIVATE AND THE PUBLIC PANEL Average payment period The average payment period for events held by beneficiaries is the average period, in days, that a health >> insurance carrier takes to pay for events already reported by suppliers: offices, medical clinics, laboratories and hospitals, among others. This is an extremely important timeframe as, while a company does not pay suppliers, they are financing their business, with significant impacts on cash flows. Considering the main modalities of medical-hospital plans, it can be noted that the average payment period for events can reach 80.9 days in medical cooperatives, 100 days in medical group and 50.4 days in insurers. In medical group, about 51.7% of active operators make payments to providers over 30 days. Average term in daysGraph 13 Average event payment term by modality - (2018) in % Source: Documento de informações periódicas das operadoras de planos de assistência à saúde - DIOPS/ANS - Extracted in 11/6/19. Abramed Elaboration. 120 100 100.6 80 80.9 60 35.7 50.4 10.3 32.4 40 18.9 Medical group 27.8 Health Insurance Company 20 10.1 0 Medical cooperative Minimum Average Maximum % of carriers Health Insurance Medical Medical paying up to Company group cooperative Up to 30 days Over 30 days 62.5% 48.3% 66.8% 37.5% 51.7% 33.2% NOTE Considers only carriers with payment terms longer than 10 days and less than 100 days.

059 Table 08 Average term of payment of events by modality considering the 10 largest deadlines (2018) Source: Documento de informações periódicas das operadoras de planos de assistência à saúde - DIOPS/ANS – Extracted in 6/11/19. Abramed Elaboration. Company Medical Medical Health cooperative group Insurance Company 1ª 80.9 100.6 50.4 2ª 70.5 98.8 49.9 3ª 69.7 92.0 30.8 4ª 64.6 89.3 29.5 5ª 60.0 84.5 28.2 6ª 56,2 83,0 26.5 7ª 55.8 73.4 24.9 8ª 54.1 71.3 18.9 9ª 53.9 71.2 n.d 10ª 51.9 64.0 n.d NOTE Considers only carriers with payment terms longer than 10 days and less than 100 days. <

060 3ABRAMED HEALTH MARKET: THE PRIVATE AND THE PUBLIC PANEL Health promotion and prevention of diseases in sup- plementary health (PROMOPREV) Only 0.3% of revenues go to health of supplementary health actors, in which operators promotion and prevention of diseases in supplementary health programs. become health managers. Despite the financial Since 2004, ANS has encouraged operators to incentives granted by ANS for the development progressively incorporate health promotion and risk and disease prevention actions through programs of PROMOPREV programs, the amount spent by that have a set of strategies and actions aimed at promoting health and improving the life quality of operators corresponds to an average of 0.3% of beneficiaries. Thus, it is intended a change in the role compensation income - those obtained through the monthly payments of beneficiaries and contracting companies in 2018. >> Tabela 09 PROMOPREV expenditure on supplementary health (2014/2018 in million of R$) Source: Documento de informações periódicas das operadoras de planos de assistência à saúde - DIOPS/ANS – Extracted in 6/11/19. Abramed Elaboration. 2014 2015 2016 2017 2018 PROMOPREV 268.5 316.7 377.4 532.0 663.0 expenses 54.9 77.5 64.5 78.4 92.7 Not approved by DIPRO 55.5 78.4 165.7 269.2 375.1 DIPRO Approved 126,562.3 143,317.0 161,566.9 179,304.0 195,618.0 Compensation 0.2% 0.2% 0.2% 0.3% 0.3% Revenue share on PROMOPREV expenditure

061 According to a study by the Organization for Economic < Cooperation and Development (OECD), a small fraction of health spending goes to promotion and prevention activities. OECD member countries allocate, on average, less than 3% of their health spending to prevention activities. The study does not indicate or establish an optimal level of prevention spending, recognizing that many effective measures have minimal expenditures or are outside the limits of prevention. In the United States, it is estimated that an investment of $10 per person per year in prevention programs to fight physical inactivity, poor diet and smoking would save $16 billion over 5 years, which equals a return of $5.60 for every dollar invested, without taking into account gains in productivity and quality of life14. 14 The Power of Prevention

062 3ABRAMED HEALTH MARKET: THE PRIVATE AND THE PUBLIC PANEL Beneficiaries According to ANS data, the supplementary health market ended 2018 with 71.5 million beneficiaries15, >> an increase of 2.7% compared to 2017. Health care plans accounted for more than 47.3 million beneficiaries, which corresponds to 66.0% of the bonds, with an increase of 0.3%. Despite the positive variation observed recently, the sector registered a decrease of 6.3%, with loss of more than 3 million beneficiaries between December 2014 and December 2018. During this period, the annual rate of change was negative: 1.6%. Table 10 Beneficiaries of private health insurance plans by segmentation (in million Dec/09 - Dec/18) Source: Documento de informações periódicas das operadoras de planos de assistência à saúde - DIOPS/ANS – Extracted in 6/11/19. Abramed Elaboration. Period Health care Excl. Dental Total dec-18 47.3 24.3 71.6 dec-17 47.1 22.6 69.7 dec-16 47.6 21.3 69.0 dec-15 49.2 21.0 70.2 dec-14 50.4 20.2 70.6 dec-13 49.5 19.6 69.1 dec-12 47.8 18.5 66.4 dec-11 46.0 16.7 62.7 dec-10 44.9 14.5 59.5 dec-09 42.6 13.3 55.8 Variation ( % ) 0.3 7.7 2.7 dec-17 / dec-18 (6.3) 20.4 1.3 dec-14 / dec-18 CAGR (1.6) 4.8 0.3 dec-14 / dec-18 3.8 10.2 5.5 dec -08 / dec-12 15 The term “beneficiary” refers to health insurance links and may include multiple links to the same people.

063 Dental plans, exclusively, totaled 24.3 million and conditions for the development of the supplementary >> correspond to 34.0% of the total, with an increase of health market, regarding the number of beneficiaries, 7.7%, both on the same basis of comparison. This are strongly associated with the macroeconomic segment has very different characteristics, among environment and, especially, the conditions of the which stands out the low amount paid in monthly formal labor market and the income of families and fees, making it more attractive and affordable for companies, as mentioned above. In this context, a portion of the population that depends solely on maintaining the trajectory observed in recent access to the public health system. months, the number of beneficiaries of health care The future of economic activity is still uncertain plans should end 2019 at the same level as 2018, and the pace of recovery in the sector is shy. The with approximately 47.3 million. Graph 14 Beneficiaries of medical and dental plans (Twelve-month percentage change: Dec/08 - Dec/1916) Source: Sistema de informações de beneficiários - SIB/ANS/MS-Tabnet – Extracted in 6/13/19. Abramed Elaboration. Estimate 20% 15% 12-month change10% 0.3 7.7 5% 2.7 0% 0.3 8.3 3.0 dec 09 / dec 08 dec 10 / dec 09 dec 11 / dec 10 dec 12 / dec 11 dec 13 / dec 12 dec 14 / dec 13 dec 15 / dec 14 dec 16 / dec 15 dec 17 / dec 16 dec 18 / dec 17 dec 19 / dec 18 Health care Excl. Dental Total 16 Estimate

064 3ABRAMED HEALTH MARKET: THE PRIVATE AND THE PUBLIC PANEL In the analysis by type of hiring, the weakening of the formal < labor market negatively reached the number of beneficiaries of corporate collective plans in 2018. There was a decrease of 5.4% between December 2014 and December 2018, with a reduction of 1.8 million beneficiaries. Another observed trend is the reduction in the number of beneficiaries of individual or family and collective plans by membership, with significant reduction in the number of beneficiaries of these plans: 7.9% and 5.9%, respectively, on the same basis of comparison. 12-month changeGraph 15 Beneficiaries of medical plans by type of contract (Percentage change over twelve months Dec / 00 - Dec / 1917 ) in % Source: Sistema de informações de beneficiários - SIB/ANS/MS-Tabnet – Extracted in 6/13/19. Abramed Elaboration. 10% 5% 0% 0.8 0.1 0.5 0.2 - 0.9 - 0.4 dec 09 / dec 08 dec 13 / dec 12 dec 17 / dec 16 dec 10 / dec 09 dec 14 / dec 13 dec 18 / dec 17 dec 11 / dec 10 dec 15 / dec 14 dec 19 / dec 18 dec 12 / dec 11 dec 16 / dec 15 Individual or for family Business Collective Collective by adhesion 17 Estimativa

065 Distribution by region Socioeconomic factors influence distribution The health market is associated with several the 46 most populous municipalities (over 500,000 socioeconomic aspects that strongly influence inhabitants) of the country, where the coverage rate the supply and demand of health services. In this reaches about 37.9% of the population. sense, the association between population size and the distribution of the number of beneficiaries On the other hand, in almost 90% of the country’s of health care plans is notorious. In these more municipalities with up to 50,000 inhabitants, urbanized and populated regions, there is a greater only 7.8% of the population is covered and has supply of health resources, including hospitals, only 7.5% of the supply of doctors. The reduced laboratories and medical professionals. Additionally, number of doctors is associated, among other social determinants and other individual or group factors, with salary, working conditions, possibility characteristics of the population influence the of specialization and professional recognition, are demand for health services. determinants for defining the place of performance. The Southeast has the largest population contingent >> and also stands out for its expressive participation in the health market, with 60.8% of the total in December 2018. It is noteworthy that more than half of the beneficiaries, about 52.2%, are located18 in 18 An operator may provide ANS with the address of the collective plan contracting company instead of the home address of the beneficiary. This causes a distortion in the result presented due to the possibility of increasing the number of beneficiaries at the contracting company’s headquarters rather than the beneficiary’s place of residence.

066 3ABRAMED HEALTH MARKET: THE PRIVATE AND THE PUBLIC PANEL Table 11 Beneficiaries, population, municipalities and physicians by population size Inhabitants Beneficiaries1 Coverage Population2 rate (%) # % % acum. # % % acum. 6.1 Up to 5,000 260,195 0.6 0.6 4,234,044 2.0 2.0 inhab 554,579 1.2 1.7 1,201,369 2.5 4.3 6.5 8,585,515 4.1 6.1 From 5,001 3,114,188 6.6 10.9 to 10,000 inhab. 6.2 19,290,479 9.3 15.4 From 10,001 9.3 33,391,579 16.0 31.4 to 20,000 inhab. From 20,001 to 50,000 inhab. From 50,001 3,458,881 7.3 18.2 14.4 24,092,419 11.6 43.0 47.7 to 100,000 inhab. 100.0 From 100,001 13,969,967 29.6 25.9 53,904,350 25.9 68.8 to 500,000 hab. More than 24,665,809 52.2 37.9 64,996,514 31.2 100.0 500,000 inhab. Total 47,267,775 100.0 - 22.7 208,494,900 100.0 - Region 1,726,443 3.7 3.7 9.5 18,182,253 8.7 8.7 North 6,644,865 14.1 17.7 11.7 56,760,780 27.2 35.9 Northeast Midwest 3,172,791 6.7 24.4 19.7 16,085,885 7.7 43.7 Southeast 28,730,320 60.8 85.2 32.8 87,711,946 42.1 85.7 South 6,950,569 14.7 100.0 23.4 29,754,036 14.3 100.0 NOTES 1 Beneficiaries of health care plans. Does not include beneficiaries classified in ignored municipalities or abroad. 2 Estimates of resident population in Brazilian municipalities with reference date July 1, 2018. In this analysis we used the number of medical records.

067 Sources: Sistema de informações de beneficiários - SIB/ANS/MS-Tabnet - Extraído em 13/6/19. IBGE. Diretoria de Pesquisas - DPE - Coor- denação de População e Indicadores Sociais - COPIS. CFM - Demografia Médica no Brasil 2018. Abramed Elaboration. Municipalities Physicians Per 1,000 inhabitants #% % acum. 1,273 0.30 22.6 2,796 0.33 1,257 22.6 7,588 0.39 22,364 0.67 1,203 21.6 44.2 28,618 1.19 116,681 2.16 1,348 24.2 68.4 271,366 4.18 451,777 2.17 1,096 19.7 88.0 349 6.3 94.3 271 4.9 99.2 46.0 0.8 100.0 5,570 100.0 - 450 8.1 8.1 20,884 1.15 1,794 32.2 40.3 80,623 1.42 48.7 37,536 2.79 467 8.4 78.6 244,304 2.30 1,668 29.9 100.0 68,430 1,191 21.4

068 3ABRAMED HEALTH MARKET: THE PRIVATE AND THE PUBLIC PANEL “The number of beneficiaries of health care plans is advancing towards municipalities in the countryside, especially in the Midwest, Northeast and North regions. ”

069 The supply of health resources requires demographic countryside, especially in the Center-West, Northeast < density, associated with socioeconomic factors and North regions. These regions show the highest that, together, enable the arrangement of providers growth in relative terms between 2008 and 2015. to ensure the sustainability of the sector’s However, after the beginning of the economic crisis production chain. Considering that the profile of in 2014, there was a decline in all regions of the Brazilian municipalities is predominantly formed by country. In the most recent period, as of 2017, there municipalities with up to 20,000 inhabitants, about is a growing trend in the Midwest and Northeast 70% of the total, it becomes a permanent challenge regions, and in the others, the scenario is one of to provide health goods and services without stability. economies of scale. Regarding the pace of growth in the number of beneficiaries of health care plans, it is noted a great advance towards the municipalities in the Graph 16 Cumulative change in health care plan beneficiaries by region (Dec/08 - Dec/18, number of beneficiaries and participation Dec/18) Source: Sistema de informações de beneficiários - SIB/ANS/MS-Tabnet – Extracted in 6/13/19. Abramed Elaboration. Midwest Northeast North South Southeast 3.2 millions - 3.7% 6.6 millions - 14.1% 1.7 millions - 3.7% 6.9 millions - 14.7% 28.7 millions - 60.8% 63.1% 26.8% 31.0% 20.6% 5.2% dec apr aug dec apr aug dec apr aug dec apr aug dec apr aug dez apr aug dec apr aug dec apr aug dec apr aug dec apr aug dec 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

070 3ABRAMED HEALTH MARKET: THE PRIVATE AND THE PUBLIC PANEL Coverage Rate Education + employment + income = health insurance The coverage rate19 was approximately 24.2% in health care plans and 11.8% in exclusively dental >> plans in December 2018. The extent of health insurance coverage is essentially due to the social and economic development of each region influenced according to the positive association between educational level, quality of employment and income. In these places, there is a greater interaction between the supply and demand of health services. Thus, the coverage rate in capitals and metropolitan regions is considerably higher compared to the countryside. Graph 17 Health Plan Coverage Rate by Location – in % (Dec/18) Source: Sistema de informações de beneficiários - SIB/ANS/MS-Tabnet – Extracted in 6/13/19. Abramed Elaboration. 41.3 49.9 50.8 35.8 42.5 33.9 35.2 34.3 34.0 27.1 24.2 30.3 18.9 24.0 23.2 25.1 Federation unity 27.4 Capital Metropolitan region 21.2 20.9 Countryside 10.5 12.1 13.5 4.5 6.1 Brazil North Northeast Southeast South Midwest Federation unity Capital Metropolitan region Countryside 19 Ratio, expressed as a percentage, between the number of beneficiaries and the population in a specific area.

071 As for geographical distribution, the population region, with an increase of 7.5 percentage points < covered by health plans is concentrated in the between December 2008 and December 2018. The most economically developed municipalities of the following map shows the coverage rate of health care Southeast, South and Midwest. Looking at the pace plans by municipality. The darker areas represent the of expansion, we can see the largest variation in the municipalities with rate higher than 40%. coverage rate of health care plans in the Midwest Mapa 03 Health care plan beneficiary coverage rate by municipality according to the Federation Unit (Dec/18) Source: Sistema de informações de beneficiários - SIB/ANS/MS-Tabnet - Extracted in 13/6/19. IBGE. Directorate of Surveys - DPE - Department of Population and Social Indicators - COPIS. Abramed Elaboration. Northeast 12.2% North 10.6% Values in % Midwest Southeast 21.1% 35.3% 0 0 - I5 South 5 - I 10 25.1% 10 - I 15 15 - I 20 20 - I 25 25 - I 30 30 - I 35 35 - I 40 > 40 NOTE 1 Estimates of resident population in Brazilian municipalities with reference date on July 1st, 2018.

072 3ABRAMED HEALTH MARKET: THE PRIVATE AND THE PUBLIC PANEL “In supplementary health, there is a high coverage rate between women and men aged 80 years and over, with 40.9% and 31.9% coverage, respectively. ”

073 Coverage rate by age and gender Elderly in health insurance It is noted that there are more women covered preventive and periodic follow-up examinations < by health plans, about 25.4% of the population, are of fundamental importance in the detection compared to a rate of 23.1% for men. The and early diagnosis of various pathologies. The highest coverage rate is among women and most suitable exams for women from 40 years men aged 80 and over, with 40.9% and 31.9% old are: oncotic colpocytology, mammography, coverage, respectively. In these age groups, transvaginal ultrasound and bone densitometry. growth accelerated between 2008 and 2018, For men it is advisable to perform tests annually with expansion of 12.1 and 10.6 percentage to detect prostate cancer, as it is from the age of points, respectively. 50 that the risk of the disease increases. Importantly, women in particular may suffer from diseases associated with hormonal and gynecological changes as they age. Thus, Graph 18 Healthcare plan beneficiary coverage rate by age and sex (Dec/08 - Dec/18) Source: Sistema de informações de beneficiários - SIB/ANS/MS-Tabnet – Extracted in 6/13/19. Abramed Elaboration. Total 23.1 20.0 22.0 25.4 21.3 28.8 40.9 80 years or more 31.9 21.6 27.0 31.6 20.7 24.5 31.0 From 70 to 79 years 26.4 23.4 25.9 28.5 23.8 25.1 27.9 From 60 to 69 years 27.3 23.1 25.5 33.6 20.8 23.2 22.0 From 50 to 59 years 26.7 14.9 15.8 15.3 15.5 15.7 15.2 From 40 to 49 years 26.2 16.2 16.1 20.2 17.9 17.9 24.6 From 30 to 39 years 30.1 17.3 17.6 24.2 Woman – dec/08 Woman – dec/18 From 20 to 29 years 19.1 From 15 to 19 years 14.7 From 10 to 14 years 15.2 From 05 to 09 years 20.5 From 01 to 04 years 25.0 Up to 1 year 24.6 Men – dec/18 Men – dec/08

074 3ABRAMED HEALTH MARKET: THE PRIVATE AND THE PUBLIC PANEL Medical demography 414 thousand doctors = 2.2 doctors per thousand inhabitants According to data from the Medical Demography 201820 study, Brazil had 414,831 doctors and 451,777 records21, representing a proportion of 2.2 doctors per thousand inhabitants. Of this total, 62.5% have one or more specialist titles, corresponding to 282,298 thousand records and 37.5% are generalists, equivalent to 169,479 medical records. The following chart shows the evolution of the number of registrations, which increased from 14,031 in 1920 to 451,777 in 2017. >> Graph 19 Evolution in the number of medical records (1920/2017) Source: CFM - Demografia Médica no Brasil 2018. Abramed Elaboration. 1920 14,031 137,347 1930 15,899 1940 20,745 219,084 1950 26,120 291,926 1960 34,792 1970 58,994 364,757 1980 451,777 1990 2000 2010 2017 20 SCHEFFER, M. et al. Demografia Médica no Brasil 2018. São Paulo, SP: FMUSP, CFM, Cremesp, 2018. 286 p. ISBN: 978-85-87077-55-4 21 The number of medical records at the Regional Councils of Medicine reached 491,468 in 2017. The difference between the number of doctors and records regards the subscriptions of professionals registered in more than one state of the federation.

075 “The proportion of doctors per thousand inhabitants differs greatly between regions of the country, characterizing a scenario of unequal distribution. Despite the expansion of the number of registered doctors, ” the data show that the proportion per thousand inhabitants differs greatly between regions of the country, characterizing a scenario of unequal distribution among states, municipalities and, especially, in the countryside. Among the regions, the Southeast has 54.1% of the country’s doctors, with the highest proportion of doctors per 1,000 inhabitants, 2.8 compared to 1.2 in the north and 1.4 in the northeast. Only the state of Sao Paulo concentrates 28% of the total doctors in the country. >> Table 12 Number of physician records and proportion per thousand inhabitants by region (2017) Source: CFM - Demografia Médica no Brasil 2018. Abramed Elaboration. Modality Physicians Distribution Proportion per per region (%) 1 thousand inhabitants Norte 20,884 4.6 1.2 Nordeste 80,623 17.8 1.4 Sudeste 244,304 54.1 2.8 Sul 68,430 15.1 2.3 Centro-Oeste 37,536 8.3 2.4 Brasil 451,777 100.0 2.2

076 3ABRAMED HEALTH MARKET: THE PRIVATE AND THE PUBLIC PANEL “In 2017, Brazil had 289 medical schools, offering 29,271 annual vacancies authorized by the Ministry of Education. ”

077 In 2017, Brazil had 289 active medical schools offering < 29,271 annual openings authorized by the Ministry of Education. Of this total, 65.0% are offered in private medical schools, especially in the Southeast, with 51.5% of private places offered in the country. According to the Federal Council of Medicine (CFM), this number of medical schools compromises the quality of medical education, which is essential for excellence in health care, and ranks this evolution as unprecedented compared to other countries22. Table 13 Medical vacancies and courses, by type of school and by region (2017) Source: CFM - Demografia Médica no Brasil 2018. Abramed Elaboration. Region Public Private North Northeast Schools Vacancies Schools Vacancies Southeast 13 1,092 11 1,166 South 41 3,068 30 4,143 Midwest 34 3,416 86 9,807 Brazil 17 1,390 31 2,807 16 1,272 10 1,111 121 10,237 168 19,034 22 Why there are so many medical schools in Brazil?

078 3ABRAMED HEALTH MARKET: THE PRIVATE AND THE PUBLIC PANEL Total health expenditure “Increasing proportion of older Health spending as a percentage of GDP people tends to increases each year. This is a worldwide increase health phenomenon driven by the process of population aging, as the increasing proportion of the elderly spending in Brazil tends to increase health spending. Older people have a higher burden of disease and ” use health services more often. Studies indicate that there is a positive association between age and health spending, i.e., the higher the proportion of elderly in the population, the higher the share of health spending tends to be. >> Health Expenditure - Proportion of GDP (%)Graph 20 Source: OECD Health Statistics 2018. Abramed Elaboration. Selected countries - health expenditure as a proportion of GDP (1970 - 2017) 18 16 17.2 USA 14 11.5 France 12 11.3 Germany 10 10.7 Japan 10.4 Canada 8 9.0 Portugal 6 8.9 Brazil1 4 8.8 Spain 2 8.2 South Africal1 1970 1980 1990 2000 2010 2017 NOTE 1 After 2000.

079 In 2018, about 9.3% of GDP was spent on the >> consumption of health goods and services in Brazil (approximately R $ 640 billion). Historically, the public sector has averaged 43.0% of expenditures, while payments made by households and businesses represent an average of 56.0% of the total. The country has a proportion of public spending below other middle-income countries. On the other hand, it has a much higher private contribution compared to several developed countries. Graph 21 Brazil - Health expenditure as proportion of GDP, public and private in % (2000- 2018) Fontes: WHO – World Health Organization 2000-2009. IGBE - Conta-satélite de saúde: Brasil: 2010-2015. Abramed Forecast - 2016-2018. Abramed Elaboration Estimate 60 10 58 57.2 9.5 56 54 9.3 9 52 50 8.5 48 8 46 44 42.8 7.5 42 40 7 Public and Private Proportion (%) Health Expenditure - Proportion of GDP (%) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Private Public GDP

080 3ABRAMED HEALTH MARKET: THE PRIVATE AND THE PUBLIC PANEL Generally the composition of expenditure by income >> level shows that high per capita income countries are characterized by the high share of public spending in relation to total health spending. In the countries of Europe, federal governments made an average of 64.0% of spending, while private spending accounted for approximately 36.0% of health service consumption in 201523. It is noteworthy that these countries are much richer, with a much more developed infrastructure and have a much more representative portion of the elderly population than Brazil. Graph 22 GDP per capita (US$ PPP) and health expenditure as a proportion of GDP - selected countries Fontes: WHO – World Bank. Elaboração Abramed. Note: PIB per capita 2015 ou ano mais recente até 2018. 70,000 60,000 USA GDP per capita (US$ PPP) 50,000 Japan 40,000 30,000 20,000 Mexico Brazil 10,000 South Africa 4 6 8 10 12 14 16 18 health expenditure as a proportion of GDP (%) 23 WHO – World Health Organization

081 The following table shows part of the impact on >> health system spending in Brazil. It is noted that the country has a high expenditure compared to other countries, however it portrays below-average health indicators. In this sense, several developing countries have far better indicators than Brazil, with lower health expenditures. This fact is related, among other factors, to the low allocative efficiency of health resources. Table 14 Health expenditure and selected health indicators (2015) Source: WHO – World Health Organization. The World Bank. Abramed Elaboration. Health Current health Life Infant Mortality Per capita expenditure expenditure expectancy (1000 live spending in % of GDP per capita at birth births) ratio vs. Life (PPP US $) expectancy USA 16.8 9,535.9 79 5.8 121.2 Germany 81 3.3 66.4 Austria 11.2 5,356.8 81 3.0 63.3 Canada 82 4.7 56.2 France 10.3 5,138.2 82 3.5 55.2 Italy 83 3.0 40.6 Spain 10.4 4,600.1 83 2.7 38.4 Chile 79 6.7 24.0 Russia 11.1 4,542.3 71 7.3 19.9 Brazil 75 14.0 18.5 Argentina 9.0 3,350.6 76 10.2 18.2 South Africa 62 31.8 17.5 India 9.2 3,182.5 68 35.3 3.5 China 76 9.2 10.0 8.1 1,903.1 5.6 1,414.0 8.9 1,391.5 6.8 1,389.8 8.2 1,086.4 3.9 237.7 5.3 762.2 NOTE PPP US$ - Purchase Power Parity (PPP) ate the conversion rates that try to equal the purchase power between different currencies, eliminating the level of differences between countries.

082 3ABRAMED HEALTH MARKET: THE PRIVATE AND THE PUBLIC PANEL “Global health Technological advancement contributes to increased life expectancy and the benefits generated by this advance expenditure was justify its incorporation, but always with attention to approximately two issues: rising costs and financing with population US $ 7.5 trillion, health management. Studies indicate that about 70% which is about of increased survival may be the result of technological 10% of world GDP. innovations in medicine24. ” According to the World Health Organization (WHO)25 >> report, in 2016 (most recent data) global health expenditure was approximately $ 7.5 trillion, which is about 10% of world GDP. It is noteworthy that health expenditure as a proportion of GDP is higher in high- income countries, approximately 8.2% per year on average. For low - and middle - income countries, health expenditure accounts for 6.3% of GDP. 24 Is Technological Change In Medicine WorthIt? 25 Public Spending on Health: A Closer Look at Global Trends

083 Graph 23 GDP and health expenditure per capita (US $ PPP) - selected countries Source: WHO – World Bank. Abramed Elaboration. NOTE: GDP per capita 2015 or later by 2018. 70,000 60,000 USA GDP per capita ( US$ PPP ) 50,000 Japan 40,000 30,000 20,000 Mexico 10,000 Brazil South Africa 2,000 4,000 6,000 8,000 10,000 12,000 Health expenditure per capita (US$ PPP) A trend highlighted by WHO is that total health expenditure26 >> is growing faster than GDP in many countries. Between 2000 and 2016, health expenditure grew at a real average rate of 4.0% per year, compared to 2.8% of global economic activity. Expenditure have grown at a faster pace, especially in low- and middle-income countries, around 6%, and in high- income countries, the average increase is 4.0% per year. In Brazil a higher growth in health expenditure can be observed between 2000 and 2015. 26 Refers to current total health expenditure.

084 3ABRAMED HEALTH MARKET: THE PRIVATE AND THE PUBLIC PANEL Graph 24Cumulative tax Brazil - Health expenditure per capita (PPP27US $) and GDP Accumulated change in % (2000-2015) Source: WHO – World Health Organization. Elaboração Abramed. 90 84.4 80 Health expenditure per capita (PPP US $) 70 60 64.4 50 GDP 40 30 20 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 In the most recent period, the average growth rate of health expenditure per capita was 4.2% on ave- >> rage per year, compared with a rate of 3.4% for economic activity. This growth is mainly explained by the considerable expansion in access to health services and increased frequency of use. 27 PPP Purchasing Power Parity in US$.

085 “Increased access to health services and increased frequency of use have increased health expenditure in Brazil. ” According to WHO data, the cumulative variation in health expenditure per capita in Brazil was 84.4%, higher than >> France, 80.7% and lower than the other countries between 2000 and 2015. It is observed in developed countries, especially in the United Kingdom, the largest cumulative change in the period, 164.4%. Graph 25 Health expenditure per capita (PPP US $) Cumulative variation in selected countries in % (2000 - 2015 ) Source: WHO – World Health Organization. Elaboração Abramed. Health Expenditure - Proportion of GDP 160 164.4% 140 United Kingdom 120 1Ja3pa1n.2% 100 116.5% Spain 80 1US0A9% 60 90.3% Canada 40 80.7% 20 France 84.4% 0 Brazil 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

086 3ABRAMED HEALTH MARKET: THE PRIVATE AND THE PUBLIC PANEL “The proportion of net expenditures for diagnostic tests remained stable between 2014 and 2018, at 21.2% per year. ”

087 From the perspective of health care expenses in Brazil, considering the supplementary health market, it can be >> noted that the proportion of net expenses28 with the performance of diagnostic tests remained stable between 2014 and 2018, at 21.2%, in average per year. In this period, the average value per procedure increased 23.0%, while the average IPCA index was 27.1%, on the same basis of comparison. In 2018, health insurance and plan operators cost R$160.1 billion in assistance29 events, an increase of 10.5% over the previous year. This amount considers the amounts disclosed in ANS Care Map and differs from other results disclosed in Tabnet and DIOPS/ANS. Moreover, it does not consider healthcare expenses in the exclusively dental segment, which totaled R $ 929 million in 2018 and represent less than 1% of total sector expenses. Graph 26 Health expenditure on supplementary health (2014/2018) - billion R$ Source: ANS - Care Map for Supplementary Health 2017. Abramed Elaboration. Total 105.1 117.2 132.0 144.9 160.1 healthcare expenditure (except dental) 21.5% 21.5% 21.4% 20.7% 21.0% 33.6 22.6 25.2 28.2 30.1 82.5 92.1 103.8 114.9 126.5 2014 2015 2016 2017 2018 Exam Expenses Assistance Expenses 28 Total expenditure, expressed in R$, on events realized (by Federative Unit) by beneficiaries with contract with the operator outside the grace period in the defined assistance items, discounting the disallowance values. 29 According to data from the Care Map ANS

088 3ABRAMED HEALTH MARKET: THE PRIVATE AND THE PUBLIC PANEL Regarding the distribution of health care expenses >> in the supplementary health market, hospitalizations totaled R$ 68.2 billion and represent the largest expenses: 42.6% of the sector’s expenses, an increase of 4.3% over 2017. This participation corresponds to the trend observed in several countries, as the most complex procedures are performed in a hospital environment and require hospitalization for longer periods. Graph 27 Distribution of health care expenditure in supplementary health (2018) Source: ANS - Care Map for Supplementary Health 2018. Abramed Elaboration . 11.0% Doctor’s appointments 21.0% 8.3% Complementary exams Other outpatient care 8.0% 4.0% Therapies Medical 42.6% 4.3% appointments in the emergency room Hospitalizations Other medical and 0.8% hospital expenses Other Doctor's appointments

089 Studies analyzing the causal relationship < between per capita income and health show that income is a significant variable in explaining the population’s well-being and health status. High-income people are more likely to purchase health goods and services. Thus, they can have diagnostic and preventive exams, as well as medical appointments and medication at any time, according to their needs. This fact justifies the offer of health services in developed places. In contrast, low-income individuals demand less health services, especially with regarding preventive health. Graph 28 GDP per capita (PPP) and life expectancy at birth in selected countries Source: WHO – World Bank. Abramed Elaboration. 70,000 60,000 59,927 USA GDP per capita ( US$ PPP ) 50,000 40,000 42,066 30,000 Japan 20,000 13,526 18,655 10,000 South Africa Mexico 0 15,553 60 Brazil 65 70 75 80 85 90 Life expectancy in years

090 3ABRAMED HEALTH MARKET: THE PRIVATE AND THE PUBLIC PANEL The role of diagnostic medicine and its participation in the care cycle Diagnostic medicine can be defined as a set of medical specialties - laboratory medicine, pathological anatomy and clinical images, able to guide the indication, performance and interpretation of complementary exams necessary for the prevention, diagnosis, treatment, prognosis and monitoring of pathologies. Laboratory medicine, also known as clinical pathology, focuses on the evaluation of liquid samples, such as blood or urine, ie, it is a medical subspecialty concerned with analyzing body fluids30. Pathological anatomy addresses the microscopic examination of tissues, cells or other solid specimens. Medical imaging, also known as radiology, is a specialty that uses imaging technologies (such as x-ray, ultrasound, CT Scan and magnetic resonance) to diagnose diseases and healthy condition. For many conditions, it 30 Improving Diagnosis in Health Care

091 is also used to prioritize and plan treatments, monitor of diagnostic medicine has only recently been their effectiveness, and provide long-term follow-up. recognized by historians as an additional specialty to It also includes interventional radiology, which offers medical science, in which physicians highlight what image-guided biopsy and diagnostic procedures, they see in their patients. as well as minimally invasive treatments. In addition, In the last century, diagnostic tests have become there are many important forms of diagnostic tests essential in the practice of medicine. Tests may that extend to other specialties. occur in successive cycles of information gathering, integration, and interpretation as each cycle A bit of history... improves patient diagnosis. In many cases, the test may identify a condition before it is clinically Advances in diagnostic techniques have come a apparent. Coronary artery disease, for example, long way and continue to develop at exponential can be identified by an imaging study indicating speed. The history of diagnosis is associated with the the presence of coronary artery block even in the evolution of medicine, from empirical to experimental absence of any symptoms. techniques. Studies report that the earliest known examination for body fluids was done at around 400 >> A.C31. A urine sample was spilled on the floor and observed to see if it would attract insects. If so, patients were diagnosed with boils. Distinct periods in the history of medicine are associated with the definition of the diagnosis. From the middle ages to the eighteenth century, bedside medicine was prevalent. Between the years 1800 and 1850, the practice of hospital medicine. And since then, diagnostic medicine has served as a reference in patient care. However, the contribution 31 A brief history of medical diagnosis and the birth of the clinical laboratory.

092 3ABRAMED HEALTH MARKET: THE PRIVATE AND THE PUBLIC PANEL In Brazil patient is unquestionable. It is a relevant element of < the health system that supports clinical decisions Diagnostic medicine facilities are classified by through prevention, diagnosis and treatment regulatory agencies as SADT (Diagnosis and information. Several articles attribute a high percentage Therapy Support Services). It is a fragmented of diagnostic tests to the participation of medical market, composed of about 24,000 facilities, decisions. Some statements attribute between 60% according to data from the Cadastro Nacional and 70%, others claim that the participation of clinical de Estabelecimentos de Saúde of the Ministry of pathology and pathological anatomy examinations in Health (CNES/MS), and constitutes an essential medical decisions is estimated at 50% to 70%. Finally, part of the social welfare system, generating more the demonstration of this participation requires a more 250,000 direct jobs. sophisticated evaluation, which does not invalidate the percentage estimated until then based on several The process of diagnosis has important implications observations of specialists and scholars working in the for the patient care cycle. When a diagnostic test diagnostic medicine segment32.. is performed accurately, the patient has the best opportunity for a positive outcome in their health, as the clinical decision will be adapted to a correct understanding of their health status. In addition, the objective of collecting information in the diagnostic process is to provide input on optimal decisions to indicate a treatment. The value of laboratory medicine in treating the “Between 50% and 70% of medical procedures are based on diagnostic tests. ” 32 The ‘70% claim’: what is the evidence base?

Sistema Inteligente de Chamada de Senhas “Não se gerencia o 23 anos que não se mede (...) de sucesso do SICS ”Deming, W.E. O SICS É UMA FERRAMENTA COMPLETA PARA A GESTÃO DO SEU ATENDIMENTO! EQUIPAMENTOS, SISTEMAS, IMPLANTAÇÃO E SUPORTE 24 x 7. Assista ao vídeo Relatórios e Gráficos SP 11 5069-1111 RJ 21 4063-7071 PR 41 4063-7086 [email protected]

094 4ABRAMED BRAZILIAN MARKET OF DIAGNOSTIC MEDICINE PANEL

095 Brazilian market of 4diagnostic medicine

096 4ABRAMED BRAZILIAN MARKET OF DIAGNOSTIC MEDICINE PANEL Brazilian market of diagnostic medicine Health facilities The number of Diagnostic and Therapy Support Service (SADT) units totaled 24,763 >> thousand in December 2018, according to data from the National Register of the Brazilian Health Facility (CNES). In the last 10 years, the number of use of SADT has increased by 66.6%, especially in the municipalities of the North and Northeast, with an increase of 91.0% and 68.5%, respectively. This faster growth is associated with a combination of several factors, among which we highlight the increase in the number of health care plan beneficiaries. During this period, 1.6 million beneficiaries were incorporated in the Northeast and 364 thousand in the North. The Southeast region, comprising over 60% of beneficiaries, incorporates 1.4 million. From 2015, an opening to foreign capital made possible by Law 13.097/15, also contributed to the offer of diagnostic services and expansion of access in the countryside. Municipalities with one service unit or more are represented by the dark areas of the map.

097 Map 04 Municipalities with the presence of SADT facilities Source: Ministry of Health - National Registry of Brazilian Health Establishments – CNES. Abramed Elaboration. December 2008 0 >= 1 December 2018 0 >= 1

098 4ABRAMED BRAZILIAN MARKET OF DIAGNOSTIC MEDICINE PANEL Considering the population size, it is observed that in >> the 317 municipalities of the country with population over 100 thousand inhabitants, the supply of diagnose and therapy facilities predominates with 56.1% of the total; hospitals and doctor offices with 45.5% and 73.3%, respectively. Among the regions, the Southeast accounts for 43.3% of the total units, while the South and Northeast have 24.2% and 18.3%, respectively. Table 15 Number of health facilities - SADT, hospitals and doctor offices, by population size (Dec/18) Source: Ministry of Health - National Registry of Brazilian Health Establishments – CNES. IBGE. Directorate of Surveys - DPE - Department of Population and Social Indicators - COPIS. Estimates of resident population in Brazilian municipalities with reference date July 1, 2018. Abramed Elaboration. SADT1 Hospital2 Doctor office3 Inhabitants Quantity % % acum. Quantity % % acum. Quantity % % acum. 2.2 2.2 178 0.3 0.3 Up to 5,000 inhab. 533 396 2.9 2.9 533 894 From 5,001 to 10,000 inhab. 1,043 4.2 6.4 6.6 9.5 1,577 1.0 1.3 1,175 From 10,001 to 20,000 inhab. 2,015 8.1 14.5 647 14.8 24.3 4,648 2.8 4.1 From 20,001 to 50,000 inhab. 3,966 16.0 30.5 1,189 19.5 43.8 16,022 9.8 14.0 1,559 From 50,001 to 100,000 inhab. 3,302 13.3 43.9 6,038 10.7 54.5 20,731 12.7 26.7 From 100,001 to 500,000 inhab. 6,846 27.6 71.5 19.7 74.2 54,027 33.1 59.8 More than 500,000 inhab. 7,058 28.5 100.0 25.8 100.0 65,580 40.2 100.0 Total 24,763 100.0 - 100.0 - 163,118 100.0 - Region 1,226 5.0 5.0 526 8.7 8.7 4,895 3.0 3.0 North 4,540 18.3 23.3 1,752 29.0 37.7 18,110 11.1 14.1 Northeast 2,277 12.3 50.0 9,908 Midwest 10,730 9.2 32.5 744 33.8 83.8 91,258 6.1 20.2 Southeast 5,990 43.3 75.8 2,039 16.2 100.0 38,947 55.9 76.1 South 24.2 100.0 23.9 100.0 977 NOTE 1 Diagnostic and therapy support service unit. 2 Specialized hospital and general hospital. 3 Clinic.