Development. Copyright © 1999 The Society for International Development.

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Local/Global Encounters

The Privatization of Health Care in Peru

JIM YONG KIM, ABSTRACT The health sector in Peru has undergone significant
A.D.A. SHAKOW AND change in recent years, as state-administered systems are replaced
J . B AY O N A with private and for-profit ones. Jim Yong Kim, A.D.A. Shakow and
J. Bayona look at how the policy shift has gone forward with
significant input from US planners, and bears close correspondence
to the American private health care model. Such health reforms,
they contend, are upheld with little attention to their empirical
value as instruments to improve health outcomes in poor countries.

— Señora, you have to buy these medicines, or die – you choose.

— Doctor, I want to live, but I can’t afford to buy them . . .
Peruvian patient with multidrug-resistant tuberculosis and her physician, 1997

Introduction
Benedicta Sanchez1 started coughing during the winter of 1994, but at first she
paid it little attention. She couldn’t afford to. Born in a rural province north of
Lima, the 38-year-old woman had moved to the shantytown district of
Carabayllo, on the northern fringe of the Peruvian capital, when her husband
found agricultural work nearby. Arriving amid an economic ‘austerity’ regime
imposed by President Alberto Fujimori in 1990, the couple and their two adult
daughters had teetered ever since on the brink of starvation. Some weeks, Bene-
dicta and her husband earned as much as 20 soles (US$8), but this income was
unpredictable, and often the two brought in far less, or nothing at all. To see a
doctor for a mere cold was an unthinkable extravagance.
Benedicta, however, had more than a cold. For months she’d been losing
weight and waking up at night in pools of sweat. One evening, her eldest daugh-
ter Maria noticed that Benedicta’s sputum was streaked with blood. Maria had
just heard a radio announcement that described the symptoms of tuberculosis
and urged people experiencing them to seek help; she begged her mother to be
seen at the neighbourhood public health centre, a 15-minute bus ride away.
Development 42(4): Local/Global Encounters
Although patients are charged two soles (US$0.80)
for most visits to this clinic, TB check-ups are free.
This, as Benedicta was told by clinic staff, is because
the Peruvian Ministry of Health sees TB as a very
serious problem.
After receiving inconclusive TB test results from
the clinic’s lab, Benedicta was referred to the
nearest public hospital, a half-hour bus ride and
20-minute walk from her home. There, health
workers informed her that the National TB pro-
gramme would not cover the cost of the saline solu-
tion, surgical tubing, gloves, and syringe necessary
to make a definitive diagnosis. Their cost amounted
to almost 10 soles (US$4).
Benedicta panicked. She had been told at the
clinic that her treatment would be free. She
explained to the nurse that she had only enough
money for bus fare home, one sol.
‘Señora, how can you leave your house and come all the
way here with just one sol?’, the nurse asked her.
‘Señorita’, replied Benedicta, ‘if I had known I was going
to have to pay, I would not have come at all.’
Benedicta returned home without even being diag-
nosed. When Maria asked her what the doctors had
said, Benedicta answered that she didn’t have TB
after all. Benedicta knew that to purchase the sup-
plies for her treatment would deplete the family’s
meager savings, perhaps threatening its survival.
So she made a calculated choice: she said nothing,
and went on coughing.
Globalization
At a casual glance, the scope of Benedicta’s
predicament may seem sharply limited: one
woman’s struggle for the essentials of life, in a poor
district of a poor country. For many of us, this
struggle is entirely remote, a mere emblem of depri-
vation.
In fact, however, our sense of remove is illusory.
National debt, privatization and administrative
reform are not always fitted into the rubric of
‘globalization’ – not, at least, in the very same sen-
tence – but in Benedicta’s ‘private’ dilemma they
have converged. The policies governing Peru’s
health care system, and the lives of poor people like
Benedicta, are an outcome of political and econ-
122 omic trends at the forefront of health policy debates
in wealthy countries, as well as in poor ones. These
trends, it is important to note, come about not as
the mechanical corollaries of natural laws, but in
the wake of a series of choices by private parties
and public ones both. Taken together, they have
implied not only the elision of national boundaries,
but also in many cases the replacement of state ser-
vices with private ones, of diverse geographical
origin. The same agreements that restructure poor
countries’ public debt to foreign banks goad them
to open health care markets to private insurers
from abroad. The same lowered trade barriers that
facilitate corporate expansion to Guadalajara,
Lima and La Paz also allow multinational com-
panies to establish private capitated health consor-
tia for their employees – and in a more abstract
sense, advance an ideological affinity for private
services (Stocker et al., 1999).
And there is an additional, grimmer, reason that
the search of Benedicta Sanchez for appropriate
health care might be taken as a case study in
globalization. Some months after the mainstream
system had failed her, Benedicta was correctly
diagnosed and treated (for free) by a local non-
governmental organization. She did indeed, they
discovered, have TB, though not of the usual kind.
When her samples were tested at a laboratory in the
United States, Benedicta was found to be infected
with multidrug-resistant (MDR) tuberculosis: a
disease that has, in the last decade, been taking the
world by storm. The WHO has estimated that some
50 million people may be infected with drug-resis-
tant TB, and hundreds of thousands more have
active, infectious MDRTB – feared for the compli-
cated nature of its treatment and the ease with
which it can be transmitted. A process of globaliz-
ation, then, underlies not only the structure of
government expenditures on health care – and
poor people’s access to it – but the dynamics of
disease as well. In fact, as Benedicta’s example illus-
trates, the two phenomena are closely linked.
Health privatization in Peru
In Peru, as elsewhere, the fate of state-sponsored
health care in the 1990s was tied closely to the
country’s overall economic fortunes. Changes first
began to appear early in the 1990s, when President
 Kim et al.: The Privatization of Health Care in Peru
Fujimori imposed his IMF-sponsored ‘shock
therapy’ plan to combat the hyperinflation that had
engulfed Peru in the previous decade. As state
assets in mining and telecommunications were
liquidated, many private companies ceased to
underwrite health care benefits that state employ-
ees once took for granted, and other workers were
pushed into the informal economy, where benefits
were nonexistent. The government’s health reform
plans, first drafted soon after Fujimori’s assumption
of power, formalized the trend away from direct
central government involvement with health care
(Republic of Peru, 1990). As Health Ministry offi-
cials took care to point out, their culmination in the
Health Law of 1997 was ‘a change in the rules of
the game’, the canonization of a model that
claimed ‘to improve the quality of life of Peruvians’
by ‘improving productivity and eliminating unnec-
essary spending on health’ (Republic of Peru,
1996a; 1996b: 1).
The 1997 Health Law was foreshadowed in a
series of planning documents, whose texts bore a
striking similarity to two decades of pronounce-
ments from Washington DC. The Ministry of
Health would remove itself from the administration
and direct provision of health care services, requir-
ing individuals to purchase their own health insur-
ance, selected from among a competing array of
providers (Republic of Peru, 1996a). While the
state would offer assistance to those who could not
afford basic insurance coverage, all health costs not
covered by this ‘basic package’ would have to be
assumed by the individual (Republic of Peru,
1996b). In this fashion, the state would move from
‘financing the supply of health services’ to ‘financ-
ing the demand’ (Republic of Peru, 1996c).
The Law of 1997 drew heavily upon two sources
of inspiration: a sense of urgency over the macro-
economic fortunes of the country, and an ideologi-
cal investment in free market prescriptions. At the
behest of the most influential consultants in inter-
national health, officials at the health ministries of
Peru and other developing countries arrived at the
terms of reform almost a priori, lacking any real
evidence that its health benefits or fiscal advan-
tages would accrue to the entire population. They
were not, of course, alone.
Over the last few years, serious flaws have been
documented in the American model of private
‘managed competition’ (Cunningham et al., 1999:
1087–92). If this is the case, then their potential
impact on countries with weak health systems and
vastly more impoverished populations is obviously
far worse. Nevertheless, in Peru and many other
poor countries that have implemented structural
adjustment programmes, policies with striking
affinities to those of North America are being
imposed. Such planning, in many cases, attempts
deliberately to undermine free health care; in the
words of one proponent, ‘If people can obtain
health care for free or at a uniformly low cost, they
will not have much incentive to pay insurance pre-
miums to cover unexpected health hazards’ (Shaw
and Griffen, 1995: 3).
Ironically, though, just as Peru and many other
countries were implementing health sector privati-
zation on the basis of their recommendations,
many at the World Bank and other development
institutions had begun to back away from their
earlier stance on privatization in general, and cost
recovery in particular. The Bank’s official strategic
document for health and nutrition noted in early
1998 that ‘direct out-of-pocket health expenditure
. . . undermines the social protection that could be
provided by the HNP [Health, Nutrition and Popu-
lation] sector even in low-income settings’. Shifting
to private providers, they went on, was even less
advisable. Meanwhile, countries like Peru were pro-
ceeding with their reform packages, which
included just such prescriptions.
The case of Peru illustrates that user fees at
public health facilities are only the surface of the
privatization model. In a more general sense,
market efficiency, the ability to ‘choose’, is rapidly
becoming the governing standard of access to care.
This is a matter of immediate interest to others
besides the Peruvian populace. Exports of medical
services from the US, which reached $1.72 billion
in 1998, have been growing at an annual rate of
over 6 percent since 1995, spurred largely by an
increase in Latin American business (Biomedical
Market Newsletter, 1998). This expansion was
facilitated considerably by development insti-
tutions like the World Bank, which induced Latin
American countries to lower the bars keeping out
foreign-owned health companies, and to realign 123
Development 42(4): Local/Global Encounters
health care systems for private managed care. At a
time when profit margins in the US were shrinking
markedly, Latin American ventures reported sub-
stantial revenues relative to expenditures. In 1998,
Aetna earned about US$800 million in Latin
American health care revenues, on total invest-
ments of US$510 million since 1994.
Even in wealthy countries, this trend is a serious
problem for vulnerable segments of the population.
Relatively poor countries find outcomes even
graver. In Chile, approximately 24 percent of the
patients covered by managed-care organizations
receive services in public clinics and hospitals
because they cannot afford copayments, which
represent about 9 percent of the Chilean HMOs’
overall collections. To apply for free care at these
public institutions, indigent patients must now
undergo lengthy means testing; at some hospitals,
the rejection rate for such applications averages
between 30 and 40 percent (Stocker et al., 1999).
The plight of the 43 million uninsured and under-
served in the United States will be nothing in com-
parison to what awaits the poor of Peru. To a
significant segment of the population, the intensi-
fied privatization of health will be almost as bad as
no health care at all.
Debt and consequences
The Peruvian government, like its analogues in
many other poor countries, has limited agency in
determining social policy. When, in the late 1980s,
former President Alan Garcia set a limit (10 percent
of export earnings) on the sum that could be
applied to yearly debt service payments, the inter-
national financial institutions led a retaliatory
campaign against the Peruvian government, with
devastating effects on the populace. In the end, it
was not only repayment itself that was demanded,
but a package of macroeconomic policies, includ-
ing privatization.
The worldwide adoption of privatization strat-
egies in recent years has gone forward with great
fanfare. Free competition and the profit motive,
proponents argue, are inherent guarantors of
market efficiency, national economic well-being,
and even improved health outcomes. When con-
124 sumers have the right to choose between numerous
options, they will invariably pick the best combi-
nation of savings and quality; the health-care
system, along with the rest of the economy, will
become less expensive, more effective, and more
productive.
Such projections are optimistic at best. Even
President Reagan’s Privatization Commission was
forced to admit that health care was a potentially
inappropriate venue for competitive markets, given
a tendency toward ‘adverse selection’ of good
insurance risks in preference to the elderly and poor
(Linowes et al., 1988: 194). Despite this concern,
the commission did not substantially modify its
recommendations to push forward with the priva-
tization of the health-care system. As many poor
and elderly Americans have discovered, the most
pertinent choice afforded by health-care privatiza-
tion consists largely in insurers’ tendency not to
choose them.
In developing countries, the principles of privati-
zation have been applied to health services with
similar disregard for the health of the poor and
marginalized. The apparent failure of ‘cost recov-
ery’ as a means of funding health care in poor
nations, acknowledged in passing by development
specialists, has meant only that this strategy would
give way to more fully private provision, under the
slogan ‘financing demand but not supply’. The
capriciousness of such policy shifts highlights the
lack of accountability with which multilateral
agencies have designed, disseminated and imple-
mented their models. The penalties for failure have
been borne by the poor, the infirm and the vulner-
able in poor countries that accepted the experts’
designs.
Doubts about policies like Peru’s health reform
need not rest solely on abstract moral grounds.
Benedicta’s illness, tuberculosis, is a mortal threat
to the public health, and acts as a significant brake
on overall productivity. In recent years it has grown
markedly in poor countries worldwide, largely
among the most vulnerable members of the popu-
lation. The case of Benedicta Sanchez makes clear
that even partial privatization of the responsibility
for health services can lead to non-treatment and
the propagation of a deadly disease – this, even
though she lives in a country that boasts one of the
finest TB control programmes in the world. By
 Kim et al.: The Privatization of Health Care in Peru
imposing the criteria of choice on people who are in
no position to exercise it, health-care reformers
have prioritized financial outcomes over health
outcomes and further imperiled the health of the
poor.
Recently, a number of proposals have been made
to offer poor debtor states the progressive bank-
ruptcy exemptions that residents of wealthy coun-
tries take for granted. In the US, for instance,
consumer finance laws ensure that someone who
owes US$5000 to a credit card company need
make payment on that debt only in amounts that
permit her to buy essentials like food, shelter and
medical care. In the summer of 1999, the G–7 and
officials at institutions such as the Harvard Insti-
tute for International Development moved to
endorse the idea of a ‘Jubilee’, under which
US$106 billion owed by the world’s 42 poorest
countries to the IMF, World Bank, international
commercial banks and wealthy governments
would be annulled. This is debt that all parties
acknowledge to be unpayable, and that has in large
measure already been written off (Sachs, 1999).
The plan, however, was to be underwritten by the
sale of gold reserves by the IMF, a move that was
blocked by conservatives in the US government
(Blustein, 1999).
Despite its poverty, Peru does not qualify for
‘Jubilee’ status. But there, as elsewhere, drawing
the boundaries between the public and the private
is a contested endeavour. While wealthy countries
quibble over the terms of debt forgiveness, millions
throughout the world die because, with public-
sector programmes shrinking rapidly, they cannot
pay for essential medical treatments. The debate
over health-care privatization, then, should open
up a larger, more difficult question: the need to
understand the process by which burdens in
human social life come to be considered public or
private responsibilities. To Peru’s policy makers, at
home and abroad, it is clear that the country’s
external debt will remain a public burden. Mean-
while even the poorest Peruvians are finding sick-
ness and health to be increasingly private affairs.

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M.D. Antonovich et al. (1988) Salud. Lima: Ministry of Health.
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