Remarks by Angel Gurría
Mexico City, Mexico - 8 January 2020
(As prepared for delivery)
Director of ISSSTESON, Ángel Contreras López, Secretary of Control for Sonora state government, Miguel Ángel Murillo Aispuro, Ambassador Galván, state controllers here today, ladies and gentlemen:
It is a pleasure to be with you to present the review on “Reforming ISSSTESON’s Public Procurement for Sustainability”. This is the first social security institution at the state level to be reviewed by the OECD.
While we have worked a lot with the Mexican Institute for Social Security (IMSS) and the State’s Employees’ Social Security and Social Services Institute (ISSSTE) at the national level, we are delighted that the ISSSTESON is leading the way among federal states. For the OECD, it is essential to contribute to policies for the well-being of Mexicans, such as healthcare and pensions, which are the main services offered by ISSSTESON to government employees in Sonora.
Health and pension systems are under increasing stress. Aging populations and the high incidence of chronic diseases, which require long and costly treatments, call for health systems to implement strategies that will maximise efficiency. This is especially relevant in countries with high rates of inequality, such as Mexico. Our country has the lowest per capita spending on healthcare among OECD countries, at around 1138 dollars, against the OECD average of 3992 dollars. In addition, Mexico has the highest out-of-pocket expenditure on healthcare in the OECD, at 41%, against an OECD country average of 21%.
The data are clear: In order to improve access to healthcare services in Mexico, the country needs to spend more and to spend better. Public procurement is exactly the lever that can help us achieve this efficiency. In Mexico, public procurement represents about 5% of GDP and 19% of government spending. On average, OECD countries allocate 30% of public procurement spending to the health sector. What we are talking about is the fact that if healthcare institutions purchase intelligently, which today is called smart procurement, this will result in an adequate supply of medicines and medical equipment, and in the possibility of providing quality services to their beneficiaries.
ISSSTESON has made some improvements since we started the work. For example, until recently, the procurement office was divided into two central departments and individual decentralised acquisition areas in each of the Institute’s four hospitals, creating co-ordination problems. These two central departments have now been merged, and the hospitals’ powers are confined to urgent purchases authorised by the Co-ordination of Hospitals. This will not only bring order to procurement but it will also allow for efficiencies from aggregating demand. Despite these improvements, ISSSTESON still has much scope for improving procurement.
For example, market intelligence is outsourced to external companies and internal capacities have not been developed. Moreover, the binary criterion predominates in awards, with an almost exclusive focus on the lowest price. In this sense, we recommend that ISSSTESON gradually develop a market intelligence unit, like the IMSS did, and, if I say so myself, it is one of the best in the federal public administration.
We also suggest using award criteria that reward life-cycle costing, such as the Most Economically Advantageous Tender (MEAT). Using different criteria would allow ISSSTESON to support complementary policy objectives, such as innovation, which is very important in the health sector, and developing SMEs. Furthering e-procurement and the professionalisation of procurement officials are also areas in which the Institute can improve.
One of the chapters in the review focuses on the financial structure of the Institute and notes with concern a growing disparity between income and expenditure, inconsistent income and a very generous pension scheme compared to international experience. We know that there was a significant shortfall in quotas and contributions from previous administrations and that Governor Pavlovich has ordered that these debts be settled. This is certainly a step in the right direction. But it will also be necessary to insist on the reform of the pension system, since, in purely mathematical terms, the current scheme is not sustainable. In fact, it is expected that by 2057 the number of ISSSTESON pensioners will have increased by 100%.
This calls for urgent action, such as reforming the retirement age, years of contribution and the rates of return. For example, the current retirement age for public servants is 55, subject to a minimum of at least 15 years of contribution. The average age of retirement in OECD countries is 64 for men and 63 for women. It is also necessary to switch pension savings to individual accounts, with an independent and productive pension fund, compartmentalising functions and budgets for healthcare, pensions and other services.
Ladies and gentlemen,
The reforms for ISSSTESON’s sustainability cannot wait. If we do not take action now in the relation to the pension system, however painful it may be, the consequences will be disastrous and we will become a country of severely deprived elderly people. In addition, ISSSTESON’s sustainability, along with its services, could be significantly improved by smart procurement.
To finish, I would like to thank everyone who made this review possible. The Director General of the Institute, Pedro Contreras, for remaining open to the analysis and the recommendations, the Secretary for Control, Miguel Ángel Murillo, who was a key player in exchanging information and discussing the findings and, of course, you, Governor. You can count on the OECD to continue working for the well-being of all Sonorans. We hope that this report will also be useful for other federal states facing urgent challenges in their social security systems.Thank you