According to the Zhongtong Finance APP, China Merchants Securities released a research report stating that the prepayment policy of medical insurance funds is a clear incremental signal for the pharmaceutical sector, which is positively significant and is expected to improve the cash flow of the pharmaceutical industry, especially for hospitals and pharmaceutical-related businesses. It is reported that standardizing the management of advance payment processes, the scale of advance payments in areas that meet the approved standards is around 1 month, the advance payment system effectively alleviates the financial pressure on medical institutions, will empower the medical and pharmaceutical industry, firmly bullish on medicine, focusing on medical services, pharmaceuticals, medical supplies, pharmacies, and pharmaceutical distribution companies expected to benefit from improved hospital cash flow.

Event: On November 11, 2024, the State Medical Insurance Bureau Office and the Ministry of Finance Office issued a notice on improving the work of advance payments for medical insurance funds. The notice clearly supports qualified regions to further improve the management measures of advance payments. By prepaying part of the medical insurance funds, it helps designated medical institutions alleviate the pressure of medical expense advances, promotes the coordinated development and governance of medical care, medical insurance, and the pharmaceutical industry, and motivates designated medical institutions to better provide medical security services for insured persons.

The main points of China Merchants Securities are as follows:

Establish a prepayment system.

Each regional medical insurance department should, based on the balance of the basic medical insurance fund, work with the local finance department to research and establish relevant prepayment systems. In principle, the cumulative balance of the employee medical insurance pooling fund in the region should not be less than 12 months of payment can implement prepayment of the employee medical insurance pooling fund, and the cumulative balance of the resident medical insurance fund should not be less than 6 months can implement prepayment of the resident medical insurance fund. Regions that had a deficit in the previous year or cannot make prepayments according to a 12-month rolling calculation method cannot prepay.

Standardizing the management of advance payment processes, the scale of advance payments in areas that meet the approved standards is around 1 month.

Clearly implement the prepayment areas, based on the average monthly expenditure of the previous one to three years related medical insurance funds as the basis, reasonably determine the basic scale of prepayment, and adjust it in combination with the comprehensive evaluation of designated medical institutions, credit ratings, etc. The prepayment scale should be around one month.

The prepayment system effectively alleviates the financial pressure on medical institutions.

By advancing the payment of medical insurance funds, the prepayment system significantly reduces the cash flow pressure caused by waiting for reimbursement settlements in medical institutions, helping hospitals better manage operational funds, ensuring the continuity and stability of medical services. Prepayments can be used for the financial turnover of medical expenses such as drug and medical supplies procurement, enabling hospitals to quickly pay suppliers, reducing the upfront pressure on the medical and pharmaceutical industries, and improving industry cash flow levels.

The prepayment system will empower the medical and pharmaceutical industries.

With the alleviation of upfront pressure, medical institutions and pharmaceutical companies can allocate more funds to research and innovation activities, promote the advancement of medical technology, and improve the quality of medical services. In addition, the prepayment system helps optimize the allocation of medical resources, improve the efficiency of fund utilization, and ensure the rational use of medical resources.

Investment advice

(1) Medical Services: Hygeia Health (06078), Xi'an International Medical Investment (000516.SZ), Aier Eye Hospital Group (300015.SZ), Purui Eye Hospital (301239.SZ), Huaxia Eye Hospital (301267.SZ), Topchoice Medical (600763.SH), etc.;

(2) Pharmaceuticals and Medical Devices: Jiangsu Hengrui Pharmaceuticals (600276.SH), Akeso (09926), Kangnaoya-B (02162), Shenzhen Mindray Bio-Medical Electronics (300760.SZ), United Imaging Healthcare (688271.SH), Sonoscape Medical Corp. (300633.SZ), Olymvax Endoscopy (688212.SH), etc.;

(3) Pharmacy and pharmaceutical distribution companies: Yifeng Pharmacy (603939.SH), Dashenlin (603233.SH), LBX Pharmacy Chain (603883.SH), Yixintang Pharmaceutical (002727.SZ), Jointown Pharmaceutical Group (600998.SH), SH Pharma (601607.SH), China National Medicines Corporation (600511.SH), etc.

Risk Warning: Risks of policy promotion falling short of expectations, risks of cost control policies exceeding expectations, etc.