BOCOM INTL: The medical insurance fund will establish a prepayment system to alleviate hospitals' repayment pressure, which will marginally benefit private medical services.

BOCOM INTL released a research report stating that the National Medical Insurance Administration and the Office of the Ministry of Finance jointly issued a document to support regions with certain conditions to further improve the management of advance payments, by helping designated medical institutions alleviate the pressure of medical expense advance payments through advancing a portion of medical insurance funds. Specific requirements include: 1) According to the balance of the funds, the medical insurance departments of each region should work with the local finance departments to establish an advance payment system. In principle, the cumulative balance of the employee medical insurance fund in the region should be able to cover at least 12 months of payments for advance payment, while the cumulative balance of the resident medical insurance fund should cover at least 6 months of payments for advance payment. Regions that had deficits in the previous year or are projected to have deficits in the current year as per a rolling calculation of 12 months cannot advance payments. 2) For regions implementing advance payments, in principle, the average monthly expenditure of the medical insurance funds in the past 1-3 years should be used as the basis to determine the appropriate scale of advance payments. The scale of advance payments should be adjusted based on the comprehensive evaluation and credit evaluation of designated medical institutions, and should be around 1 month. 3) The advance payment should mainly be used for the turnover of medical expenses such as the procurement of drugs and medical consumables, and should not be used for non-medical expenses such as investment in infrastructure, daily operations, debt repayment, etc. The special advance payment for drugs and medical consumables under centralized procurement by medical insurance funds should be implemented as per the original regulations. The bank believes that apart from drugs and consumables selected through centralized procurement and negotiations between medical insurance funds, the implementation of medical insurance advance payments for 1 month (expected to be met by most pooling regions) is expected to alleviate the funding pressure for designated medical institutions and commercial distribution companies, as well as reduce the debt risk of the medical industry caused by the delay in medical insurance payments and advances/reimbursements. Among the covered companies, HYGEIA HEALTH (06078) is expected to face certain pressures on medical insurance reimbursements in 1H24. Among the medical institutions it operates, except for the Heze region (including Chengwu and Shanxian) which may not meet the conditions for implementing advance payments due to the high operational pressure on medical insurance funds, other regions (Chongqing, Suzhou, Xi'an, Wuxi, etc.) have good medical insurance revenue and balance situations, and are expected to benefit from the advance payment of around 1 month, thereby improving cash flow and bad debt situations. The bank maintains a "buy" rating and a target price of HKD 24.5.