Summary of Key Points
This year, there has been a sudden surge in reports of pharmacies cheating on the national healthcare insurance system. The National Healthcare Security Administration (NHSA) has intensified its inspections of non-compliant pharmacies by conducting unannounced audits, resulting in the revocation of their insurance qualifications and the recovery of misappropriated funds. This crackdown is driven by media investigations and public opinion pressure stemming from these audit incidents. However, the pharmacy industry has long been struggling for survival: online retailers are competing with them, centralized procurement programs are driving down prices, and community hospitals are attracting patients, severely squeezing their profits. The outpatient co-ordination payment system, which was once a lifeline for pharmacies, has now become a new source of fraud risks due to inadequate supervision, as well as the threat of data theft by online retailers. With stricter regulations and the industry undergoing a cleansing process, only those pharmacies that comply with the rules and find new ways to survive will be able to thrive in the future.
Why Have Pharmacies Suddenly Been Subjected to Stringent Inspections for Insurance Fraud?
Previously, the NHSA's supervision of pharmacies was lax because most pharmacy transactions involved personal healthcare insurance accounts, which accounted for a small portion of the total healthcare fund and did not require much attention. However, this year the situation has changed:
- Media Investigations Spark Public Opinion: In April, several media outlets exposed cases of pharmacies in Hunan, Henan, and other regions cheating on the insurance system (e.g., using insurance to purchase health products or fraudulently using others' insurance cards), which attracted public attention. The NHSA subsequently met with chain pharmacies and launched special inspections.
- Resistance to Inspections Escalates: At the end of May, a pharmacy in Hainan cut off its internet connection to prevent an inspection, and the owner pretended to be unconscious; this incident was widely reported by official media, elevating it to a case of "resisting state authority" and further tightening regulatory measures.
- Disruption in Regulatory Momentum: Industry insiders believe that media reports were just the catalyst; it was public opinion pressure that really prompted the NHSA to accelerate its inspections. Higher-level officials feared losing face due to regulatory failures, leading to stricter requirements for pharmacies, such as keeping video recordings for six months.
Have Pharmacies Been Struggling to Survive for a Long Time?
Pharmacies have been on the brink of collapse for some time:
- Online Retailers Compete for Business: Online retailers offer a wider range of products at lower prices, even taking away high-profit health products from pharmacies.
- Community Hospitals Draw Patients Away: Community hospitals make it more convenient for patients with chronic diseases to obtain medication, and they offer higher reimbursement rates, deterring them from visiting pharmacies.
- Centralized Procurement Drives Prices Down: The prices of drugs purchased through centralized procurement programs are extremely low. Pharmacies can only barely cover their costs by adding a 15% mark-up (for example, while leading chains have cost margins of 25%-30%), whereas hospitals have zero mark-ups, leaving pharmacies at a competitive disadvantage.
- Information Asymmetry Disappears: Local healthcare insurance comparison apps allow customers to compare prices between pharmacies and hospitals, eliminating the opportunity for pharmacies to profit from information disparities.
As a result, the number of pharmacies reached its peak in 2024, followed by a net closure of 22,000 establishments in 2025. The closure rate increased from 1.5% to 7.9%, and this trend is accelerating in 2026.
Is Outpatient Co-ordination Payment a Lifeline or a Trap?
To survive, pharmacies have relied on the outpatient co-ordination payment system, which allows patients to use healthcare insurance funds for prescriptions issued through online hospitals (with up to 80% reimbursement and no deductible). This policy has significantly boosted sales; some pharmacies saw a tenfold increase in revenue in just one month. However, problems quickly emerged:
- Surging Fraud Risks: There is widespread practice of over-prescribing or prescribing unnecessary medications, leading to the suspension of this service in regions like Inner Mongolia due to violations.
- Data Theft: After connecting to online hospitals, pharmacy patient data is collected by large e-commerce platforms for their own business purposes, undermining the benefits of using this system.
Will Stricter Regulations Lead to a Major Reorganization of the Pharmacy Industry?
The answer is yes:
- The wave of closures will continue: More than 60,000 pharmacies have closed between 2024 and 2025, and industry estimates suggest that only about 400,000 will remain (out of the current 680,000). This number is expected to decrease further as leases expire for pharmacies established during the 2017-2019 period.
- Compliance Becomes a Prerequisite for Survival: In the future, only those pharmacies that can find new ways to operate within regulatory frameworks will survive, such as providing professional services (medication guidance) or offering differentiated products (non-centralized procurement drugs and specialty health products), rather than relying on fraud.
In Conclusion
The intensified scrutiny of pharmacy insurance fraud is a reflection of the industry's deep-seated survival crisis. For consumers, using healthcare insurance at pharmacies will become more regulated (e.g., buying health products will no longer be possible), which helps prevent the waste of insurance funds. For pharmacies, they must abandon dishonest practices and rely on legitimate business models to survive. This restructuring may lead to a healthier industry, but the process will undoubtedly be painful.