Summary of Key Points
This news article outlines the 20-year development of drug traceability in China: from leading the world in exploring traceability for special medications in 2006, to the suspension of a unified electronic tracking code due to legal disputes in 2016, to the intervention of medical insurance in 2025 which mandated that transactions could not proceed without a code, breaking the deadlock in the distribution process. In 2026, the National Medical Products Administration (NMPA) issued two new regulations (“Traceability System” and “Technical Requirements”) aimed at addressing past regulatory gaps and achieving full coverage of all drug varieties and the entire supply chain with tracking codes. However, implementing these new regulations faces challenges such as cost allocation, data silos, and the lack of adequate enforcement capabilities at the grassroots level. The future direction for drug traceability lies in the integration of intelligent technologies and the establishment of unified standards.
A Twentieth-Year “Climb and Fall”: From Industry Pioneer to Regulatory Blind Spot
China initiated drug traceability early on (2006), even ahead of the United States, starting with pilot programs for special medications. However, in 2016, a pharmacy in Hunan sued the regulatory authorities, claiming that the mandatory implementation of electronic tracking codes lacked legal basis, leading to the suspension of the unified system. Subsequently, the responsibility was shifted to the pharmaceutical companies themselves, resulting in a fragmented and flawed approach:
- Distribution Chain as a Black Hole: Hospitals are under the jurisdiction of health commissions, while the NMPA has limited authority, leading to lack of enthusiasm for code scanning. Pharmacies, although under the NMPA’s oversight, also have weak enforcement capabilities, with many not scanning drugs.
- Ordinary Medications Lost in Traceability: In Henan, only 30%-40% of special and centrally purchased medications were traceable; non-medical insurance-covered medications were almost impossible to track, and the issue of recycled drugs (re-sold products) was severe.
Medical Insurance as a Turning Point, but with Limitations
In 2025, the medical insurance authority took action, stipulating that from 2026, designated medical institutions could not process transactions without a tracking code. This measure proved more effective than the NMPA’s previous approaches:
- Pharmacies Become More Cooperative: Medical insurance reimbursement is crucial for pharmacies, so their compliance with code scanning increased significantly, and recycled drugs were easily identified.
- However, There Are Limits: Medical insurance only covers medications within its catalog (about 50%) and at designated institutions; non-medical insurance-covered medications and off-designated pharmacies remain unregulated. Moreover, there is no clear agreement on who will bear the costs of managing the large volume of data generated by these systems.
New Policies Aim for Completeness and Stringency
The two new regulations aim to address past shortcomings:
- “Traceability System”: Full Coverage of All Varieties and the Entire Supply Chain
Pharmaceutical companies are required to assign codes to all drugs sold (except for a few types like raw materials and hospital preparations). Pharmacies and hospitals must scan drugs upon receipt, and products that fail to meet the scanning requirements cannot be stored or sold. For example, Henan had already piloted this system, with a scanning rate of over 90%, while many other regions are still at around 30%-40% for key medications.
- “Technical Requirements”: Establishment of Technical Standards
New standards include alerts for negative inventory (when more drugs are sold than purchased, indicating potential fraud) and restrictions on reactivating tracking codes to prevent the reuse of recycled products. The system also aims to trace medications all the way to the end user.
Three Major Barriers to Implementation
Despite the positive direction, there are significant hurdles:
- Cost Allocation: Current one-dimensional codes are inexpensive (a few cents) but easy to forge; upgrading to two-dimensional codes may be unaffordable for small domestic pharmaceutical companies. The cost of purchasing and installing scanning equipment and systems can be substantial, and not all retailers are willing to invest.
- Fraud Prevention: One-dimensional codes are easy to counterfeit, and recycled drugs can be repackaged with new codes. Although the codes are encrypted, packaging fraud can still occur.
- Lack of Expertise at the Grassroots Level: The NMPA’s staff has high turnover, and many officials lack the skills to guide pharmacies on implementing code scanning.
The Future: From Code Scanning to Intelligent Supervision
Despite the challenges, there is optimism about the future:
- Benefits for Legitimate Companies: With unified standards, compliant companies can avoid the impact of counterfeit products. For example, Zedeman Pharmaceutical has developed its own traceability system that meets regulatory requirements and provides insights into drug distribution.
- Potential for Intelligent Applications: In the future, code scanning may be integrated with electronic product information, and AI could even answer medication-related questions. The goal is to create a system that can be used with any scanning app.
However, to truly achieve full coverage, three issues need to be resolved: who will bear the costs of implementation? How will data be shared effectively? And how can enforcement be ensured at the grassroots level? The road ahead is long, but the trend is positive.
(The translation maintains the structure and tone of professional financial journalism, using clear language that makes complex financial concepts accessible to a general audience.)