Summary of Key Points
The "dual-channel" drug policy introduced in 2021, which allowed designated pharmacies to sell innovative drugs that hospitals could not, was once seen as a major opportunity for the pharmacy industry. However, after five years, many small and medium-sized chain pharmacies have withdrawn due to low profits, insufficient prescriptions, and high compliance risks. Today, only those pharmacies with close relationships with hospitals or leading chains are still sticking with it. The competitive landscape has shifted from a situation where everyone was vying for the qualifications to one where they are quietly leaving the market, meaning that the policy benefits are no longer available to all.
Detailed Analysis
1. **Meager Profits and High Costs – Small Pharmacies Cannot Make a Profit**
The operating costs of dual-channel pharmacies are three times those of regular pharmacies. They need to hire licensed pharmacists and medical insurance specialists, purchase cold-chain equipment to store expensive drugs, and implement information systems and compliance management. However, these investments do not result in high profits. The prices of drugs negotiated through the national healthcare system are already low, leaving pharmacies with only a 3% to 8% gross profit margin (which barely covers expenses such as rent and labor costs). Additionally, pharmacies must pay a 5% quality assurance fee on annual sales, which could be deducted at the end of the year if there are violations. The high cost of purchasing expensive drugs and the slow reimbursement process from medical insurance further strain their cash flow. Li Guang's pharmacy, which used to sell for tens of millions of yuan annually, can now barely cover its costs and has had to close.
2. **Insufficient Prescriptions – A Promise That Doesn’t Hold Up**
Pharmacies hoped to increase sales by allowing patients to purchase drugs prescribed by hospitals at their stores, but the reality is that there are very few prescriptions available. For example, in Huangshan, Anhui, 65 dual-channel pharmacies received only 3,953 prescriptions over 15 months, averaging just 4 per pharmacy per month. The reasons for this include doctors' lack of familiarity with innovative drugs and concerns about being misunderstood (e.g., patients may think doctors are taking bribes), as well as hospitals not allowing prescriptions to be transferred outside their own networks. Without enough prescriptions, pharmacies cannot sell drugs and thus incur losses.
3. **Strict Compliance Requirements – A Major Barrier**
Regulations have become increasingly stringent. Starting in 2025, dual-channel drugs must be prescribed electronically, not in paper form, requiring pharmacies to upgrade their information systems. Moreover, there are strict requirements for verifying drug indications. Medical insurance only covers a portion of the indicated uses for innovative drugs. If a pharmacy reimburses a patient for a drug that does not meet the criteria, it must pay back the amount and lose the quality assurance fee. The cost of a single expensive drug can be in the thousands or tens of thousands of yuan, making violations financially devastating. Li Guang says, “Even top-tier doctors are unsure about the indications for these drugs, so pharmacies simply avoid dealing with them.”
4. **Only Certain Players Remain – Those With Hospital Connections or Leading Chains**
Not all pharmacies have given up. The survivors fall into two categories:
- Pharmacies with Hospital Connections: These pharmacies receive a steady supply of prescriptions due to their close relationships with hospitals, and pharmaceutical companies often offer lower prices to ensure sales.
- Leading Chain Pharmacies: They do not view dual-channel as a separate profit source but use it as a platform to connect hospitals, pharmaceutical companies, and patients, offering additional services such as chronic disease management. Although some of these pharmacies are still losing money, their overall revenue growth is faster than that of regular pharmacies.
5. **The Wind Has Gone – From Competition for Qualifications to Quiet Withdrawal**
When the policy was introduced in 2021, pharmacies were eager to obtain the qualifications, seeing it as a chance to benefit from prescription transfers. However, after five years, the benefits have faded. Pharmacies in Hunan, Urumqi, and Qingtongxia have voluntarily withdrawn from the program, and the topic is hardly discussed anymore within the industry. It has become clear that what really matters are prescriptions and patients—without them, qualifications are worthless. The initial vision of everyone sharing the profits has vanished, leaving only a few well-resourced players sticking it out.
Dual-channel pharmacies will not disappear, but the era of easy profit-making is over. For consumers, buying innovative drugs may still require visiting hospitals or a select number of reliable pharmacies. For the pharmacy industry, this has been a harsh reshuffle.