China Exposes Pharmacies for Medical Insurance Fund Fraud

China’s National Healthcare Security Administration (NHSA) has publicly disclosed six typical cases of designated retail pharmacies illegally using medical insurance funds, uncovered during a nationwide special flight inspection launched on May 14, 2026. The cases, spanning Hainan, Xinjiang, and Sichuan provinces, reveal a range of fraudulent practices including swapping non-medical items for covered drugs, empty swiping of social security cards, and reselling “returned drugs” for profit, according to People’s Daily.

Escalating Enforcement

The NHSA launched the nationwide special flight inspection of designated retail pharmacies on May 14, 2026, and disclosed the six cases on May 27. This follows the agency’s public condemnation on May 16 of four major pharmacy chains—Laobaixing, Yangtianhe, Yifeng, and Henan Zhang Zhongjing—for similar violations and obstruction of investigations, as Yicai reported.

The shift from “earnest talks” to “public condemnation” and now to public case exposure signals a significant escalation in the NHSA’s enforcement approach. An NHSA official stated that “designated retail pharmacies that defraud or extract medical insurance funds through reselling ‘returned drugs,’ empty swiping, or swapping are all in violation of medical security laws and regulations.”

Six Cases Reveal Widespread Abuse

The six cases, detailed by the China Daily, demonstrate a range of fraudulent schemes:

In Hainan’s Sanya, the Linhetang Pharmacy swapped toilet water and other daily necessities for covered antiviral drugs. When inspectors arrived, staff deliberately cut network cables, and the legal representative feigned fainting—later confirmed medically normal. In Haikou, the Qianfang Pharmacy swiped a patient’s medical insurance screenshot via WeChat for an expensive “Angong Niuhuang Pill” without actually delivering the drug.

In Xinjiang’s Urumqi, a store manager at Yirentang Pharmacy purchased “Zukamu Granules” using his own medical insurance—paying just 6.4 yuan per box after reimbursement—then resold them at 38 yuan per box in his own store, pocketing a 21.6 yuan profit per box. Another Urumqi pharmacy, Jianminkang, swapped foundation makeup, anti-wrinkle skincare sets, and baby diapers for covered vitamin supplements.

In Sichuan’s Chengdu, the Kanghuirentang Pharmacy retained a patient’s social security card for months, using it repeatedly without the cardholder present to swipe approximately 1,100 yuan for Chinese medicine. The cardholder, a clinic legal representative, then resold the medicine for over 2,000 yuan. Another pharmacy, Taiantang, was caught when big data screening revealed the same box of “Xinkeshu Pills” had been “sold” twice at two different pharmacies under the same owner.

Regulatory Tightening

The crackdown comes amid a broader regulatory push. On April 1, 2026, the Implementation Rules for the Medical Insurance Fund Use Supervision Regulations took effect, clarifying penalties for organizing medical insurance fraud and including non-medical expenses in settlements, as Jiemian reported.

On May 19, the NHSA and Ministry of Finance jointly issued a notice requiring provincial medical insurance departments to establish a unified “white list” of personal account payment-eligible items by September 2026. Items like health supplements, daily necessities, cosmetics, and fitness equipment are explicitly excluded.

Industry Impact

The NHSA has designated retail pharmacies as a continued priority for supervision under its five-year action plan for medical insurance fund supervision (2026-2030). As of end-2024, China had approximately 683,700 retail pharmacies, and in 2025 the country saw a net decrease of 22,000 pharmacies, indicating the industry is entering a phase of deep consolidation.

Major chains like Laobaixing have expanded rapidly through franchising, reaching 15,001 stores by Q1 2026, with franchise stores accounting for over 90% of new additions. This “heavy franchise, light direct-operation” model has created compliance control challenges, as highlighted by Sina Finance’s in-depth analysis. Laobaixing’s 2025 revenue fell 0.54% to 22.237 billion yuan, while net profit dropped 26.44% to 382 million yuan.

What’s Next

All six cases have been transferred to local medical insurance departments for further investigation and handling. The NHSA has signaled that technology-driven oversight, including big data screening and drug追溯码 tracking, will play an increasingly central role in detecting fraud. The upcoming white list system is expected to fundamentally reshape what can be purchased with medical insurance personal accounts, potentially reducing pharmacy revenue from non-medical items while creating opportunities for compliant pharmacies to capture the growing prescription outflow from hospitals.

As the NHSA official emphasized: “In the next five years, designated retail pharmacies will remain the focus of medical insurance fund supervision.”