Keyword focus: what is TCM | For Western readers and brand owners developing authentic botanical/TCM products (including Cistanche / Rou Cong Rong) from a manufacturing perspective.

 

Abstract

Traditional Chinese Medicine (TCM) preparations in medical institutions (hereafter "hospital TCM preparations") are fixed-formula products developed by TCM medical institutions based on clinical needs. Hospital TCM preparations play an important role in meeting special medication demands, inheriting and applying TCM clinical experience, and promoting the development of new medicines. With policy support, development of hospital TCM preparations has expanded rapidly in recent years. However, problems have emerged, including product homogeneity, insufficient clinical evidence, low conversion rates to approved new medicines, and off-label or unclear uses. This paper systematically analyzes the current development status and existing problems of hospital TCM preparations, in combination with the policy background and practical cases. It then proposes recommendations such as refocusing on clinical needs, optimizing dispensing and transfer (inter-institutional use) policies, improving conversion mechanisms, and establishing a dynamic exit mechanism, with the aim of providing references for the healthy development of hospital TCM preparations.

Key words: TCM preparations in medical institutions; conversion to new medicines; human use experience; policy regulation

 

Introduction: What is TCM in a hospital context?

When Western partners ask "what is TCM?", they often think of herbs sold as supplements. In China's healthcare system, TCM is also a clinical practice inside medical institutions, where physicians treat patients using TCM diagnostic logic and therapies. In that setting, hospitals may develop in-house TCM preparations to meet specific clinical needs.

Hospital TCM preparations (医疗机构中药制剂) generally refer to medicines developed by general hospitals or TCM hospitals for their own clinical needs. They follow national policy requirements and go through R&D and filing/registration procedures. They are typically based on established TCM clinical experience formulas and are used only within the institution itself or within a defined scope of institutions. Their history can be traced back to "tang-made" medicines (堂制药品) in ancient medical settings. As an important carrier of TCM inheritance and innovation, hospital TCM preparations help fill gaps where the market lacks suitable products, meet special medication needs, and support new medicine development.

Over many years, hospital TCM preparations have achieved progress-for example, production and quality control have become more standardized and stricter, helping ensure drug quality; and the filing system for traditional preparations reflects TCM's clinical-value orientation. In recent years, with policies such as the Special Provisions for the Registration Administration of Traditional Chinese Medicines and performance assessment requirements for public hospitals, hospital TCM preparation development has entered a new wave of activity.

But behind the surge are notable issues: high duplication of formulas, insufficient evidence of clinical effectiveness, persistently low conversion rates into approved new drugs, and expansion of use beyond the original intent. These problems contradict the original purpose of hospital TCM preparations and limit sustainable development. Therefore, deeper analysis of prospects is necessary. This article reviews historical background and policy evolution, development status and issues, and discusses future directions.

 

1. Historical background and evolution of the policy framework

Hospital TCM preparations are an important part of China's pharmaceutical and medical system. Their core value is reflected in two main points:

Filling clinical gaps: for special diseases, rare diseases, or individualized treatment needs, they can provide formulas and dosage forms that are lacking in the market (e.g., concentrated pediatric preparations, topical plasters/ointments for oncology supportive care, etc.).

Serving as a source for new drug R&D: many innovative Chinese medicines originated from hospital preparations (e.g., Sanjiu Weitai; Compound Danshen Dripping Pills).

Their development has been closely intertwined with policy evolution, reflecting both inheritance/innovation of TCM and the modernization and standardization of drug regulation. From traditional experience accumulation to modern standardized management, and now to policy innovation and regional coordination, development can be divided into four stages:

Traditional medical foundation stage (before 1949)

Modern initiation stage (1949–2000)

Standardized management stage (2001–2018)

Innovation breakthrough stage (2019–present)

Overall, this evolution represents an upgrade path from "experience inheritance" to "scientific regulation," and then toward "innovation with broader access." Policy has followed two major threads:

improving quality and safety through standardization; and

releasing clinical value through institutional innovation.

In the context of revitalizing TCM, hospital preparations are not only a vehicle for tradition, but also an important source for modern drug R&D. Future development must better balance regulation and innovation so that high-quality preparations can benefit broader populations.

In recent years, driven by national support for TCM and reinforced by public hospital performance assessment policies, medical institutions have placed significantly more emphasis on hospital preparations. With the implementation of major strategic plans for TCM and the "14th Five-Year Plan" for TCM development, national policies such as filing systems for medical institution preparations and favorable medical insurance payment policies have greatly stimulated R&D activity.

2. Current status of hospital TCM preparations

2.1 Scale and distribution

Based on publicly available statistics, as of 2024:

total registered and filed medical-institution preparation varieties nationwide exceeded 33,000,

TCM preparations accounted for over 60% (about 20,000),

annual output value was about RMB 8.5–9.0 billion,

driven by insurance coverage and policy support, the compound annual growth rate (2020–2024) was about 8%,

the number of preparation units ("hospital preparation rooms") was about 3,800,

among these, about 2,200 had qualifications for producing TCM preparations (about 58%),

the average annual number of patient visits served was about 120 million, and

the usage share in primary care institutions increased to 35% (vs 18% in 2020).

Development shows a pattern of "large scale but uneven." By number of registered varieties, East China accounts for the largest share (about 28%), followed by Southwest China (about 20%). Provinces with strong TCM resources-such as Shandong, Sichuan, Guangdong, and Jiangsu-have significantly higher shares than other regions.

By therapeutic area, respiratory diseases and cardiovascular/cerebrovascular diseases account for a larger share, with representative products including "Qingfei Huatan" paste and "Yiqi Tongmai" capsules. By institution type, top-tier tertiary hospitals hold the largest proportion (about 55%), mostly in key provincial TCM hospitals; secondary and lower-level TCM hospitals account for about 30% (mostly traditional dosage forms; annual output value generally under RMB 5 million); specialty hospitals (orthopedics, dermatology, etc.) account for about 10%; primary care institutions only about 5%, mostly using outsourced or regionally coordinated production.

2.2 Policy support

Policy support is the core driver of development. Under coordinated national and local policies, China has built a full-chain policy system covering R&D filing/registration, production and circulation, and dispensing and use, which has significantly activated the market.

Policies such as State Council reforms to deepen pharmaceutical and device regulation have contributed to notable increases in filings. Local practice shows that optimizing filing policies can produce annual filing growth above 20% (Fujian Province is cited as an example).

Regulators have also built new evaluation and conversion mechanisms. The National Medical Products Administration (NMPA) issued the Special Provisions for the Registration Administration of Traditional Chinese Medicines (implemented in 2023), which established a "three-combination" evidence framework integrating TCM theory, human use experience, and clinical trials. Under this approach, the evidentiary weight of "human use experience" is emphasized (described in the text as increasing to roughly 50%–70%), supporting conversion of hospital preparations into new medicines.

Many provinces have introduced "in-province dispensing/transfer" (调剂) policies for hospital preparations, forming a tiered management landscape and significantly improving output value. Guangdong is cited as using a "filing + dynamic assessment" mechanism, with projections that dispensing varieties could increase between 2021 and 2025 and potentially drive provincial hospital preparation output value to exceed RMB 1.8 billion. Regional clusters such as Beijing–Tianjin–Hebei and the Yangtze River Delta have built cross-province mutual recognition mechanisms, enabling cross-regional circulation of certain varieties.

Some local governments have also revived "dormant approvals" (historical approvals that had not been used for production). For example, Sichuan established a shared platform so dormant varieties could be manufactured by GMP-certified companies, with utilization reportedly rising to 78%.

2.3 Hardware investment and economic impact

Recent years show a "heavy asset investment + standardization upgrade" trend. A cited provincial TCM hospital example describes a large R&D center integrating hospital preparation manufacturing, innovative Chinese medicine R&D, and traditional processing; it can produce nearly 30 dosage forms and more than 200 preparations with multiple production lines-approaching the scale of a small-to-medium manufacturer.

Similar projects have accelerated across provinces (e.g., a municipal hospital building a new preparation center with modern equipment and multiple production lines; a Yunnan regional center built to GPP standards with digital traceability). The share of medical institutions with standardized production capability increased from 48% in 2021 to 72% in 2025, and average annual output exceeded 500,000 doses per institution.

However, a "Matthew effect" (winner-take-more) has intensified regional disparity: tertiary hospitals in developed regions have achieved automation, while many grassroots institutions face outdated equipment and non-compliant cleanrooms. Only about 15% of county-level TCM hospital preparation rooms passed GPP, and over 60% of grassroots institutions could not fund equipment upgrades.

Economically, hospital preparations can be meaningful revenue sources-some institutions report preparation income reaching over 10% of total revenue. Yet there is also "volume growth but profit decline." A cited provincial hospital example reports annual operating costs over RMB 8 million, but average gross margin only 18.7%, far below the TCM patented medicine industry average (42%). Nationally, about 70% of hospital preparations produce fewer than 100,000 doses annually; 65% of single varieties generate less than RMB 500,000 annually, often insufficient to cover depreciation and labor costs. Regional preparation centers and alliances can reduce costs through shared capacity and procurement optimization.

3. Key problems in the development of hospital TCM preparations

3.1 Severe homogeneity (formula duplication)

Surveys indicate formula overlap across institutions can reach 30%–40%. Many preparations duplicate the indications and formula logic of marketed products. In orthopedics, for example, similarly named preparations ("Bone Injury Mixture," "Activating Blood and Relieving Pain Mixture") have formula similarity over 80% across multiple hospitals; some differ only by adding/removing 1–2 excipients.

This homogeneity is attributed to two systemic gaps:

the filing/registration process lacks strong innovation assessment indicators and rigorous formula comparison systems; the system emphasizes safety more than clinical innovation, encouraging low-risk, easy-to-file, market-friendly conventional formulas; regulators may also lack capacity for innovation review.

naming and standards lag behind: in 2023 filing data, over 60% still followed 2005-era local naming rules, causing inconsistencies with current legal standards.

3.2 Insufficient clinical evidence of efficacy

Weak clinical evidence is a major bottleneck. Survey data suggest that among existing hospital preparations in tertiary TCM hospitals, only 28.6% have completed randomized controlled trials (RCTs); over 60% rely mainly on retrospective case summaries.

An example describes a long-used orthopedic preparation with 23,000 accumulated cases; but in a standardized RCT in 2024, the fracture healing time difference vs routine treatment was only 0.8 days (P = 0.11). The text further warns about gaps between "experience-based efficacy" and "modern evidence." It cites a case where a preparation for acute intracerebral hemorrhage showed high effectiveness in an early single-arm study, but later phase II data reportedly showed no statistically significant difference vs placebo, triggering discussion.

Underlying reasons include:

imbalanced R&D spending (more on process improvement than clinical study design),

misaligned evaluation systems (retrospective analyses still heavily accepted),

lack of post-registration re-evaluation and feedback systems, and

weak implementation of the "three-combination" evidence chain (fragmented human-use data, weak real-world study design, and RCT designs that may deviate from TCM practice such as fixed dosing and no syndrome-based adjustment).

The text notes that for recent new drug approvals, innovative medicines originating from hospital preparations generally still must complete phase II trials (with limited exceptions), indicating hospital-preparation clinical evidence still needs improvement.

3.3 Distortion of clinical use

Two distortions are described:

hospital preparations becoming de facto "hospital generics" due to relatively lenient filing standards and exemptions (e.g., some provinces allow certain traditional preparations used for 5+ years to be exempted from key pharmacodynamics studies), plus lack of innovation review.

hospital preparations becoming major revenue drivers: pricing autonomy may allow hospital preparations to be priced 1.2–1.5× comparable marketed products, creating policy arbitrage. A cited example states that among dispensed products in one province in 2024, only 32% were used for urgent clinical needs; over 40% were used as routine substitutes.

3.4 Expansion of use scope

With more provinces adopting in-province dispensing policies and some starting cross-province dispensing, hospital preparations have expanded from use in a single hospital to multiple institutions across regions-creating "regional landmark new drugs" without national-level oversight.

Risks increase sharply because:

most hospital preparations have not undergone strict safety evaluation, and risk grows with expanded populations;

most are closer to "candidate medicines" than fully proven new drugs, lacking rigorous clinical datasets, which may impact treatment quality and reliability of TCM clinical outcomes.

3.5 Low conversion rate to approved new medicines

Although hospital preparations are often called incubators for new drugs, conversion efficiency remains low. A Beijing survey is cited: in 2025, the patent authorization rate was only 9.6%, and conversion rate to new medicines below 0.4%.

Reasons include:

R&D investment imbalance (80%+ resources into hardware; R&D spending typically under 5% vs 15%–20% benchmarks in pharma),

low evaluation thresholds for hospital preparation approval (especially with filing and exemptions),

insufficient and non-standard human-use experience data (complete medical record documentation under 40%),

weak IP protection (only ~30% institutions have patent systems),

scale-up difficulties (65% of preparation rooms can't meet industrial scale needs), and

weak incentives (only 12% of provinces have special funds; average researcher revenue-sharing under 3%).

3.6 Occasional cost inversion (cost exceeds price)

Hospitals often report "cost inversion." The text proposes two likely causes:

older preparations priced under historical pricing systems that cannot be adjusted with cost changes;

new products priced autonomously but made in small batches leading to high unit costs.

4. Recommendations for healthier development

4.1 Strengthen clinical value orientation

Medical institutions should return to the original purpose: meeting unmet clinical needs. Suggested actions:

strengthen evaluation of formula innovation; restrict highly duplicated formulas;

focus on diseases lacking effective treatments;

compare with frontline standard-of-care medications and prioritize improved clinical outcomes.

4.2 Strengthen conversion to new medicines ("hospital → market")

Conversion has multiple benefits: more systematic evaluation of efficacy and safety through proper preclinical and clinical work; broader patient benefit after approval; reasonable economic returns; and a positive innovation cycle.

Proposed approach: build a "medical–research–industry" collaborative conversion mechanism:

hospitals collect clinical data,

research institutions study active substance basis and quality standards,

enterprises handle scale-up and industrialization.

IP can follow a "hospital-led, multi-party sharing" model. Early enterprise involvement can fund clinical research and accelerate conversion for high-value preparations. An example is cited of a hospital–industry "conversion fund" that has moved several preparations into clinical research stages.

4.3 Optimize dispensing/transfer policies

Recommend tightening policies: cancel routine cross-province and in-province dispensing, and retain only emergency mechanisms for public health events. Establish dynamic evaluation for dispensed varieties: if dispensing lasts beyond 3–5 years, require conversion to a new medicine or exit. Guangdong's "Lingnan Famous Formula" selection model (emphasizing uniqueness and human-use experience) is cited as a reference.

4.4 Establish an exit mechanism

Recommend issuing a formal management method for exiting hospital preparations, with criteria such as:

serious safety problems,

existence of similar marketed products,

failed clinical value assessment,

products used for 20 years without upgrade/conversion and lacking distinctive advantages after re-evaluation.

An exception mechanism could retain products with significant TCM characteristics or irreplaceable value in limited scope. A cited tertiary hospital practice reportedly reduced varieties by 40% while improving clinical use efficiency by 35%. The paper warns against hospital preparations becoming a new profit-driven driver of volume growth.

4.5 Standardize "human use experience" research

In line with relevant laws/regulations and guidance such as the Guiding Principles for Clinical Research of New TCM Compound Preparations Based on Human Use Experience (issued by the CDE), the paper recommends developing a quality management guideline for human-use experience research that respects TCM clinical characteristics. Measures include better data-collection methods, improved research capability, stronger information systems, and GCP-like quality management. An example is cited of a real-world evidence platform supporting clinical evidence for multiple products.

 

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5. Conclusion

The purpose and significance of developing hospital TCM preparations include:

meeting individualized clinical needs and addressing gaps in marketed products;

inheriting and innovating TCM, combining classical formulas with modern dosage technology and improved quality;

improving healthcare service quality, enhancing outcomes, shortening treatment courses, and potentially reducing costs;

promoting research and clinical translation, accelerating clinical application of research成果 and creating a foundation for new drug development;

ensuring supply stability for special preparations or rare-disease needs.

At present, as a key carrier of TCM inheritance and innovation, hospital preparation development should adhere to "quality over quantity" and return to its original intent. Public hospital performance assessment could consider conversion rate (into approved new medicines) rather than simply counting filings. The current boom has exposed homogeneity, low efficiency, and expanding use scope-requiring multi-dimensional solutions including stronger clinical value orientation, better policy design, and improved conversion mechanisms. The paper emphasizes avoiding "developing preparations for assessment" or "developing preparations for the sake of developing preparations," and shifting from scale expansion to quality improvement.

Future development should focus on three directions:

returning to clinical needs and addressing unmet demands;

strengthening the incubator role as a source of innovative Chinese medicines;

establishing dynamic governance to support high-quality varieties and prevent "hot development, low conversion."

 

Acknowledgements

The paper acknowledges suggestions from You Hongtao (Chongqing Huasen Pharmaceutical Co., Ltd.) and Chen Li (Chongqing Xier'an Pharmaceutical Co., Ltd.).

 

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