| There is a questionnaire made by Chinese social investigation bureau for two thousand people from Beijing, Shanghai, Tianjin, Chongqing etc. sixteen big cities before the two meetings in 2007 was open from December last year . The investigation demonstrated in 2007"to see a doctor expensively and difficultly"is the fourth topic the common people cared about. We can see the medicine problem be paid close attention to and the gravity. The medical system reform being related to people's health really became the focal point during the meetings, in which many representative members and committee members show the problems and suggestions in the medicine field. The government work report involved frequently.Many kinds of reasons have caused the problem. This article starts from the source of drugs circulation mainly, to analysis each kind of factor, to find reasons for which medicine prices stay at a high level. Government has adopted many measurements to solve the problem, such as price limitation, bidding centralization and register mechanisms and GMP & GSP certification. However, these measurements did not solve the problem effectively for failing to identify the particularity of medicine circulation and capture the origin of systematical flaw. This essay will try to identify the systematical cause of medicine price -rising by systematically analyzing the flaws in register, examination and approval, production and circulation processes of medicine, and to raise policy suggestions for government's reference.This essay reveals the particularity of medicine circulation as well as some premises in accordance with economical assumptions; reviews the history of medicine circulation mechanism, medical system, government's supervision system in China, marketing and producing systems of medicine; and compares the differences between the management modes of medicine circulation in developed countries.By using system theory, SCP theory, game theory and regulation theory and creating game theoretical models with the different interest parties, the essay reveals the degree of marketplace together is low in the market structure caused by systematical reasons. So there is no order competition. In the end these have made poor efficiency circulation, and the loss of enterprise gravely. The essay reveals the agency relationship between the doctor and the patient caused by the information asymmetry and analyzes the reasons: the doctor fully control the illness conditions and medicine information under the monopoly of the hospital. The patients have to obey the doctor's authority of prescription and pricing due to the lack of related protection. The essay applies the economic model to analyze that the doctor made the patient suffer loss under the situation that the hospital is absent of supervisory. Also the essay analyzes the relationships of interest parties in medicine circulation and the effect of their behavior mainly by game theory.The problem is actually induced by all kinds of action of system flaws including approval, production & circulation of medicine, health care and government regulation. It must be thoroughly solved by comprehensive reformation of foregoing systems with a systematical view. |