As an important content of national health care reform，the relevant government departments and different sectors of the society actively explore the solution to solve the problems such as there are too many intermediate links in China’s drug circulation and drugs have illusory high prices. After several years，however，many related problems so far have not been solved effectively. On the contrary，the response of society to these questions seems to be worse. In drug circulation in China，drug production and management is basically determined by the market，but medicine circulation terminal involves more monopoly and non-market intervening，public medical institutions sell 85% drugs of the market. Under this pattern of circulation，the government established many policies，especially the drug centralized bid procurement policy and medical institutions drug price increase policy，trying to promote the reform of the drug circulation system，aimed at solving the problems caused by artificially high drug prices involving excessive medication，drug-maintaining-medicine and high health care costs. In this paper，from the perspective of the analysis of economic incentive mechanism，based on the actual condition of China’s current drug market，systematically analyze the related policy and its effect of the drug circulation，with the respect for providing the scientific basis for government decision-making departments to launch further reform and improve the relevant work.