OBJECTIVE To provide recommendations for improving the policy on retention and utilization of surplus funds from centralized drug procurement with China’s medical insurance system from a legal perspective. METHODS Policy texts and practical cases related to the surplus funds retention and utilization under national centralized procurement were reviewed. Then， these were compared with relevant legal norms， the legal issues in the policy were analyzed， and improvement suggestions were subsequently proposed. RESULTS &CONCLUSIONS The funds retention and utilization policy serves as an incentive measure that can motivate medical institutions and guide them to prioritize the use of selected drugs， thereby reducing patients’ medical costs. However， the policy is confronted with several legal issues， including the lack of unified superior legal norms， complex rules， uneven resource distribution， ambiguous rules and legal nature regarding the allocation and use of funds， and inadequate supervision， which constrain the full realization of the policy’s effects. It is recommended to optimize and improve the policy from aspects such as refining the legal norm system， standardizing accounting rules， establishing an equity-oriented allocation and adjustment mechanism， clarifying the nature of funds and detailed usage guidelines， and constructing multiple supervision and remedy channels， so as to ensure the long-term effective operation of the policy.