The system of drug traceability codes is gradually implemented nationwide, and medical insurance departments will deal with cases involving the sale of "backflow drugs" and "fake drugs" by medical institutions, either proactively or passively. Whether it is a protocol processing or an administrative penalty, it is based on the medical insurance agreement, The Regulations on the Supervision and Administration of the Use of Healthcare Security Funds and local laws and regulations. The sale of "backflow drugs" and "fake drugs" also violates the Drug Administration Law of the People's Republic of China and other drug supervision laws and regulations. In the case of a conflict of illegal acts, how to properly handle cases, especially penalty decisions, under the framework of the "choose the heavier punishment" principle of The Administrative Punishment Law of the People's Republic of China. This article takes the handling of the selling of "backflow drugs" by medical insurance designated medical institutions as the target of analysis, tries to clarify the legal logic, put forward academic suggestions, and recommend the optimal model for the reference of the case handling organizations of medical insurance department.