When a pharmacist hands you a generic pill instead of the brand-name version, it’s not just a simple swap. Behind that decision is a complex financial system that determines how much the pharmacy gets paid, how much you pay at the counter, and who actually profits from the switch. In 2026, over 92% of prescriptions filled in the U.S. are for generic drugs. That’s up from just 33% in 1993. But the money flow around these switches isn’t as straightforward as it seems. In fact, the way pharmacies get paid can make the cheapest generic the most expensive option-for patients and the system alike.
How Pharmacies Get Paid for Generics
Pharmacies don’t just get paid what they pay for the drug. They’re reimbursed by insurance plans or Pharmacy Benefit Managers (PBMs) using one of two main models: cost-plus or Maximum Allowable Cost (MAC). Cost-plus means the pharmacy gets a fixed percentage above what they paid for the drug, plus a small dispensing fee. MAC is a list set by PBMs that says, “We’ll pay up to this amount for this generic.” The problem? MAC lists are secret. Pharmacies don’t always know what the maximum is until after they’ve filled the prescription. And PBMs can change those numbers at any time. Some MACs are based on outdated pricing data, meaning a pharmacy might buy a generic for $2 and get reimbursed $10-even if the drug actually costs $3. Other times, the MAC is set lower than the pharmacy’s actual cost. That means the pharmacy loses money on the sale and has to make it up elsewhere.Why Generics Don’t Always Save Money
The whole point of generic substitution is to cut costs. And it does-sometimes. But not always in the way you’d expect. PBMs often put higher-priced generics on their formularies, even when cheaper, clinically identical alternatives exist. Why? Because of spread pricing. Spread pricing is when a PBM tells the insurance plan it’s paying $15 for a generic, but the pharmacy only paid $5 for it. The PBM pockets the $10 difference. The higher the reimbursement rate they set, the bigger the spread. So PBMs have a financial incentive to pick generics that cost more, not less. A 2022 study found that some generics substituted within the same drug class had prices 20 times higher than their cheaper equivalents. That’s not a mistake. That’s a business model. This isn’t just about big companies making money. It affects real people. A patient might be told their copay is $5 for a generic. But if the PBM reimbursed the pharmacy $12 for a drug that only cost $2, the insurance plan (and ultimately, the patient through higher premiums) is paying $10 more than needed. The pharmacy might break even or lose money. The patient thinks they’re saving. They’re not.Therapeutic Substitution: The Real Savings Opportunity
Most people think “generic substitution” means swapping one brand-name drug for its generic version. But the bigger savings come from therapeutic substitution-switching to a completely different drug in the same class that works just as well but costs far less. For example, instead of switching from brand-name Lipitor to generic atorvastatin, a patient could be switched from atorvastatin to rosuvastatin, which is often cheaper and equally effective. The Congressional Budget Office estimated that in 2007, switching brand-name prescriptions to lower-cost generics in just seven therapeutic classes would have saved $4 billion. Switching between generic versions? Only $900 million. Yet, most reimbursement systems don’t reward therapeutic substitution. They’re built to incentivize simple generic swaps, not smarter, cost-saving switches. Pharmacists know this. Many want to make these switches-but they’re blocked by formulary rules, PBM policies, and lack of access to real-time pricing data.
The Impact on Independent Pharmacies
Independent pharmacies are getting squeezed. The average gross margin on generic drugs is around 42.7%, but that’s only if the reimbursement rate is fair. When MAC lists are set too low, or when PBMs delay payments or charge hidden fees, margins vanish. Between 2018 and 2022, more than 3,000 independent pharmacies closed in the U.S. Many weren’t driven out by competition-they were driven out by reimbursement. Big PBMs-CVS Caremark, Express Scripts, and OptumRx-control about 80% of prescription claims. They set the rules. They control the MAC lists. They negotiate directly with manufacturers and get bulk discounts that small pharmacies can’t access. Independent pharmacies are left with the leftovers. Some have started refusing to fill certain prescriptions because they know they’ll lose money on them.What’s Changing? Regulatory Pressure and Transparency
There’s growing pushback. The Federal Trade Commission launched investigations into PBM spread pricing in 2023. They’re asking: Why are MAC lists hidden? Why are higher-priced generics favored? Why are pharmacies not told the true cost of the drugs they’re dispensing? The Inflation Reduction Act of 2022 forced Medicare Part D to disclose drug pricing, and that transparency is starting to spill over into commercial insurance. Fifteen states now have Prescription Drug Affordability Boards that can set Upper Payment Limits-essentially capping how much PBMs can charge for certain drugs. That’s forcing PBMs to reconsider which generics they list. Some pharmacies are pushing back too. A growing number are using direct pricing tools that show them the real acquisition cost of drugs in real time. They’re negotiating better contracts. Some are even forming buying groups to compete with PBM pricing.
What Patients Should Know
You don’t need to understand MAC lists or spread pricing to get the best deal. But you do need to ask questions. When your pharmacist says, “We’re giving you a generic,” ask: “Is this the lowest-cost option in its class?” Sometimes, the generic they hand you isn’t the cheapest. Another generic, or even a different brand, might cost less with your insurance. Ask if they can check. Also, ask if you can pay cash instead of using insurance. In many cases, the cash price for a generic is lower than your insurance copay. That’s because the insurance system adds layers of fees and markups. Paying cash cuts through the noise.What Pharmacists Can Do
Pharmacists are on the front lines. They see the financial strain on patients and the system. They can advocate for better choices. Many now use tools that show real-time drug pricing across all available generics in a class. They can flag high-cost substitutions to prescribers. They can educate patients on cash pricing options. And they can demand transparency from PBMs-whether through direct negotiation, state advocacy, or joining pharmacy coalitions. The system isn’t broken because pharmacists aren’t trying hard enough. It’s broken because the incentives are misaligned. Until reimbursement rewards true cost savings-not just generic labels-the potential of generic substitution will remain untapped.The Future of Reimbursement
The Congressional Budget Office predicts that by 2031, new pricing models could reduce average drug prices by 5% to 15%. But that won’t happen unless reimbursement structures change. Value-based payments-where pharmacies are rewarded for choosing the most cost-effective drugs, not just the most profitable ones-are gaining traction. Some pilot programs are already paying pharmacists for conducting medication reviews that lead to therapeutic substitutions. Others are tying reimbursement to patient outcomes, not just the number of pills dispensed. These models could finally align the financial incentives with patient health. For now, the system still favors complexity over clarity. But change is coming. And it starts with asking the right questions-by patients, pharmacists, and policymakers alike.Why do some generics cost more than others even if they’re the same drug?
Different manufacturers make the same generic drug, and PBMs often choose the one that gives them the biggest spread-meaning the difference between what they charge the insurer and what they pay the pharmacy. Even if two generics are chemically identical, one might be priced $10 higher just because the PBM profits more from it. This isn’t about quality-it’s about profit.
Can I ask my pharmacist to switch to a cheaper generic?
Yes. Pharmacists can often substitute a different generic within the same therapeutic class if it’s clinically appropriate and your insurance allows it. Ask if there’s a lower-cost alternative. Many pharmacists now have access to tools that show real-time pricing across all available generics, so they can find the best deal for you.
Why does my copay sometimes go up when I switch to a generic?
Your copay is based on your insurance plan’s formulary and how the PBM structures reimbursement. If your plan uses a high-cost generic on its formulary, your copay might be higher than expected-even though the drug is technically “generic.” It’s not about the drug; it’s about the PBM’s pricing rules. Always check the cash price-it’s often cheaper than your copay.
Do PBMs make more money from brand-name drugs or generics?
PBMs make the most money from generics-not because they’re expensive, but because they’re used so often. With brand-name drugs, rebates and discounts are negotiated directly with manufacturers. But with generics, PBMs control the reimbursement price and can set it higher than the actual cost. That’s where spread pricing thrives. Generics account for over 90% of prescriptions, so even small spreads add up to billions.
Are there any laws helping patients fight high generic prices?
Yes. Fifteen states now have Prescription Drug Affordability Boards that can cap how much insurers pay for certain drugs. The Inflation Reduction Act also requires Medicare to disclose drug pricing, which is pushing transparency into commercial markets. Some states now require PBMs to disclose their MAC lists to pharmacies and plan sponsors. These are early steps, but they’re starting to change how drugs are priced.
