When a pharmacist hands you a generic pill instead of the brand-name version, it’s not just a simple swap. Behind that small change is a complex financial system that affects how much pharmacies make, how much patients pay, and whether the right drugs are even available on the shelf. In 2026, over 92% of prescriptions filled in the U.S. are for generic drugs - up from just 33% in 1993. That sounds like a win for cost savings. But the way pharmacies get paid for those generics is broken - and it’s hurting both pharmacies and patients more than most people realize.
Pharmacies don’t get paid the same way for every drug. For brand-name medications, reimbursement is often based on a percentage off the Average Wholesale Price (AWP), which is an outdated list price that has little to do with what the drug actually costs. But for generics, the system is different. Most payers - whether Medicare, Medicaid, or private insurance - use something called a Maximum Allowable Cost (MAC) list. This is a secret list of the highest price a pharmacy will be reimbursed for each generic drug. The problem? These lists aren’t standardized. One PBM might pay $2.50 for a 30-day supply of lisinopril, while another pays $8. That’s not because one pharmacy is more expensive - it’s because the payer’s MAC list is arbitrary.
On top of that, pharmacies get a fixed dispensing fee - usually between $3 and $15 - for filling the prescription. That fee hasn’t changed much in 15 years, even as rent, wages, and supply costs have soared. So when a pharmacy buys a bottle of generic metformin for $1.20 and gets reimbursed $3.50, the profit is slim. But if the same PBM reimburses $12 for a different generic version of the same drug - even though it’s clinically identical - the pharmacy makes more. And guess what? The PBM keeps the difference.
Pharmacy Benefit Managers (PBMs) - the middlemen between insurers and pharmacies - make billions by exploiting this system. They negotiate lower prices with pharmacies, then charge insurers a higher reimbursement rate. The gap between what they pay the pharmacy and what they charge the plan is called spread pricing. In 2023, the FTC found that PBMs made an average of $4.70 per generic prescription just from spread pricing alone. That’s money that never reaches the pharmacy or the patient.
Here’s how it gets worse: PBMs put higher-priced generics on their formularies - not because they’re better, but because they make more money. A 2022 study showed that two generics for the same condition could have prices 20 times apart. One version might cost $1.80 to buy and be reimbursed at $3.20. Another, identical drug from a different manufacturer? Reimbursed at $38. The pharmacy gets paid more, so they’re incentivized to dispense it. But the patient’s copay goes up, and the insurer pays way more. Everyone loses except the PBM.
Independent pharmacies are being squeezed out. In the U.S., over 3,000 independent pharmacies closed between 2018 and 2022. Why? Because reimbursement rates for generics have dropped while operating costs have climbed. A pharmacy might fill 150 prescriptions a day. If 130 of them are generics, and each one nets them $1.50 after costs, that’s $195 in daily profit. But rent, staff wages, and compliance costs eat up most of that. When a PBM suddenly lowers the MAC for a popular generic from $4.50 to $2.75, the pharmacy loses $1.80 per prescription. That’s $234 a day gone - and they can’t just stop filling those prescriptions. Patients need their meds.
Even worse, some PBMs now use something called Generic Effectiveness Rates (GERs). These are contracts that cap total spending on generics over a period. If a pharmacy dispenses too many high-cost generics, the PBM reduces reimbursement across the board. So pharmacies are forced to pick the cheapest generic - even if it’s harder to get, less reliable, or not stocked locally. That means patients wait longer, or worse, get switched mid-treatment without their doctor’s input.
Most people think generic substitution means swapping one brand-name drug for its generic twin. But the biggest savings come from therapeutic substitution - switching a brand-name drug to a different generic drug in the same class. For example, switching from a high-cost brand-name statin to a cheaper generic alternative like simvastatin instead of rosuvastatin. The Congressional Budget Office found that in 2007, this kind of switch could have saved $4 billion in Medicare alone. But current reimbursement models don’t reward this. PBMs are incentivized to keep patients on the same drug class, just switch the brand. They don’t want to encourage doctors to change prescriptions - that’s too much work, and it cuts into their spread pricing.
Pharmacists are often the only ones who notice these opportunities. They see the price differences, know the clinical equivalency, and understand patient history. But they’re rarely asked. And when they suggest a switch, they’re often blocked by PBM formularies or automated systems that don’t allow manual overrides.
Change is coming - slowly. The Inflation Reduction Act of 2022 forced Medicare Part D to disclose pricing details, and some states are following suit. Fifteen states now have Prescription Drug Affordability Boards (PDABs) that set Upper Payment Limits (UPLs) on drugs. These limits force PBMs to justify high reimbursement rates. In states like Vermont and Maryland, these boards have already brought down prices for some high-cost generics.
But the real fix isn’t regulation - it’s transparency. If pharmacies knew the exact MAC prices before filling a prescription, they could tell patients: “This version costs $2.50 to fill, but this one is $12. They’re the same. Which do you want?” Patients would make better choices. Pharmacies would stop being pawns in a game they didn’t design.
Some pharmacies are pushing back. A few in California and Oregon now post real-time pricing for generics on their websites. Others are refusing to fill prescriptions that use non-transparent MAC lists. It’s risky - PBMs can cut them off from networks. But for some, it’s the only way to survive.
If you’re a patient: Always ask your pharmacist, “Is there a cheaper version?” Don’t assume the first generic they hand you is the cheapest. Ask if there’s a therapeutic alternative. You might save $20, $50, even $100 a month.
If you’re a pharmacist: Document every time a PBM forces you to dispense a high-cost generic. Report it to your state pharmacy board. Push for transparency in your contracts. You’re not just filling prescriptions - you’re the last line of defense against a broken system.
If you’re a policymaker: Stop focusing only on brand-name drug prices. The real savings are in generics - but only if the reimbursement system actually rewards cost-effective choices. Fix the MAC lists. Ban spread pricing. Require full disclosure. And stop letting PBMs control what drugs reach the pharmacy shelf.
Generic substitution was supposed to make healthcare affordable. Instead, it became a profit engine for middlemen. The solution isn’t to stop generics - it’s to fix how they’re paid for. Because when pharmacies lose, patients lose too.
It’s not because it’s better - it’s because the pharmacy’s reimbursement system pays more for that version. Pharmacy Benefit Managers (PBMs) set Maximum Allowable Cost (MAC) lists that determine how much pharmacies get paid. Sometimes, a higher-priced generic is on the list because it helps the PBM make more money through spread pricing. The pharmacy gets paid more, but you may pay a higher copay, and your insurer pays more too.
Yes - and you should. Pharmacists are trained to know which generics are clinically equivalent and less expensive. Ask: “Is there another version of this drug that costs less?” Many times, they can switch you to a lower-cost option, especially if it’s a therapeutic alternative (like switching from rosuvastatin to simvastatin). But they need your permission to make the change, and sometimes PBM rules block them.
Because reimbursement rates for generics have dropped while operating costs keep rising. Many pharmacies make less than $2 profit per generic prescription after paying staff, rent, and utilities. When PBMs lower MAC prices or change contract terms, small pharmacies can’t absorb the loss. Over 3,000 closed between 2018 and 2022. Consolidation has left three major PBMs controlling 80% of the market, giving them power to set unfair reimbursement rules.
Generic substitution means swapping a brand-name drug for its exact generic version - same active ingredient, same dose. Therapeutic substitution means switching to a different drug in the same class that works similarly - like replacing a brand-name statin with a cheaper generic statin. Therapeutic substitution saves far more money - up to 90% in some cases - but PBMs rarely incentivize it because it requires doctor involvement and cuts into their spread pricing profits.
Yes. The Inflation Reduction Act of 2022 requires Medicare Part D to disclose drug pricing. Fifteen states now have Prescription Drug Affordability Boards (PDABs) that set Upper Payment Limits (UPLs) on drug prices, including generics. These boards are starting to force PBMs to justify high reimbursement rates. Some states are also banning spread pricing outright. But these changes are still new, and enforcement is uneven. Most commercial plans still operate under opaque MAC lists.
