How Insurers Use Bulk Buying and Tendering to Cut Costs on Generic Medications

When you fill a prescription for a generic drug, you might think you’re getting the cheapest option available. But what if your insurance plan is actually paying far more than it needs to-and you’re the one paying the difference? The truth is, insurers don’t just accept whatever price pharmacies charge for generics. They use bulk buying and tendering to drive prices down, often saving millions per year. And those savings don’t always show up on your copay slip.

How Bulk Buying Works for Generic Drugs

Bulk buying isn’t just about buying in large quantities. It’s about using market power to force prices down. Insurers and pharmacy benefit managers (PBMs) group together prescriptions for the same generic drug-like metformin for diabetes or lisinopril for high blood pressure-and then go to multiple manufacturers and say: ‘We’ll buy 10 million pills this year. Who can give us the lowest price?’

This isn’t theoretical. In 2023, the Association for Accessible Medicines reported that generics made up over 90% of all prescriptions filled in the U.S., but only 17% of total drug spending. That’s because bulk buyers squeeze out the high prices. When a new generic enters the market, the first manufacturer often gets a premium. But within months, three, five, or even ten other companies start making the same pill. Prices crash. A 2022 FDA report found that the first generic version of a drug saved $5.2 billion in its first year alone. For some drugs like bortezomib or pemetrexed, that number hit over $1 billion each.

Insurers don’t just wait for this to happen. They actively trigger it. They’ll review their formularies every quarter and swap out a high-cost generic for a cheaper one with the same active ingredient. A JAMA Network Open study showed that some generic drugs cost 10 times more than others with identical chemistry-simply because the insurer hadn’t switched yet.

Tendering: The Auction System Behind Your Prescription

Tendering is the formal process behind bulk buying. Think of it like an auction, but instead of bidding up, companies bid down. Insurers issue a request for proposals (RFP) for a specific drug-say, atorvastatin 20mg. Generic manufacturers submit bids. The insurer picks the lowest, but often adds a catch: ‘You must supply at least 5 million tablets over 18 months.’

These contracts usually last one to three years. Manufacturers agree because they know volume means profit, even at low margins. But here’s the twist: the price you see at your pharmacy isn’t always the price the insurer paid. PBMs often use something called ‘spread pricing.’ That means they tell the insurer they paid $2 for the drug, but they actually paid $1.20. The 80-cent difference? That’s their profit. And you, the policyholder, might still pay a $10 copay-even though the real cost was under $2.

This lack of transparency is why many people end up paying more through insurance than they would if they paid cash. A 2023 NIH study found that direct-to-consumer pharmacies like Cost Plus Drug Company offered median savings of 76% on expensive generics compared to retail pharmacies. One Reddit user reported paying $87 through insurance for a generic medication, then paid $4.99 out-of-pocket using Cost Plus. That’s not a mistake. That’s the system.

Why Your Insurance Might Be Overpaying

Even though generics are cheap, many insurers still pay too much. Why? Because their formularies are outdated. A 2022 JAMA study found that 78% of Medicare Part D plans still put generics on higher-tier copay levels-sometimes charging $25 or more for a drug that costs $3 to make. That’s not just inefficient. It’s a missed opportunity.

Insurers that do it right use Maximum Allowable Cost (MAC) lists. These set the highest price they’ll reimburse for a generic. But here’s the problem: most insurers don’t share these lists with their members. So you never know what the real price is. You just know your copay went up again.

Some states are pushing back. California’s Senate Bill 17, passed in 2017, forced PBMs to disclose any price spread over 5%. The result? More transparency. More competition. Lower prices. Other states are following.

Who’s Winning and Who’s Losing

The big winners are the three main PBMs: OptumRx, Caremark, and Express Scripts. Together, they manage pharmacy benefits for 280 million Americans. Their business model thrives on complexity. The more opaque the pricing, the more room they have to profit.

The losers? Patients. Independent pharmacies. And even some generic manufacturers.

When insurers push prices too low, manufacturers quit. In 2020, the price of albuterol inhalers dropped below the cost of production. Eighty-seven percent of hospitals reported shortages. The same thing happened with antibiotics, thyroid meds, and other essential generics. The system works only if there’s enough competition. When consolidation happens-like when just three companies make 80% of a certain generic-the power shifts back to suppliers.

On the flip side, transparent models are growing. Cost Plus Drug Company, started by Mark Cuban, cuts out the middleman entirely. Blueberry Pharmacy, which reports a 4.7/5 rating on Trustpilot, lets customers pay a flat $15/month for blood pressure meds-with no surprises. These companies aren’t just cheaper. They’re predictable.

What You Can Do Right Now

You don’t need to wait for your insurer to fix the system. Here’s what works today:

1. Check GoodRx or SingleCare before filling any prescription. Many generics cost less than your copay.
2. Ask your pharmacist: ‘What’s the cash price?’ Sometimes it’s half the insurance price.
3. If you’re on Medicare Part D, compare plans annually. The lowest premium isn’t always the cheapest overall.
4. Switch to a direct-to-consumer pharmacy if you take three or more generics monthly. The savings add up fast.
5. Ask your employer if they use a transparent PBM. If not, push for it.

A GoodRx user reported saving $32 a month on three generic meds by ignoring insurance. That’s $384 a year. For someone on a fixed income, that’s groceries, gas, or a medical copay.

The Future of Generic Drug Pricing

The Inflation Reduction Act of 2022 was supposed to fix this. But as the Association for Accessible Medicines pointed out, it left the PBM profit model intact. The real change is coming from the bottom up.

More employers are demanding transparency. More patients are paying cash. More states are passing laws to stop spread pricing. The FDA’s new GDUFA III rules aim to speed up generic approvals, which means more competition and faster price drops.

By 2035, the Congressional Budget Office estimates these changes could save $127 billion. But that’s only if we keep pushing for clarity, competition, and consumer power.

Generics are the most effective cost-saving tool in modern medicine. But they only work if the system is designed for patients-not profits.