How Insurers Save Thousands on Generic Drugs Through Bulk Buying and Tendering

Most people think generic drugs are cheap because they’re generic. But here’s the truth: bulk buying and tendering are what make them affordable at all. Insurers don’t just accept the price on the label-they fight for it. Every year, they save billions by using competitive bidding, volume deals, and smart formulary rules to drive down the cost of generic medications. And if you’re paying for insurance, you’re benefiting from it-even if you don’t realize it.

How Generics Became the Backbone of Drug Savings

Before 1984, getting a generic drug approved was a nightmare. The Hatch-Waxman Act changed that. It created a clear path for companies to copy brand-name drugs without repeating expensive clinical trials. Suddenly, multiple manufacturers could make the same pill-say, metformin for diabetes-and sell it at a fraction of the price. But here’s the catch: just having competitors doesn’t mean prices drop. That’s where bulk buying and tendering come in.

Insurers and pharmacy benefit managers (PBMs) don’t buy drugs one prescription at a time. They buy in bulk-thousands, sometimes millions, of pills at once. They then invite multiple generic manufacturers to bid for the contract. The lowest bidder wins. This isn’t just a negotiation. It’s a race to the bottom, and the consumer wins.

According to the Association for Accessible Medicines, generics made up 90.7% of all prescriptions filled in the U.S. in 2023. Yet they accounted for just 17.3% of total drug spending. That gap? That’s bulk buying and tendering at work.

The Hidden Mechanics: MAC Lists, Tiered Formularies, and Spread Pricing

Behind the scenes, insurers use complex systems to control costs. One of the most powerful tools is the Maximum Allowable Cost (MAC) list. This is the maximum amount an insurer will pay for a generic drug. If a pharmacy tries to charge more, the insurer pays the MAC price-and the pharmacy eats the difference.

But here’s the problem: MAC lists are often secret. Insurers don’t tell you what they’re paying. And PBMs don’t always pass the savings on. In fact, many use something called “spread pricing.” That’s when a PBM tells the insurer it paid $5 for a drug, but actually paid the pharmacy $3. The $2 difference? That’s profit. And it’s hidden from the plan sponsor.

That’s why some people pay $87 for a generic prescription through insurance-only to find out they could buy it for $5 cash at Cost Plus Drug Company. It’s not that insurance is broken. It’s that the system was built to hide how much is being made in the middle.

When Competition Works: First Generics and the $1 Billion Savings

Not all generics are created equal. The biggest savings come from first generics-the very first company to copy a brand-name drug after its patent expires. These first entrants often see prices drop by 80-90% within months.

The FDA tracked this. In 2022, just three first generics-lacosamide, pemetrexed, and bortezomib-saved the U.S. healthcare system over $1 billion each in their first year. That’s not a typo. One drug. One year. Over a billion dollars saved.

And it’s not just big drugs. Even common generics like lisinopril or atorvastatin see massive price drops when multiple manufacturers enter the market. A 2023 NIH study found that direct-to-consumer pharmacies offered median savings of 76% on expensive generics and 75% on common ones compared to traditional retail pharmacies. That’s $231 saved per prescription on the high-end stuff.

What Happens When the Bidding Gets Too Aggressive?

There’s a dark side to this system. When insurers push prices too low, manufacturers can’t make a profit. And when they can’t make a profit, they stop making the drug.

In 2020, albuterol inhalers-a life-saving asthma medication-disappeared from shelves across the country. Why? Because the price had been bid down so far that it cost more to make than to sell. The American Society of Health-System Pharmacists found that 87% of hospitals reported shortages. People couldn’t get their meds. And it wasn’t an accident. It was the direct result of unchecked tendering.

This is the tightrope insurers walk: push prices low enough to save money, but not so low that drugs vanish. The solution? More manufacturers. More competition. But here’s the scary part: just three companies now make 80% of certain generic drugs. That’s not competition. That’s a cartel waiting to happen.

Who’s Doing It Right? Transparent Models and Real Savings

Not all drug purchasing is shrouded in secrecy. Some companies are flipping the script.

Mark Cuban’s Cost Plus Drug Company sells generics at cost plus 15%. No spreads. No rebates. No hidden fees. A 2023 NIH study showed their prices were 75-91% lower than retail pharmacies. One Reddit user paid $87 through insurance for a generic. At Cost Plus? $4.99.

Blueberry Pharmacy, another transparent model, charges flat monthly rates-$15 for blood pressure meds, $10 for cholesterol pills. No surprises. No insurance maze. Over 1,200 reviews on Trustpilot give it a 4.7/5 rating. People love it because they know what they’ll pay. No guessing. No copay surprises.

Even Medicare is changing. In January 2024, CMS required PBMs to disclose pricing details for Part D plans. That’s a big deal. When insurers can see what’s really happening, they can demand better deals.

What Insurers Should Do Next

Smart insurers don’t just set a formulary and forget it. They audit it. Quarterly. They look for the drugs that are costing the most-even if they’re labeled “generic.” Often, it’s not the big names. It’s obscure pills with only one or two manufacturers. That’s where the real leverage is.

They also demand transparency in contracts. California’s Senate Bill 17 requires PBMs to disclose any spread pricing over 5%. Other states are following. Insurers should do the same. If your PBM won’t show you the real cost, find one that will.

And don’t ignore cash prices. A 2022 Schaeffer Center study found that 97% of cash payments for prescriptions were for generics. People are already voting with their wallets. Insurers need to catch up.

Why This Matters to You

If you’re on an employer plan, Medicare, or Medicaid, you’re part of this system. The savings from bulk buying and tendering keep premiums lower. They keep copays affordable. They make sure life-saving drugs are available.

But if you’re paying out of pocket, you’re being priced out of the system. That’s why tools like GoodRx, Cost Plus Drug Company, and Blink Health exist. They bypass the middlemen. They cut through the noise. And they prove that the system can work-if you know how to use it.

Next time you get a prescription, ask: Is this really the cheapest option? Could I pay cash and save half? Could my insurer be doing more? The answer might surprise you.