Generic Drugs Are an American Success Story, Here’s Why

PBMs provide drug benefits for more than 266 million Americans every year – including those with coverage through employers, the military, unions, retiree plans, Medicare Part D, and many state Medicaid programs. What do the PBM-covered enrollees for all of these programs have in common? It’s that nine in ten of the drugs they take are generics. Thanks to PBMs’ efforts to give patients an incentive to use them and pharmacies an incentive to purchase them at the lowest prices, generics are widely available and affordable for hundreds of millions of Americans. 

A recent white paper from the USC Schaeffer Center suggests, with new data and very little evidence, that consumers are “overpaying for generic drugs.” Let’s look at the two studies they claim support their supposition. 

Thanks to PBMs’ efforts to give patients an incentive to use them and pharmacies an incentive to purchase them at the lowest prices, generics are widely available and affordable for hundreds of millions of Americans.

First, the authors cite an outdated, though recently published, study from Franks, Hicks, and Berndt looking at consumer out-of-pocket prices on generic drugs from 2007 to 2016. I have a large concern with this. The data used is from 2007 to 2016, but today’s 2022 prescription drug market is considerably different, as are the drug benefit designs available to consumers. More importantly, while generic drug prices increased until 2018, they have decreased since – so trying to understand patient out-of-pocket generic drug pricing in 2022 using a study with pricing data from 2016 can lead to spurious conclusions. 

Interestingly, even though the data is old, that study finds that consumer out-of-pocket generic drug costs declined by 50% from 2007 through 2016. A 50% decline is pretty impactful. And given that generic drug list prices declined after the end of the study period, we might assume that consumer out-of-pocket generic drug prices as measured using the study’s index also continued to decline post-2016.

The second and only other study the white paper cites as “evidence” is the authors’ own report showing what a great deal Costco gets for generic drugs for Costco members. And we think it’s great that Costco has low prices for generic drugs. What the study’s authors apparently fail to realize is that Costco gets those low prices through a PBM. Actually, two PBMs: Costco Health Solutions and, as of mid-2020, a part ownership in another PBM.

So, as USC has helpfully pointed out, PBMs get great deals on generic drugs for their members. 

To recap the “evidence” from the USC white paper: old data and findings that actually underscore how effective PBMs are at lowering costs on generic drugs. 


Generic prescription drugs are widely available and affordable
for the millions of Americans with PBM pharmacy benefits.


The share of prescription drug fills that are generics.


The times that generic drugs are dispensed when available


The average final out-of-pocket cost for a generic prescription with commercial insurance.

Let’s look at some additional numbers backed up by quality data, which show that thanks to PBMs, generic drugs are widely available and affordable. Across insurance markets, 90% of prescriptions dispensed are for generic drugs and further, when they are available, generic drugs are dispensed 97% of the time. These numbers, and the increase in generic drug use over time, would not have been possible without PBMs encouraging the use of generics by making them cost-effective for patients. And given that drug benefit formularies help guide patient access to prescription drugs, it is reasonable to ask if generic drugs are getting placed on formularies. The answer is yes, as you know if you’ve filled a prescription recently. Indeed, peer-reviewed research concludes that, “Overall, we found that most Part D plan formularies are designed to encourage the use of generics rather than their brand name counterparts.” 

In addition to being widely available, generic drugs are also affordable. Thanks to the cost savings efforts by PBMs and PBM-recommended health plan designs encouraging use of those generics, average out-of-pocket costs for patients have been falling every year as PBMs pass the savings they generate on to consumers. In 2021, the average out-of-pocket payment for a generic prescription was just $5.30 in the commercial market and $3.52 in Medicare, down from $6.64 and $4.10, respectively, in 2016. 

The upshot is this: generic drug prices are falling, PBMs are encouraging generic use through formulary placement, and patients are seeing the benefit of this at the pharmacy counter in the form of lower cost-sharing payments.