Federal and state policymakers have been focused lately on pharmacy benefit managers (PBMs), and sweeping industry reform has brought unprecedented transparency to this segment of the prescription drug payment and supply chain. Transparency into the health care system is a good thing, increasing our understanding of where our dollars are going, and what we are getting for them. But there is still much that we don’t know, places where transparency has not yet infiltrated.

Wholesalers, also known as prescription drug distributors, are largely overlooked players in the drug supply chain. The main role of wholesalers is to purchase drugs from manufacturers, sell them to pharmacies, and then transport them to pharmacies. More than 7 billion prescriptions were dispensed at retail and long-term care pharmacies in 2025, and virtually all of them moved through a wholesaler at some point between manufacturer and patient.

According to the financial reports of the three largest wholesalers, their combined industry revenue was over $900 billion last year. In comparison, one estimate placed combined revenues for the entire PBM industry at just over $600 billion. (Global revenues for drug manufacturers are likely north of $1.7 trillion.)

Despite the rather mundane description of wholesalers painting them as largely drug movers, their positioning in the middle of the supply chain means they exert significant influence over drug availability and pricing, especially generic drugs. Over 90% of the prescriptions filled in the U.S. every year are generic drugs, and wholesalers dominate nearly every aspect of their pricing between manufacturer and patient.

Misaligned Incentives of Generic Drug Pricing

Generally, wholesalers participate in buying groups, to aggregate business and buy generic drugs in bulk from manufacturers to get the best prices. Because there tends to be many manufacturers of a generic drug, competition among manufacturers gives wholesalers leverage to demand better pricing and discounts. Fun fact: Generic drugs are more profitable than brand drugs for wholesalers, because of both the volume of generics (around 6 billion scripts in 2025) and a markup of 10-15%.

When setting their sales prices for generic drugs, wholesalers create “generic sourcing programs,” which are essentially lists of incentivized drugs they want to push independent pharmacies to buy.

An important question for policymakers: Does the use of incentivized drug lists and other “push” strategies limit competition and artificially raise drug costs?

When purchasing generic drugs from wholesalers, independent pharmacies also participate in buying groups, using the same logic that buying larger amounts gains better pricing. The more drugs that pharmacies or buying groups purchase from the wholesaler’s preferred drug list, the bigger the discounts they receive.

Once the prescriptions are dispensed to patients, independent pharmacies need reimbursement from the PBMs who administer the drug benefits. The reimbursement rates are set out in negotiated contracts, not between the PBM and individual independent pharmacies, but usually between PBMs and pharmacy services administrative organizations (PSAOs). These PSAOs collectively bargain with PBMs to create scale and efficiency on behalf of independent pharmacy members. Interestingly, the three largest PSAOs are owned by the three largest wholesalers, which represent an estimated 70% of all independent pharmacies.

This raises more questions: Are independent pharmacies receiving the best rates from wholesaler-led negotiations? Does wholesaler access to reimbursement rate information influence, and potentially increase, pharmacy purchase prices?

Are there appropriate safeguards in place to prevent prohibited coordination between wholesaler-affiliated entities? For independent pharmacies, wholesalers dominate nearly every aspect of generic drug transactions.

Policymakers and regulators should demand answers to these questions, shining the light of transparency onto participants that are smack in the middle of the supply chain. They should use their authority to examine potential impacts on competition and generic drug pricing, including the relationships among PSAOs, their affiliated drug wholesalers, and independent pharmacies.