How Does Your Pharmacy Buy Drugs?

Have you ever wondered how your pharmacy buys medication?

Do we go online and order pills like you order clothes?
Is there an “Amazon for drugs”?
Can we price shop and pick the best deal?

Last week, I signed a new contract with my primary drug wholesaler for C.O. Bigelow. It’s something I do every year. And as I read through it, I thought to myself:

Most people have absolutely no idea how this part of the system works.

Which is a problem. Because by the time a medication reaches the pharmacy counter, the economics are already set in motion — and they are not set up in anyone’s favor.

So today, I’m going to walk you through it.

Not just how drugs get from manufacturers to pharmacies, but how the financial structure behind that process shapes everything that happens next — from what your pharmacy pays, to what your insurance reimburses, to whether your local pharmacy survives at all.

Before we begin, a quick disclaimer…

Let’s begin…

I’ll start simple.

A drug wholesaler is the company that sits between pharmaceutical manufacturers and pharmacies. They buy medications in massive quantities and distribute them to pharmacies like mine for a profit. 

They also serve as a critical checkpoint in the supply chain—verifying that what pharmacies buy is legitimate and not counterfeit. When you buy meds from a pharmacy, you are putting immense trust in the idea that what you are buying is safe. Wholesalers verify the supply chain and ensure that pharmacies are buying medication they can trust.

Wholesaler margins are ultra-thin, but when done at scale, the profits can be absolutely massive. 

Want to know what I mean by massive?

In the United States, three companies control over 90% of drug distribution:

In 2025, all three were in the Top 15 Fortune 500 Companies by Revenue for a grand total of $942.7 BILLION in sales!!! Even at a super conservative recent estimate of ~6% profit margin, that’s almost $60 Billion in profit between the three companies.

Take a second to absorb that information. This is the size of the industry we are discussing. And this is why I want to take the time to explain to you how their contracts work.

Because unlike most industries, you don’t just “buy” from these companies.

You sign a contract. 

And since independent pharmacies like mine have very little leverage against companies of this size, it’s usually a contract we sign with a gun to our heads and terms that exist to benefit the bigger fish.

Technically, pharmacies are allowed to buy from multiple sources, but most pharmacies operate with what’s called a primary wholesaler due to receiving volume-based discounts.

That means:

In other words, you’re not just a customer.

You’re in a relationship.

And like most bad relationships, it’s very hard to leave.

If I decide I don’t like my wholesaler’s pricing tomorrow, I can’t just switch like you’d switch from Uber to Lyft. These contracts are structured in a way that locks you in through a mix of incentives, penalties, and operational dependency.

On paper, it looks like a business agreement.

In practice, it’s a commitment with real consequences if you break it.

Here’s where things get interesting.

In a normal business, the goal is simple:

Buy inventory as cheaply as possible.

In pharmacy, that’s not always the goal.

Because wholesaler contracts don’t just dictate whether or not you are allowed to buy drugs.

They lock you into rebate structures.

Let me simplify what I mean by that.

A wholesaler tells a pharmacy:

But wait! There’s more!

I’ve written plenty in the past about the difference in economics for brand vs generic medications when I dispense drugs at my pharmacy. Wholesalers operate the same way. While they may only make single digit percentage profit on expensive brand medications, they can make 10-20% on cheaper generics. And since healthcare is a business, of course they find a way to incentivize pharmacies to buy significantly more generic medications than brand.

How do they do that?

With Generic Compliance Ratios aka GCRs.

Here’s the simplest way I can explain a GCR…

The wholesaler will say to me…

On the surface, that may seem reasonable. But if you recall from when I opened my pharmacy’s books a couple weeks ago, brand drugs cost many levels of magnitude higher than generics. Take a look below at the acquisition cost for a one-month supply of brand Mounjaro ($1081.91) vs generic Sertraline ($1.40).

So, using these two drugs as general examples, I would have to fill 78 prescriptions for generic Sertraline for every 1 prescription of Mounjaro in order to hit my 10% GCR. 

But I also can’t just stop buying brand medications entirely, because I need to hit my minimum total drug spend in order to avoid being penalized. 

It’s an extremely tight rope to walk every month. In the article I shared above, I revealed that in 2025 I spent $13.85 Million purchasing medications for my pharmacy. 

$11.77 Million of that was spent on brand medications, which puts my GCR for the year at 8.5%. 

That is the absolute best I can do, and I accomplish that with a full-time Director of Drug Purchasing who spends all day every day figuring out how to make it happen. At most independent pharmacies, the owner has to do (or not do) that job on the side while also working as the head pharmacist all day AND running their business. It is essentially impossible.

At this point, you might be thinking:

“Okay… so why not just buy drugs from someone else?”

Technically, you can.

There are secondary wholesalers. There are smaller distributors. There are even exchanges where pharmacies can sell to each other.

But here’s the catch:

So yes, there’s flexibility.

But it comes with tradeoffs.

Here’s the cherry on top. Obviously, each wholesaler is not going to individually negotiate contracts with the thousands of pharmacies across the country. There is not enough time or manpower for that. Instead, pharmacies join a “PSAO” or “Pharmacy Services Administration Organization” that negotiates contracts on behalf of a large group.

You’re probably thinking that sounds smart.

However, let’s revisit the vertical integration chart from above…

The wholesalers own the biggest PSAOs! It would be hilarious if it wasn’t so sad. And of course, the terms given to the PSAOs they own are much more favorable than any others, so we join them despite knowing how corrupt it all is.

A few months ago, I received this reply to one of my newsletters from Mark Cuban who clearly feels the same way…

Here’s the part most people never see.

When you walk into a pharmacy and pick up a prescription, you assume the transaction starts there.

It doesn’t.

By that point:

And that’s before insurance ever gets involved.

Which means when people talk about high drug costs…
or pharmacies losing money…
or politicians trying to “fix pricing”…

They’re all arguing about the final step.

The game was decided much earlier.

If you want to understand why pharmacy feels broken, this is where it starts.

Not at the counter.
Not with your copay.
Not even with your insurance.

It starts with how drugs are bought.

And once you see that, everything else begins to make a lot more sense.

Until next week.

Giddy up.

Alec Wade Ginsberg, PharmD, RPh
4th-Gen Pharmacist | Owner & COO, C.O. Bigelow
Founder, Drugstore Cowboy