How a pill gets from the factory to the pharmacy

In October 2026, pharmacies paid an average of 2.8 cents for a 20 mg atorvastatin tablet, according to the federal government's survey of retail pharmacy acquisition costs, the National Average Drug Acquisition Cost¹ (NADAC). A 30-day supply at that price comes to about 85 cents.

That 85 cents is what the pharmacy paid to get the bottle onto its shelf. Folded inside it are a chemical plant that made the active ingredient, a factory that turned the ingredient into tablets, and a distributor that trucked the finished bottles to the store. A separate stream of money, running from insurers and benefit managers to the pharmacy, pays for the prescription once it is filled.

Generics fill most American prescriptions: about 91 percent in 2022, by an estimate cited in a January 2025 brief² from the Office of the Assistant Secretary for Planning and Evaluation (ASPE) at the Department of Health and Human Services. Yet the route a generic takes is hard to see from the pharmacy counter, and federal reviewers have spent years asking why so much of it runs through so few hands.

The active ingredient comes first

A tablet starts as an active pharmaceutical ingredient, or API, usually a powder made by chemical synthesis. Most of the plants that make APIs for the US market are abroad. In October 2019 testimony to Congress³, FDA said that as of August 2019 only 28 percent of the facilities making APIs for the US market were in the United States. The other 72 percent were overseas, and 13 percent were in China. GxRadar's explainer on where drug ingredients come from has more recent site counts.

For the older injectable drugs that hospitals depend on, the reliance runs deeper. A 2024 HHS white paper on drug shortages⁴ said that by some estimates 90 percent to 95 percent of generic sterile injectables used for critical acute care in the US rely on key starting materials and drug substances from China and India.

API plants are visible in FDA's fee schedule, too. Under the generic drug user fee program, each facility making API for a US generic pays an annual fee: $39,680 for a domestic site and $54,680 for a foreign one in fiscal 2027, according to the Federal Register notice setting the rates⁵.

The finished-dose manufacturer holds the approval

Whichever company turns API into tablets, capsules or vials usually holds the abbreviated new drug application (ANDA), FDA's approval to sell a generic. It buys or makes the ingredient, runs the formulation and packaging lines, gives each package a National Drug Code, and sets a list price, known as the wholesale acquisition cost (WAC). The approval process itself is covered in How a generic drug gets approved.

Approvals carry costs before a single bottle ships. For fiscal 2027, FDA charges $375,684 to file one ANDA and $230,033 a year for a domestic finished-dose plant ($245,033 for a foreign one), per the same notice⁵. The wider cost structure, and why some products stop being made, is in The economics of making a generic.

Three wholesalers move most of it

From the factory, nearly all prescription drugs go to a wholesaler. Wholesalers buy from manufacturers, hold the product in regional warehouses and deliver to pharmacies, hospitals and clinics, often daily. According to a February 2026 memo from House Energy and Commerce Committee majority staff⁶, three wholesalers account for more than 90 percent of US wholesale drug distribution.

Wholesalers also carry the records that federal law now requires for each package. Under the Drug Supply Chain Security Act (DSCSA), trading partners must pass along electronic documentation of a drug's ownership from manufacturer to dispenser. Their other jobs, including negotiating generic prices, are described in What drug wholesalers do.

The pharmacy, and who pays it

A retail pharmacy buys the bottle from its wholesaler, fills the prescription, and is paid by the patient's plan plus whatever the patient owes at the counter. For most insured patients, the plan's side of that transaction is run by a pharmacy benefit manager (PBM), which sets the pharmacy's reimbursement. In 2023, about 80 percent of all prescription drug claims were processed by the three largest PBMs, according to the House committee staff memo⁶; our explainer on what a pharmacy benefit manager does covers their role. GxRadar explains the mechanics in How pharmacies get paid for a prescription.

Hospitals buy differently. Most purchase generic injectables at prices negotiated by group purchasing organizations (GPOs), then take delivery through a wholesaler, which bills the manufacturer for the gap between what the wholesaler paid and the lower contract price. The House committee memo said 98 percent of hospitals used a GPO in 2014. That arrangement is the subject of Group purchasing organizations and hospitals.

Where the money moves

The physical chain and the payment chain do not mirror each other. Some payments run backward, from manufacturers to wholesalers or to purchasing groups, and many of the prices involved are confidential. This table sets out the main links as federal documents describe them.

For a 3-cent tablet, each link's share is measured in fractions of a cent. Federal reviewers place the chain's weak point right there, at the bottom of the price range. HHS's 2024 white paper⁴ said the intermediaries "create a complex and opaque layer between the health care organizations that must deliver these low-cost generic drugs to patients and the manufacturers that produce them." GxRadar's price history pages show how far those unit prices have fallen since 2013.

What to watch

On February 14, 2024, HHS and the FTC jointly asked the public for information on market concentration and contracting practices among purchasing groups and wholesalers, and the role they play in drug shortages, the HHS white paper notes. The same paper flags the erosion of failure-to-supply clauses in purchasing-group contracts as a possible factor in shortages. The House Energy and Commerce health subcommittee took up the same supply chain at a hearing on February 11, 2026, according to the committee memo⁶.

On the tracing side, FDA has exempted small pharmacies⁷ from certain DSCSA electronic requirements until November 27, 2027. Drugs in shortage while all of this plays out are listed on GxRadar's shortage tracker.