OBJECTIVE: The purpose of the study was to determine the potential savings to the portuguese National Health System if the utilization of generic medications increased. METHODS: The total sales of the 100 brand names with the highest sales to the portuguese National Health System in 1997 were examined to determine which ones had a generic equivalent on the market. These were then substituted in four different scenarios where the substitution levels were 10%, 25%, 50% and 100% and the total sales after substitution was calculated for each scenario. Finaly, the potential savings was determined. RESULTS: Of the 100 brand names with the highest sales to the portuguese National Health System in 1997, 18 had generic equivalents on the market. When these were substituted at a 10% level, the estimated savings were 833.037.000 PTE (3.2%). When the substitution levels were 25%, the estimated savings were 2.082.592.000 PTE (8.0%). When the substitution level was 50%, the estimated savings were 4.165.185.000 PTE (16.0%). When the substitution level was 100%, the estimated savings were 8.330.370.000 PTE (32.0%). CONCLUSION: Our pharmacoeconomic analysis demonstrated that the Portuguese National Health System can save a significant amount of its pharmacy budget by increasing the utilization of generic medications.