OBJECTIVES: An insurer has implemented the Generic Dispensing Incentive Program (GDIP) through a pharmacy benefit manager (PBM) in a local market beginning the second half of 2001 to encourage network pharmacy providers to dispense prescriptions with generic drugs. The GDIP increases reimbursement amount by $2.00 for any prescription dispensed with a generic drug when network pharmacies have recorded generic dispensing rate of 41% to 46%, and increases it by $4.00 when generic dispensing rate is 46 % or higher. This study evaluates the impact the GDIP has on generic dispensing rate. METHODS: The PBM provided pharmacy data consisting of numbers of prescriptions filled with brand-name and generic drugs, and their respective drug ingredient costs for each network pharmacy for seven 6-month periods (1st half of 2000 - 1st half of 2003). The program cost was computed as the additional reimburse amount. The program saving was as "the increase in the number of generic dispensing" multiplied by ingredient cost difference between brands and generic drugs. An important assumption was that the increased generic dispensing was only attributed to the GDIP. RESULTS: The GDIP cost $2.4 million but saved around $5.4 million for the network pharmacies (668 - 676 pharmacies). The generic dispensing rate hovered around 38% before the GDIP but continually increased to 44.26% in the latest period. The number of pharmacies that had moved upward in generic dispensing rate increased while the number of pharmacies with downward transitions decreased. There were six times more upward transitions than downward ones in the lasted period. CONCLUSIONS: The GDIP increased the generic dispensing rate by 6%. That increase in generic dispensing rate was translated into the net savings of $3 million into the first half of 2003.