An improved pharmaceutical vial processing system and method groups vials on an automated dispensing line according to diverting needs. The improved pharmaceutical vial processing system and method allows vials to travel in close groups. A diversion algorithm determines when gaps between vials are needed to reduce the likelihood that a mechanical diverting device engages the wrong vial to a new location on the dispensing line. The diversion algorithm identifies each vial that needs to be diverted to a target location and employs a “neighbor analysis” to determine whether a gap between neighboring vials is needed before a vial destined for the target station encounters a diverter. Vials that are destined for locations beyond the target station remain grouped. Vials that are behind a vial destined for the target station are held to introduce a gap between the vial destined for the target station and the remaining vials.