Tuesday, September 07, 2010

Surprise! Independents Not Vanishing

Time to test yourself at Adam’s College of Pharmacy Industry Knowledge!

Q: According to the new 2010-11 NACDS Chain Pharmacy Industry Profile, which of the following pharmacy formats had the biggest growth in number of locations in 2009?
  • Chain Drug Stores
  • Independent Drug Stores
  • Supermarkets
  • Mass Merchants
Believe it or not, the answer is … Independent Drug Stores! In fact, independents added 474 locations (+2.3%) in 2009, almost three times as many as chains (+177 locations, +0.8%). Even more astounding, the newly-revised NACDS data now show the number of independents increasing by 1% over the past seven years instead of declining by 10%.

The bad news? Both total revenues and number of prescriptions continue to decline at independents (as shown in New Data on Pharmacy Industry Market Share). Thus, the average independent survivor is smaller and less productive than we all previously thought.

Read on for the wonky details. And no more complaints that your friendly neighborhood blogger never provides good news about independent pharmacies!


Anyone who reads Drug Channels should have a copy of The 2010-11 NACDS Chain Pharmacy Industry Profile, which is hot off the presses. In my opinion, the NACDS Profile is the single best compendium of pharmacy industry data and statistics available.

The latest edition recalculates the number of independent pharmacies in a dramatic way. the chart below compares the old versus new times series. (Click the chart to enlarge it.) They diverge in 2002. Quite a difference!

So, what happened? NACDS’ Head Economist Laura Miller told me that the data source changed versus previous reports. This year’s edition uses information from NCPDP to count the number of independent pharmacies. NCPDP data were also used to recalculate prior years’ independent store counts.

FYI, franchises such as Medicine Shoppe are included with chain outlets, but Health Mart franchisees are still counted with independents.


Alas, aggregate prescription data have only changed slightly, implying much slower growth in average pharmacy size. The “fewer but bigger” storyline needs to be revised.

Consider the number of prescriptions per pharmacy outlet, a high-level measure of pharmacy productivity. The average chain pharmacy filled about 79 thousand prescriptions per year in 2009, up 32% from roughly 59 thousand per year filled in 1998. The average independent pharmacy filled only 10% more prescriptions in 2009 versus 1998.

The old data showed the average independent pharmacy growing at a comparable rate to the average chain pharmacy location. (See Pharmacy's MTM Challenge.) The new data imply that the rate of growth has actually been one-third the rate of chains.


The National Community Pharmacists Association (NCPA), which represents independent pharmacies, has used the apparent decline in the number of pharmacies to push its legislative agenda.

Here's former NCPA President Bruce Roberts writing about the Medicare Part D program in January 2010 (source):
“During its rather chaotic implementation four years ago this month, local pharmacists spent countless hours online and on hold, trying to resolve coverage problems for their patients. Often they were “rewarded” with long waits for reimbursement from plan administrators, typically pharmacy benefit managers (PBMs). These payment delays became so elongated that they created a credit crunch that led, at least in part, to thousands of community pharmacies closing in the year or so following the launch of Part D. At NCPA’s urging, Congress enacted a 'prompt pay' requirement that became effective Jan. 1, 2010, but that’s another story.” (emphasis added)
Yes, the new NACDS recomputation shows that sometimes the data tricks us all. Curiously, the first chart above shows the number of independents jumping in the year of Part D implementation (2006) but then reverting back to its pre-2006 level.

Nevertheless, I presume Mr. Roberts and other pro-independent voices will be pleased with the positive news in the new NACDS data. It does mean that NCPA will need to be much more creative when complaining to legislators.

When the facts change, I change my mind. What will NCPA do?


  1. Are we learning that NACDS data is no better than IMS?! garbage in, garbage out? Those are some major changes, I wouldn't have thought knowing the number of stores out there would be so difficult. Guess I was wrong.

    Do you buy the new data as finally being 'right', or do we now look at it all with a skeptical eye? I always have a hard time believing someone when they tell me to forget what they reported yesterday, today it is all right....

  2. Suspicious at best. Switch data sources and add 3,500 new independent pharmacies? What were they using before? A roll call?
    I'm guessing that this is all about interpretation and methodology. You can produce radically different counts if you define an independent using a broad definition such as "up to 80 stores owned by a common owner" or a very narrow definition: "less than 10 stores owned by a common owner".
    Second, there is a substantial problem in classifying pharmacies that are long-term care pharmacies. Some of these pharmacies are set-up next door to a retail pharmacy and are required to have a separate NCPDP number due to state laws about collecting rebates (for servicing LTC). These are small, independently owned pharmacies but do not have a retail presence. Many people might even classify them in the "institutional" segment due to their connection to the type of patients they service. A lot of programs exist to help retail pharmacies start a separate LTC pharmacy.

    Lastly, NCPDP is not the be all end all of sources. A lot of people use the Hayes directory which receives its information every 6 months from each state board of pharmacy. You would think that a state should know how many legal pharmacies are in operation, no?

    I would suggest that NACDS should get real transparent about comparing their previous methodology with the new one if they want any credibility here.

  3. I can understand how the Medicine Shoppe stores that are corporately owned could be considered chain outlets. But by what convoluted logic are the many more independently owned and operated franchisees considered to be chain outlets? If that's the case then the number of independents should be much higher still.

  4. Mark Twain said it best. There are lies, damned lies and statistics.

    Who are we to believe?

    On one side, we have the National Community Pharmacists Association whose mission reads, in part (quite a complicated mission statement, actually http://bit.ly/dkgWWd ), "We are dedicated to the continuing growth and prosperity of independent community pharmacy in the United States."

    On the other side, we have the National Association of Chain Drug Stores with the following mission statement: "NACDS provides a wide range of services to meet the needs of the chain drug industry in accordance with its goals and objectives."

    Different groups with different agendas have come up with different results. Is it any surprise, really? Is either manipulation of the data really to be trusted? What makes NACDS any more reliable than NCPA? Other than NACDS making the report available for purchase? Lifting the veil of secrecy is a nice touch and NCPA should take note.

  5. All the comments regarding independent pharmacy growth are probably true. However, there is another factor creeping into the statics of independent pharmacy growth as measured by number of locations.

    An ever increasing number of pharmacists are being produced by an ever increasing number of pharmacy schools.

    In addition the turn down in the economy has made it harder for these new graduates to land the once guaranteed high paying job. To this now add that some chains are laying pharmacist off for the first time in years.

    Part of this group of young graduate pharmacists and the recently laid off pharmacist have decided to open their own shops rather than wait for an opening in one of the chains. This has added to the uptick in independent pharmacy locations.

    In my opinion this is good for the profession.
    Jim Fields RPH

  6. Adam,

    The latest post isn't surprising to me - although I like reading it. It doesn’t change the fact that the independent pharmacy owner cannot continue “business as usual” and expect to survive in their markets. The numbers posted – 474 new – independent pharmacies isn’t surprising either however - as commented below by Mr. Anonymous #2 many independent pharmacies can be in different care settings (LTCP, Retail, DME, Combo-Shops) and have separate NAPB/ NPI numbers. I am glad to read the updates and feel it’s an up-lifting study. Moving forward is most important at this juncture. Independent Pharmacies must be aggressive from a marketing perspective and a proactive business to business – new patient generating initiative. Waiting for new patients to come to you and your store won’t work. Reaching out to a local privately owned business in the community and talking about the employer’s drug benefit program and how the independent can help save them money – is the aggressive approach I’m referring to. The new students coming into the market need to understand economics. When I was in telecommunications I had to learn a hard lesson about the DOT-COM GOLD RUSH and then the CRASH. These pharmacy students must understand – in the LONG run it will be better to become or work for an independent pharmacy– than to have unrealistic expectations of today’s market and their wishes for $90+ base salaries plus bonuses thought to have been currently offered at the local CVS.


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