March 5, 2020

The independent pharmacy lobby is urging state legislatures to enact new legislation targeting pharmacy benefit managers (PBMs) that would increase fees and/or add surcharges to transactions with pharmacies. This is based upon two arguments: 1) that independent pharmacies are becoming less profitable and 2) that their store numbers are decreasing. Regarding the first argument, new research suggests the opposite. Prescription profit margins for independent pharmacies increased slightly between 2017 and 2018 and the overall gross margin from all products remained the same.

In this report we provide an initial look at independent pharmacy data to verify the veracity of the second argument, specifically focusing on the claim that the number of independent pharmacies are in decline over the last decade and are uniquely suffering relative to chain pharmacies. Relying on pharmacy count data from the National Council for Prescription Drug Programs (NCPDP), we identify the growth (or decline rate) of independent pharmacies over the last decade.

Read the Analysis 

Key Findings:

1. In terms of the absolute change in the number of stores, independent pharmacies are faring better than chain pharmacies. Between 2010 and 2019, the number of independent
pharmacies increased by more than 2,600 stores (12.9%), whereas chains lost around 80 stores (0.2%) on average.

2. There has been a slight decrease in all pharmacies in the last three years (2016 to 2019). For independents the net loss in the number of stores from 2016 to 2019 was -83 (-0.3%). In
comparison, chain stores witnessed a net loss of 1,583 stores, (-4.0%). Focusing on only one or two years, however, and not the entire previous decade, gives the impression of decline in the number of independents instead of fluctuations over a longer period.

3. Longitudinal analyses (linear fixed-effects estimates) find that on average, states are enjoying an increase of six independent stores per year from 2010-2019.

4. The relative growth in the number of independent stores at the state level is positively correlated to chain pharmacies. When chain pharmacies grow within a state, independent pharmacies also increase.