Research in Social and Administrative Pharmacy
Volume 2, Issue 3 , Pages 347-358, September 2006

Market dynamics of community pharmacies in Minnesota☆

  • Jon C. Schommer, Ph.D.

      Affiliations

    • University of Minnesota, College of Pharmacy, 308 Harvard Street, S.E., 7-155 WDH Minneapolis, MN 55455, USA
    • Corresponding Author InformationCorresponding author. Tel.: +1 612 626 9915; fax: +1 612 625 9931.
    • ,
  • Reshmi L. Singh, Ph.D.

      Affiliations

    • Massachusetts College of Pharmacy and Health Sciences, School of Pharmacy—Boston, 179 Longwood Avenue, Boston, MA 02115, USA
    • ,
  • Richard R. Cline, Ph.D.

      Affiliations

    • University of Minnesota, College of Pharmacy, 308 Harvard Street, S.E., 7-155 WDH Minneapolis, MN 55455, USA
    • ,
  • Ronald S. Hadsall, Ph.D.

      Affiliations

    • University of Minnesota, College of Pharmacy, 308 Harvard Street, S.E., 7-155 WDH Minneapolis, MN 55455, USA

Article Outline

Abstract 

Background

From a pharmacist workforce perspective, an understanding of pharmacy location is important for monitoring access points for pharmacist services such as medication dispensing, medication counseling, medication therapy management, and disease management.

Objective

To understand access to community pharmacies, our goal was to describe changes in pharmacy mix (independent vs chain) between 1992 and 2002 for 87 counties in Minnesota. Study objectives were to describe the association of (1) change in population density, (2) metropolitan designation, change in (3) proportion of nonwhite population, (4) proportion of elderly population, and (5) household income with change in (a) number of community pharmacies overall, (b) number of chain pharmacies, (c) number of independent pharmacies, and (d) the independent-to-total community pharmacy ratio.

Methods

Records from the State of Minnesota Board of Pharmacy were used to examine changes in the community pharmacy mix from 1992 to 2002. Data on county level demographics in 1990 and 2000 were obtained from the US Census Bureau and Datanet. Chi-square analysis was used to test the relationships between the independent and dependent variables.

Results

As of 2002, every county in Minnesota had at least one pharmacy as was the case in 1992. The ratio of independent to chain pharmacies changed from approximately 2:1 in 1992 to approximately 1:1 in 2002. Chi-square results revealed that change in population density was significantly associated with change in the number of community pharmacies overall (P<0.001) and with change in chain pharmacies (P=0.03). The findings revealed an interesting u-shaped pattern for the association between population density and change in independent pharmacies.

Conclusions

It appears that chain pharmacies follow changes in population density for making decisions about market entry and exit. The results suggest that some independent pharmacies might be closing due to chain competition in high population density growth areas. However, there was also evidence to suggest that population density decline may be an important determinant of independent pharmacy closures. In such environments, chain pharmacies are not likely to open new pharmacies to replace the independent pharmacy. Such a market dynamic may lead to access problems for citizens of these counties in the future.

Keywords: Pharmacist workforce, Pharmacy market dynamics

 

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1. Background 

Community pharmacies are an important component of healthcare access and provision. In states like Minnesota, where rural areas comprise a large portion of the state, the local pharmacist may be one of a limited number of healthcare providers serving a community.1 For example, Xiao et al,2, 3 reported that patients whose pharmacies had closed had fewer prescription claims after the closings than before, controlling for patient demographics and health status.

The type of community pharmacy mix (independent vs chain) that is available to patients is of importance as well. There is some evidence that chain pharmacies and independent pharmacies provide different types and processes of care for their patients. For example, in some studies independent pharmacies were rated better than chain pharmacies in terms of patient satisfaction, trust, counseling, and wait times.4, 5 Furthermore, the independent pharmacist owning and managing a small business has provided the traditional imagery of community service and a status of a professional in the community.6 Such a tradition of enterprise and commitment to a locality often is valued by the communities.1, 6

Other research that investigated access to pharmacies showed that families earning $30,000 or less per year have better access to independent pharmacies than to chain pharmacies.7 Doucette et al,8 reported that there were significant relationships between the availability of community pharmacies and (a) population characteristics, (b) payer characteristics, (c) healthcare system factors, and (d) level of competition in the market.

From a pharmacist workforce perspective, an understanding of pharmacy locations is important for monitoring access points for pharmacist services such as medication dispensing, medication counseling, medication therapy management, and disease management. In addition, pharmacy locations can affect the extent to which pharmacists can serve as active members of collaborative healthcare teams that are located within the community. The mix of independent and chain pharmacy types is important as well because many independent pharmacists work as autonomous pharmacy practitioners with an orientation to the service of individual clients and the local community. In comparison, many chain pharmacists work as employees of large corporations with an orientation to corporate goals and objectives that may be national in perspective.6

To build upon existing literature, our goal was to examine the impact of changes in some of the key environmental attributes across counties in Minnesota over a 10-year span on corresponding changes in community pharmacy mix (independent vs chain). Our main aim was to understand the entry, exit, and stability of community pharmacies in Minnesota counties and how these differed between independent and chain pharmacies.

We used environmental attributes' research, rooted in organization behavior theory, for framing our study questions and results.9, 10, 11 This research posits that characteristics of the environment in which an organization conducts business, affect decisions about market entry and exit. In turn, such business decisions can influence the distribution of practitioners across regions.

The environmental attributes we investigated were associated with the environmental dynamism construct,9, 10, 11 which suggests that more dynamic market environments are more likely to exhibit more changes in business behaviors such as entering or leaving a market. Our conceptualization of dynamism was based upon Achrol and Stern's Environmental Dimensions Framework9 and the application of this framework in the pharmacy domain by Iyer and Doucette10 and Schommer11. Dynamism reflects the level of change, activity, and progress within a market and is assumed to affect firms' decisions about business strategies such as vertical integration, horizontal integration, communication styles, collaborative agreements, long-range planning, product-mix, service-mix, entry into a market, and exit from a market.

The independent variables we included for this study were (1) change in population density, (2) metropolitan designation, (3) change in proportion of nonwhite population, (4) change in proportion of elderly, and (5) change in household income. We chose the variables for study not only because they were consistent with the goals of the study, but also because they were available from state census statistics for 1990 and 2000.

Change in population density represented an overall measure of population growth or decline for counties in Minnesota. Population growth in a fixed region (county) was thought to attract more pharmacies to that county. Metropolitan designation also was included for study because this variable represented counties that provide relatively more infrastructure for conducting business (communications, transportation, proximity to other healthcare or business entities, etc). Changes in nonwhite population, proportion of elderly, and household income were selected for investigation because they represented unique characteristics for a county that could provide market niche opportunities for pharmacies to tailor products and services to (1) specific cultures, (2) high medication users, or (3) high income households.

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2. Objectives 

Our first objective for this study was to describe changes in pharmacy mix (independent vs chain) between 1992 and 2002 for 87 counties in Minnesota. Our second objective was to describe the association of (1) change in population density, (2) metropolitan designation, change in (3) proportion of nonwhite population, (4) proportion of elderly population, and (5) household income with change in (a) number of community pharmacies overall, (b) number of chain pharmacies, (c) number of independent pharmacies, and (d) the independent-to-total community pharmacy ratio.

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3. Methods 

3.1. Data sources 

Records from the State of Minnesota Board of Pharmacy were used to examine changes in the community pharmacy mix from 1992 to 2002. To provide a more descriptive picture of these changes, we also examined and studied the association of environmental attributes for the counties with changes in pharmacy mix in each of the 87 Minnesota counties. Data on county level demographics in 1990 and 2000 were obtained from the US Census Bureau and Datanet (http://www.lmic.state.mn.us/datanetweb). To allow time for population changes to take effect on community pharmacy market dynamics (outcome variables), we used data on the pharmacy variables that were lagged 2 years later than the population demographic data.

3.2. Dependent variables 

3.2.1. Change in number of community pharmacies 

This variable for each county from 1992 to 2002 was coded as 3 levels: −1=lost pharmacies, 0=stayed the same, and 1=gained pharmacies.

3.2.2. Change in number of chain pharmacies 

For each county from 1992 to 2002 this value was coded as follows: −1=lost pharmacies, 0=stayed the same, 1=gained pharmacies.

3.2.3. Change in number of independent pharmacies 

This change for each county from 1992 to 2002 was coded as follows: −1=lost pharmacies, 0=stayed the same, and 1=gained pharmacies.

3.2.4. Change in the independent-to-total community pharmacy ratio 

This was defined as the change in the ratio of independent pharmacies to total community pharmacies for each county from 1992 to 2002 and coded as −1=ratio became smaller, 0=ratio stayed the same, and 1=ratio became larger. Thus, a coding equal to 1 meant that the ratio of independent pharmacies to the total number of pharmacies in that county increased between 1992 and 2002.

3.3. Independent variables 

3.3.1. Change in population density 

This density was defined as the change in persons per square mile for each county from 1990 to 2000, and coded as follows: 0=negative change, 1=change was from 0 to 5 persons per square mile, and 2=change was greater than 5 persons per square mile. This variable represented the change in population for each county in a standardized unit of measurement.

3.3.2. Metropolitan designation 

US Census Bureau's designation was used to define this term wherein counties were coded as 0=nonmetro area (69 counties) and 1=metro area (18 counties). These designations did not change between 1990 and 2000.

3.3.3. Change in proportion of nonwhite population 

The change in minority population for each county from 1990 to 2000 forms the definition of this variable. This variable was coded by using a median split to categorize the counties into 2 groups: 0=−0.22 to 2.40 unit change in the proportion and 1=2.41-13.4 unit change in the proportion. It categorized counties that experienced relatively large growth in nonwhite population versus counties that did not experience such growth and allowed us to explore the effect, if any, that this change had on pharmacy market dynamics.

3.3.4. Change in elderly population 

This is the change in population aged 65 years and older for each county from 1990 to 2000. This variable was coded as 0=negative change in the proportion and 1=positive change in the proportion from 1990 to 2000 (there were no counties for which there was no change in the proportion). It categorized counties into 2 groups so that we could explore the effect, if any, that change in elderly population had on market dynamics between 1992 and 2002.

3.3.5. Change in household income 

The change in median household income for each county from 1990 to 2000 is the definition of this variable. This variable was coded using a median split of the change as 0=$8,478-$14,288 change from 1990 to 2000 and 1=$14,289-$26,352 change from 1990 to 2000. It categorized counties into 2 groups so that we could explore the effect, if any, that change in household income had on pharmacy market dynamics between 1992 and 2002.

3.4. Data analysis 

Because of the relatively small number of cases in this study (n=87), we described associations between study variables using chi-square analysis. The significance level for each test was set at the 0.05 level.

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4. Results 

As of 2002, every county in Minnesota still had at least one community pharmacy as was the case in 1992. Fig. 1, Fig. 2 present the findings for the number of community pharmacies in each county. In 1992, 5 out of the 87 counties had only 1 community pharmacy located within the county (all 5 were located in northern Minnesota). In 2002, 6 out of the 87 counties had only 1 community pharmacy located within the county (4 were located in northern Minnesota and 2 were located in southern Minnesota).

Overall, the number of community pharmacies in Minnesota remained relatively constant (967 in 1992 vs 996 in 2002). There was a decrease in independent pharmacies from 1992 to 2002 (637 vs 466, respectively) and an increase in chain pharmacies from 1992 to 2002 (330 vs 530, respectively). The ratio of independent to chain pharmacies changed in Minnesota from approximately 2:1 in 1992 (637/330=1.9) to approximately 1:1 in 2002 (466/530=0.9).

For the 87 counties in Minnesota overall, 43% had a net gain in the number of community pharmacies, 31% had a net loss of pharmacies, and 26% remained constant between 1992 and 2002. In terms of chain pharmacies, 64% of the counties had a net gain in chain pharmacies, 31% remained constant, and 5% had a net loss in chain pharmacies between 1992 and 2002. In terms of independent pharmacies, 68% had a net loss of independent pharmacies, 22% remained constant, and 10% had a net gain of independent pharmacies between 1992 and 2002. In terms of the independent-to-total ratio for the 87 counties, the ratio became smaller for 70% of the counties, stayed the same for 26%, and became larger in only 3% of the counties.

Table 1, Table 2 present findings for statistically significant associations between independent and dependent variables. Table 1 shows that change in population density was significantly associated with change in community pharmacies overall (P<.001) and chain pharmacies (P=.03). Counties with increases of greater than 5 persons per square mile in population density were more likely to experience gains in community pharmacies overall as well as gains in the number of chain pharmacies.

Table 1. Relationship between change in population density and market dynamics for Minnesota pharmacies located in 87 counties (1992 and 2002)
Counties with a negative change in population density (%)Counties with a 0-5 persons per square mile increase in population density (%)Counties with a greater than 5 persons per square mile increase in population density (%)Overall (%)
N=25N=42N=20N=87
All community pharmacies
Lost pharmacies52261531
Stayed the same3631526
Gained pharmacies12438043
Chi-square P<0.001

Chain pharmacies
Lost pharmacies42105
Stayed the same4833531
Gained pharmacies48648564
Chi-square P=0.03

Independent pharmacies
Lost pharmacies80607068
Stayed the same16291522
Gained pharmacies4121510
Chi-square P=0.38

Independent-to-total ratio
Ratio became larger4253
No change in ratio3631526
Ratio became smaller60679070
Chi-square P=0.16

Percentages may not total 100% due to rounding.

Table 2. Relationship between metropolitan designation and market dynamics for Minnesota pharmacies located in 87 counties (1992 and 2002)
Counties with a metropolitan designation (%)Counties without a metropolitan designation (%)Overall (%)
N=18N=69N=87
All community pharmacies
Lost pharmacies113631
Stayed the same03326
Gained pharmacies893143
Chi-square P<0.001

Chain pharmacies
Lost pharmacies1135
Stayed the same113631
Gained pharmacies786164
Chi-square P=0.06

Independent pharmacies
Lost pharmacies616968
Stayed the same222222
Gained pharmacies17910
Chi-square P=0.60

Independent-to-total ratio
Ratio became larger633
No change in ratio113026
Ratio became smaller836770
Chi-square P=0.24

Percentages may not total 100% due to rounding.

Change in population density was not significantly associated with change in independent pharmacies or change in the independent-to-total ratio. However, there was an interesting pattern that showed that 80% of counties with a negative change in population density and 70% of counties with a greater than 5 persons per square mile change in population density lost independent pharmacies. The middle category (counties with a 0-5 persons per square mile change in population density) fared the best with 60% of those counties losing independent pharmacies.

Table 2 shows that metropolitan designation was significantly associated with change in community pharmacies overall (P<.001) and approaching significance (P=.06) for its association with changes in chain pharmacies. The results revealed that counties with a metropolitan designation were more likely to gain pharmacies overall compared to counties without. Changes in the proportion of nonwhite population, elderly population, and household income were not significantly associated with market dynamics for Minnesota pharmacies at the county level. These nonsignificant findings are not presented in this article for sake of brevity, but are available upon request from the corresponding author.

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5. Discussion 

Growth in community pharmacies typically occurred in areas experiencing increases in population density and also in counties that had a metropolitan designation. From 1992 to 2002, the best opportunities for growth in the number of pharmacies occurred where not only populations were growing, but also counties that had metropolitan infrastructures that likely provided a good base for logistics (eg, roads, public transportation, communication hubs), markets for sale of other items in these pharmacies, and a strong source of community pharmacists for staffing the pharmacies. For the change in chain pharmacies, change in population density was associated with gains suggesting that chain pharmacy decision making for entry and expansion in a market is based on overall population growth within the market area.

None of our 6 independent variables was significantly associated with gains and losses of independent pharmacies or with the independent-to-total community pharmacy ratio. Although not statistically significant, there was a trend in the data suggesting that counties with negative changes in population density were the hardest hit in terms of losing independent pharmacies (see Table 1). However, the next hardest hit were counties with a greater than 5 persons per square mile change in population density (highest growth category). Thus, in high population density growth counties, chain competition might be a cause for losing independent pharmacies. However, in negative population change counties, loss of independent pharmacies may not be due to chain competition. Rather, the county may no longer be able to sustain any type of community pharmacy due to declining population, as has been suggested by Traynor and Sorensen.12 Such a market dynamic may lead to access problems for citizens of these counties in the future.

As of 2002, every county in Minnesota had at least one community pharmacy as was the case in 1992. However, further research could be conducted to investigate whether the market dynamics we uncovered in this study have resulted in access problems for some citizens in some counties. For example, what proportion of Minnesotans was located further away from pharmacy services in 2002 compared to 1992? It is tempting to hope that the growth of Internet and mail order pharmacies might overcome geographic access concerns. However, we believe that in-person access to community pharmacies and pharmacists provides a valuable healthcare access point and that future research is needed to monitor trends in access to community pharmacies and pharmacists.1, 6

The results should be viewed with the study's limitations in mind. Our study was conducted in only 1 state (Minnesota) with 87 counties. Using the county as the unit of analysis for our investigation and the relatively small number of cases it afforded did not allow us to conduct multivariate statistical analysis. We did not consider counties in other states that were near the border of Minnesota. Characteristics of those counties could affect market dynamics for community pharmacies in adjacent counties, but we did not consider those effects in this study. Another limitation is that we included data from only 2 points in time (1992 and 2002). During this study, we learned that the State Board of Pharmacy in Minnesota does not routinely keep data from previous years, and data from the 1990s are no longer available. Starting in 2001, we entered into an agreement with the State Board of Pharmacy to house old data so that historical analyses regarding market dynamics among community pharmacies can be conducted in the future.

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6. Conclusions 

We examined the association of changes in key environmental attributes across counties in Minnesota over a 10-year span on corresponding changes in community pharmacy mix (independent vs chain). Our findings documented changes in community pharmacy characteristics in Minnesota between 1992 and 2002 with the ratio of independent pharmacies to chain pharmacies changing from approximately 2:1 to 1:1 in that time period. The results suggest that the primary market factors that are associated with changes in the number of community pharmacies per county are the metropolitan designation of the county and whether the population density (persons/square mile) is increasing or decreasing.

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References 

  1. Sechler, A. Kloiber, S. Policy Focus: A Snapshot of Rural Pharmacies in Minnesota. Minnesota Department of Health Winter 2004 Quarterly. Available at: www.health.state.mn.us/divs/chs/qwinter04.
  2. Xiao H, Sorofman B, Manasse HR. The association between pharmacy closures and prescription drug use: a retrospective analysis of medicaid prescription claims in Iowa. Am J Manag Care. 2000;6:366–372
  3. Xiao H, Sorofman B, Manasse HR, Taylor TN, Brooks JM. Impact of pharmacy closures on patient use of prescription drugs. J Soc Adm Pharm. 2000;17:25–33
  4. Anonymous . Elderly increasingly depend on the guidance of pharmacists. Calif Pharm. 1998;45:14–15
  5. Briesacher B, Corey R. Patient satisfaction with pharmaceutical services at independent and chain pharmacies. Am J Health Sys Pharm. 1997;54:531–536
  6. Dingwall R. Do small independent pharmacies have a future?. J Soc Adm Pharm. 2002;19:161
  7. Briesacher B, Nadipelli V, Peluso R, et al. Access to Pharmacy Care in a Large Metropolitan Area: Retail Pharmacy Perspective. ASHP Midyear Clinical Meeting. December 1996: P-1E.
  8. Doucette W, Brooks J, Sorofman B, Wong H. Market factors and the availability of community pharmacies. Clin Ther. 1999;21:1267–1279
  9. Achrol R, Stern L. Environmental determinants of decision-making uncertainty in marketing channels. J Market Res. 1988;25:36
  10. Iyer S, Doucette W. The influence of environmental attributes on the relationship between entrepreneurial orientation and performance in independent community pharmacies. J Pharm Mark Manage. 2003;15:25–46
  11. Schommer J. Definition and measurement of environmental uncertainty in channels of distribution research: a proposal and pilot test. J Mark Channels. 1995;4:53–74
  12. Traynor AP, Sorensen TD. Assessing risk for loss of rural pharmacy services in Minnesota. J Am Pharm Assoc. 2005;45:684–693

☆ An earlier version of this paper was presented at the 152nd annual meeting of the American Pharmacists Association, Orlando, FL, April 4, 2005.

PII: S1551-7411(06)00067-2

doi:10.1016/j.sapharm.2006.07.004

Research in Social and Administrative Pharmacy
Volume 2, Issue 3 , Pages 347-358, September 2006

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