Buying a pharmacy is about much more than reviewing revenue, expenses, and the purchase price. A pharmacy can look financially attractive while carrying regulatory, reimbursement, operational, and compliance issues that affect its value after closing.

For buyers, investors, and healthcare entrepreneurs, thorough due diligence should look beyond the financial statements and examine what could affect the pharmacy’s ability to operate and maintain its revenue.

PBM Relationships and Audit Exposure

A change in ownership can affect PBM credentialing, network participation, and reimbursement relationships. Buyers should understand whether those relationships will continue after the transaction and whether additional requirements may apply.

Audit history also deserves close attention. Buyers should review PBM, Medicaid, Medicare, and commercial payer audits, including appeals, extrapolations, and repayment demands. Existing audit issues can create financial and operational problems after closing.

For more information on these issues, see our pharmacy audits practice area.

Medicare and Medicaid Enrollment

Government program enrollment should be reviewed as part of the transaction, not treated as a post-closing administrative matter.

Due diligence should include the pharmacy’s Medicaid and Medicare enrollment status, revalidation history, ownership disclosures, and any sanctions.

Ownership changes may require additional attention to enrollment and disclosure requirements, making this an important part of transaction planning.

Regulatory and Controlled Substance Issues

A pharmacy acquisition should also include a review of regulatory history. This may include inquiries or investigations involving OMIG, OIG, DEA, Boards of Pharmacy, or Attorneys General.

Controlled substance compliance is another area that can create significant risk. Buyers should evaluate DEA registrations, inventory controls, suspicious order monitoring, and inspection history before closing.

When regulatory concerns arise, they can extend beyond the transaction itself. MDRXLAW also handles government investigations involving healthcare providers and organizations.

Revenue May Not Be as Stable as It Looks

Historical revenue does not necessarily tell the entire story. Buyers should examine referral concentration, dependence on particular prescribers, specialty drug exposure, and reimbursement trends to understand how sustainable the pharmacy's revenue may be after the transaction.

Inventory also requires careful review. Expiration dates, return eligibility, slow-moving products, and specialty medication exposure can affect the actual value of inventory included in the acquisition.

Wholesalers, Employees, and Operations

The pharmacy's relationships with wholesalers can also have financial consequences. Purchasing agreements, credit terms, chargebacks, and outstanding obligations should be reviewed before closing.

People are another important part of the business. Buyers should identify the pharmacists, billers, and operational personnel who are critical to keeping the pharmacy running effectively and consider the potential impact if key employees do not remain after the acquisition. For broader legal and regulatory considerations affecting pharmacy operations, see pharmacies and pharmacy organizations.

Cybersecurity, Litigation, and Successor Liability

Due diligence should not stop with pharmacy operations.

A buyer should review breach history, cybersecurity safeguards, vendor agreements, and HIPAA compliance. Pending litigation and commercial disputes should also be identified, including employment claims, lease disputes, and payer disputes.

Finally, the transaction structure does not necessarily eliminate every potential liability. Buyers should consider whether certain liabilities may survive closing and how successor liability could affect the transaction.

The Question Buyers Should Be Asking

The most important diligence question is not simply how much revenue the pharmacy generated last year.

It is:

What could materially reduce that revenue after closing?

A pharmacy acquisition requires a broader review of the business, including payer relationships, government enrollment, audits, regulatory history, controlled substances, inventory, employees, cybersecurity, litigation, and potential liabilities.

At MDRXLAW, we advise pharmacy buyers, investors, and healthcare entrepreneurs on the legal and regulatory issues involved in pharmacy acquisitions.

For assistance, contact MDRXLAW at 212.668.0200 or info@mdrxlaw.com