Looking to Buy a Pharmacy? Be Sure to Do Your Due Diligence

Purchasing your own pharmacy can be wonderful opportunity to flex your entrepreneurial muscles, while providing the best for your patients.  Indeed, the notion of being your own boss, being able to practice pharmacy in the way that you think is best, and increasing your earning potential are all good, sound reasons to consider buying your own pharmacy.

There are, however, many responsibilities that come with owning a pharmacy.  That is why you should be sure to have professionals assisting you in the purchasing process.  They can make sure that you have done the necessary due diligence to make the pharmacy purchase as problem-free as possible.

In this article, we will discuss a number of things to keep in mind when looking to purchase a pharmacy of your own.  We will, however, put a particular focus on the issue of network status with pharmacy benefit managers (PBMs).  Doing your due diligence in that regard early on can save a world of headaches on the back end.  If, after reading this article, you have additional questions about purchasing a pharmacy, we welcome you to contact us at Boesen Snow LLC.  We can help you with your pharmacy purchase.

What Are Some of the Basics That I Need to Consider When Buying a Pharmacy?

To begin, buying a pharmacy is a significant undertaking, and you may encounter some unpredictable hurdles along the way.  Accordingly, here are a list of things to keep in mind:

1. Location, Location, and Contracts

You are most likely in the market to buy an existing pharmacy.  If that is the case, then the geographical location and the patients in that area are of paramount importance.  As they say, business is all about location, location, location.

That said, you also want to make sure that you can obtain the contracts necessary to serve the patients in your particular area.  To do so, you want to pick a pharmacy services administration organization (PSAO) to help.  You may be able to negotiate the contracts yourself, but a PSAO can streamline the process.  It will allow you to avoid any pitfalls, and it gives you some security with regard to the industry standard on typical contracts.

Remember, your goal is to capture as much business in the geographical location as possible.  If patients in your area cannot fill their prescriptions at your pharmacy, then you will not be able to capture their business.  So, when choosing a PSAO, try to determine whether they work with PBMs that service the health system in your area.

1. Prepare for Cash Flow Delays

The normal rule of thumb is that a business does not tend to show a profit for the first year or two, and the same is true when you open a pharmacy.  You already know that when you fill a prescription, the patient will only pay a small amount up front, and there will be a time lag to get fully reimbursed.  So, you need to keep that cash flow issue in mind.  Having a good line of credit (around $500,000) is a way to keep the business moving while you are still building clientele and waiting for full reimbursement.

1. Doing Basic Due Diligence of the Business You Plan to Buy

When you buy a house, you certainly would not sign on the bottom line without having the home inspected.  That same notion applies to purchasing a pharmacy as well.  In other words, due diligence is essential.

You should consult with an attorney to review the existing pharmacy’s records before finalizing any deal to purchase the pharmacy.  Only a thorough review of the existing business’ taxes, profits, discretionary expenses, and profit-and-loss statements will help you assess whether you are making a good business investment.

1. Get a Team of Pros in Your Corner

As a pharmacist, you have extensive clinical training and experience.  Yet, it is likely that you do not have the accounting or legal skills necessary to close a business deal like purchasing your own pharmacy.  That is ok.  Most pharmacists are in the same boat.

That is why you want to get assistance from a lawyer with whom you trust.  While surrounding yourself with trusted experts has a cost, it will actually save you much more money in the long run.  You should view retaining an experienced pharmacy attorney as an investment in your pharmacy’s future, rather than a simple expenditure.

The Big Issue:  PBMs, and How Due Diligence Can Save You Substantial Money Overall

As a law firm that almost exclusively assists pharmacists, we have discovered something that is too often overlooked by those buying an existing pharmacy.  It something that requires a special type of due diligence.

We have seen clients who have purchased a pharmacy yet did not do proper due diligence related to the previous owner’s audit findings and network status with PBMs.  As such, the new purchaser goes to submit a change of ownership application, and he or she is denied because the PBM has the pharmacy’s physical address associated with a negative audit history.  Or, worse yet, the PBM sees the physical address is associated with a pharmacy that was terminated from the network.

Now, this is a problem that can be overcome.  What you, as the purchaser of the pharmacy, has to do is convince the PBM that you are not associated with the prior owner.  The problem is that the time, energy, and resources it takes for you to convince the PBM of that fact is time spent out of the network.  Also, there is the cost of getting an attorney to help you make your case to the PBM.

You see, the money you may have saved by not hiring an experienced attorney on the front end, will be spent convincing the PBM that you are a new owner on the back end.  In fact, due diligence is a “penny-wise-pound-foolish” prospect.  You will end up saving money by doing your due diligence with regard to the existing pharmacy’s PBM status before the purchase, rather than waiting to fix the problem after the purchase.

Having an experienced pharmacy attorney at your side is crucial.  We welcome you to call us at Boesen Snow LLC, so we can help you with your pharmacy purchase.  We will do the due diligence required so you do not have to worry about the previous pharmacy owner impacting your relationships with PBMs moving forward.  Call us at 602-900-8562, or contact us online today.