Pharmacy Due Diligence Checklist for Buyers and Lenders
A pharmacy due diligence checklist helps a buyer confirm that the business they are acquiring is what the seller says it is. It also mirrors much of what a lender will want to see before approving acquisition financing, so working through it early can make the loan process smoother.
Independent pharmacies carry risks that general business checklists miss, including pharmacy benefit manager audits, direct and indirect remuneration (DIR) fees, controlled substance records and contract transfers. This guide organizes those items by category. Rules vary by state and payer, and nothing here is legal, tax, billing or compliance advice. Buyers should rely on healthcare counsel, accountants and qualified compliance professionals for each area.
Financial Review
Start with the numbers that support the purchase price and the loan.
- Several years of business tax returns and financial statements
- Interim year-to-date profit and loss statement and balance sheet
- Bank statements to confirm reported deposits
- Gross margin by category, including prescription and front-end sales
- Owner compensation, perks and proposed add-backs with documentation
- Existing debt, leases and any liens on business assets
- Accounts receivable aging, including third-party payer receivables
Lenders typically request many of the same items. Our article on what financial documents pharmacy lenders require explains how they use them.
Prescription Volume and Payer Mix
Revenue quality matters as much as revenue size. Review:
- Prescription counts over time, split between new and refill prescriptions
- Revenue and gross profit by payer and by PBM
- Concentration in a few prescribers, facilities or patient groups
- Brand versus generic dispensing trends
- Specialty, compounding or long-term care business, which may carry separate risks
- Medicare Part D and Medicaid exposure
A pharmacy that depends heavily on a single prescriber or facility can lose meaningful volume if that relationship changes after closing.
DIR Fees and Post-Sale Adjustments
DIR fees and other payer adjustments can reduce what a pharmacy actually keeps from a claim, sometimes well after the prescription is filled. Buyers should ask for remittance detail showing fees, clawbacks and reconciliations over several years, and understand how they are recorded in the financial statements.
This matters for value as well as cash flow. Our guide to how DIR fees affect pharmacy valuation explains why normalized earnings can differ from reported earnings. The purchase agreement should address who bears fees and adjustments tied to claims filled before closing.
PBM Audits and Payer Contracts
Audit exposure is one of the most important items on any pharmacy due diligence checklist. Buyers should request:
- A list of PBM and payer network contracts, with assignment and termination terms
- History of desk and on-site audits, findings, recoupments and appeals
- Any open audits, payment holds or network termination notices
- Medicare and Medicaid enrollment status
Qualified billing or compliance professionals should review audit history and documentation practices. Counsel should advise on whether liabilities stay with the seller, which often depends on deal structure.
Licenses, Registrations and Compliance
- State pharmacy permit and recent board inspection reports
- Controlled substance registrations and inventory records
- Pharmacist-in-charge and staff license status
- Any disciplinary actions, complaints, investigations or settlements
- Policies for privacy, record keeping and dispensing
Licenses and registrations should not be assumed to transfer. Our article on pharmacy change of ownership walks through what typically needs to be updated or reissued.
Inventory and Wholesaler Relationships
- Recent inventory counts and how they will be valued at closing
- Expired, damaged or slow-moving stock
- Wholesaler agreements, credit terms, rebates and minimum purchase commitments
- Any buying group memberships and whether they can continue
Inventory can shift the final price and loan amount. See our article on pharmacy inventory valuation at closing for how counts are often handled.
Staff and Operations
- Pharmacist and technician roster, tenure and compensation
- Whether the seller plans to stay on, and in what role
- Employment agreements and restrictive covenants, reviewed by counsel because enforceability varies by state
- How workers are classified, reviewed by qualified professionals
- Pharmacy management system, automation and equipment condition
Organizing the Process
Diligence goes more smoothly when requests are tracked in one place. Many buyers keep a shared request list that shows each item, who is responsible for providing it, when it was received and which advisor is reviewing it. Questions and answers can be recorded alongside the documents so nothing is lost as the deal moves toward closing.
Real Estate and Location
- Lease term, renewal options, assignment rights and landlord consent
- Any option to purchase the building
- Nearby competition, including recent openings and closures
- Parking, drive-through access and visibility
How Lenders Use Your Pharmacy Due Diligence Checklist
A lender is not a substitute for your own advisors, but its underwriting often overlaps with your review. Sharing organized diligence materials can help a lender understand the business sooner and reduce repeated requests later in the process.
Lenders reviewing an acquisition generally look for cash flow that can support the new debt after a market salary for the owner, a buyer with relevant pharmacy and management experience, adequate liquidity and a clear plan for transferring contracts. Issues found during diligence may change the price, the structure or the financing. Every loan is subject to approval, and nothing here is a commitment to lend.
Buyers who want to understand how findings affect price can also read how a pharmacy practice is valued.
Final Thoughts
A thorough pharmacy due diligence checklist goes beyond tax returns. PBM audit history, DIR fee exposure, contract transfer terms, licenses, inventory and staff all influence what a pharmacy is worth and whether it can support acquisition debt. Working through these items with experienced advisors can help buyers negotiate with confidence and give lenders the information they need.
US Medical Funding helps pharmacists and investors finance independent pharmacy acquisitions. Learn more about our pharmacy acquisition financing options.
