Pharmacy Change Of Ownership Transactions: Why CHOW Must Be Handled Correctly

Buying or selling a pharmacy is not like buying or selling an ordinary retail business. A pharmacy is a licensed healthcare operation. It holds state pharmacy permits, controlled substance registrations, Medicare and Medicaid enrollments, third-party payor contracts, PBM network agreements, wholesaler accounts, NPI records, NCPDP records, DEA registrations and often multiple nonresident pharmacy licenses.

This creates a simple but often overlooked issue: pharmacy licenses generally are not freely transferable.

In many transactions, parties focus heavily on purchase price, inventory, accounts receivable, lease assignments, goodwill, and closing mechanics. Those are important. But in pharmacy transactions, the regulatory and payor transition is often what determines whether the buyer can actually operate the pharmacy after closing without any interruption. If the change of ownership, commonly referred to as a CHOW, is not handled correctly, the buyer may inherit a business that cannot properly dispense, bill, purchase, or participate in payor networks.

That is where many pharmacy transactions go wrong.

A Pharmacy License Is Not Just an Asset

In a typical business sale, the buyer may assume that the seller’s permits, accounts and operating approvals can be assigned or continued after closing. That assumption can be dangerous in the pharmacy context.

Most Boards of Pharmacy treat a change in ownership as a regulatory event requiring notice, application, approval, or issuance of a new permit. For example, California instructs pharmacies to submit a new application for a change of ownership or location at least 30 days before the change occurs. Georgia requires Board approval before a change in name, ownership, mode of operation or location. Maryland regulations require a new owner to submit an initial application when the controlling interest in a pharmacy changes. Florida rules provide that a change in ownership requiring a new permit number also requires the closure of old records and the creation of new records.

The specific timing and process vary by state. Some states require advance approval. Some require notice within a certain number of days. Some distinguish between asset sales, stock sales, membership interest transfers, officer changes, corporate restructuring, indirect ownership changes and changes in controlling interest. Some require new inspections, new pharmacist-in-charge documentation, new operating records, new controlled substance inventories or proof that the old permit has been properly closed.

The mistake is assuming that because the pharmacy continues to operate at the same physical location, under the same store name, with the same staff, and serving the same patients, the regulatory status automatically continues. That is often not true.

The Problem With Power of Attorney Arrangements

Because pharmacy transactions often take time to complete from a regulatory standpoint, parties sometimes use a power of attorney arrangement as a bridge. The buyer may close on the business before the Board of Pharmacy issues the new permit or before all payor/PBM enrollments are complete. The seller then grants the buyer or the buyer’s representative authority to operate aspects of the pharmacy on the seller’s behalf during the transition period.

In concept, a properly structured, narrow, temporary power of attorney may have a legitimate role in some transactions. But in practice, these arrangements can create serious problems.

A power of attorney should not be treated as a shortcut around pharmacy licensure. It should not be used to disguise the fact that the buyer has taken over control of a pharmacy before the required CHOW approvals are in place. It should not create confusion over who owns the pharmacy, who controls pharmacy operations, who is responsible for the pharmacist-in-charge, who controls prescription records, who purchases drugs, who bills claims, who signs payor documents, or who is accountable to the Board.

Boards of Pharmacy are increasingly sensitive to these issues because incorrectly handled transactions can create patient safety, controlled substance, recordkeeping, billing and accountability concerns. If the seller’s license remains active but the buyer is effectively operating the pharmacy, regulators may view the arrangement as an unauthorized transfer of control. If the buyer is directing operations before obtaining the required approvals, the Board may question whether the pharmacy has been operating under the wrong permit, wrong ownership disclosure or wrong pharmacist-in-charge structure.

The worst version of this problem occurs when the parties close the deal, the buyer takes over the pharmacy, and everyone assumes the “paperwork” can be cleaned up later. That is not a compliance strategy. That is how a transaction becomes an enforcement problem.

Board of Pharmacy Enforcement Risk Is Real

Boards of Pharmacy care about ownership because ownership determines responsibility. The Board needs to know who owns the pharmacy, who controls it, who has authority over operations, who is responsible for compliance, and who should be held accountable if there is a problem.

Incorrectly handled CHOWs can trigger several categories of regulatory exposure, including:

1. Failure to timely notify the Board of a change in ownership or control.
2. Operating under a permit that should have been closed or replaced.
3. Misrepresenting ownership or control on Board applications.
4. Failing to obtain new permits before operations continue under new ownership.
5. Failing to conduct proper opening and closing controlled substance inventories.
6. Failing to properly transfer prescription records.
7. Failing to update pharmacist-in-charge information.
8. Failing to update corporate officers, members, shareholders or responsible persons.
9. Failing to obtain required nonresident pharmacy approvals in other states.
10.  Failing to align DEA registration, state-controlled substance registration, NPI, NCPDP, Medicare, Medicaid and payor records with the actual owner/operator.

These are not merely technical violations. A Board may view them as evidence that the pharmacy lacks proper compliance controls. In more serious cases, a faulty CHOW can become the basis for fines, probation, permit discipline, delayed approval, denial of licensure or downstream scrutiny of dispensing and billing activity.

For a buyer, that is a terrible way to begin ownership. For a seller, it can create post-closing liability and reputational risk. For both sides, it can disrupt business continuity and undermine the value of the transaction.

Payor and PBM Recredentialing Cannot Be an Afterthought

Even when the Board of Pharmacy process is handled correctly, the transaction can still fail operationally if payor and PBM recredentialing are not addressed early.

A pharmacy does not survive on its Board permit alone. It must be able to bill third-party payors. That means the buyer must evaluate whether the pharmacy’s PBM and payor contracts can continue, must be recredentialed, must be assigned, or must be terminated and replaced. PBMs routinely require accurate ownership disclosures during initial credentialing and recredentialing, and inaccurate or incomplete ownership information can create network risk.

This is especially important because PBMs increasingly scrutinize pharmacy ownership, common control, affiliations, prior terminations, audit history, disciplinary history and relationships with other pharmacies. If a buyer or affiliated entity has a problematic history with a PBM, the buyer may face credentialing delays, denial, heightened review or termination risk. If the seller has unresolved audits, pending investigations, payment holds, network issues or disclosure problems, the buyer may inherit operational uncertainty even if the asset purchase agreement says liabilities remain with the seller.

The timing can be just as important as the substance. PBM credentialing and recredentialing can take weeks or months. Medicaid enrollment changes can take time. Medicare enrollment records may need to be updated. Commercial payors may have their own requirements. Wholesalers may require updated credit applications, ownership disclosures, DEA registrations, state licenses and due diligence reviews before allowing controlled substance purchasing under the new ownership structure.

A buyer who closes before resolving these issues may own a pharmacy that cannot submit claims, purchase inventory, access PBM networks or maintain patient continuity.

CHOW Planning Should Begin Before the Purchase Agreement Is Signed

Too often, parties negotiate the business terms first and treat licensing as a post-signing administrative task.

CHOW analysis should occur before signing, or at least before closing conditions are finalized. The transaction documents should reflect the regulatory reality. If Board approval is required before closing, the agreement should say so. If the buyer cannot operate until certain permits, registrations, or payor approvals are obtained, the closing timeline should account for that. If a transition services arrangement or power of attorney is contemplated, it should be carefully reviewed and limited to what is legally permissible.

The purchase agreement should address:

1. Which licenses, permits, registrations and enrollments are required for closing.
2. Whether Board approval is required before closing.
3. Whether the transaction will trigger a new pharmacy permit number.
4. Who is responsible for CHOW filings and related costs.
5. What happens if a Board, DEA, Medicaid program, PBM or payor delays or denies approval.
6. Whether the seller must cooperate after closing.
7. Whether the buyer may use the seller’s payor contracts during any transition period.
8. Whether any power of attorney arrangement is permitted and, if so, its scope and duration.
9. How inventory, prescription files, controlled substance records and patient records will be transferred.
10. How pending audits, chargebacks, recoupments, payment holds or network issues will be allocated.
11. What representations the seller makes regarding licensure, PBM contracts, audits, enforcement history and ownership disclosures.
12. What closing conditions must be satisfied before money changes hands.

The parties also need to distinguish between a legal closing and an operational transition. A deal may close from a corporate standpoint, but the buyer still may not be ready to operate from a pharmacy regulatory and payor standpoint. That gap must be identified and managed.

Buyers Need Regulatory Due Diligence, Not Just Financial Due Diligence

A pharmacy’s profit and loss statement does not tell the full story. A pharmacy can look profitable on paper but have serious hidden risk.

Buyers should conduct diligence on:

1. State pharmacy permits and nonresident licenses.
2. DEA registration and state controlled substance registrations.
3. Medicare and Medicaid enrollment status.
4. NPI, NCPDP and taxonomy records.
5. PBM network participation.
6. Commercial payor contracts.
7. Wholesaler accounts and controlled substance purchasing history.
8. Pending or recent PBM audits.
9. Network termination notices or recredentialing issues.
10. Board of Pharmacy complaints, inspections, citations or consent orders.
11. DEA correspondence or suspicious order monitoring issues.
12. Ownership disclosures made to Boards, PBMs, Medicaid, Medicare, wholesalers and PSAOs.
13. Prior use of management companies, consulting agreements, nominee owners or undisclosed control arrangements.
14. Inventory documentation and drug pedigree/DSCSA compliance.
15. Compounding, sterile compounding, mail order, delivery, telepharmacy, long-term care, specialty or controlled substance risk areas.

The buyer should not assume that the seller’s clean financials mean the pharmacy is clean from a licensing and payor perspective. In pharmacy transactions, regulatory diligence is not optional. It is part of valuation.

Sellers Also Need to Protect Themselves

Sellers sometimes assume that once they sell the pharmacy, they are done. That is not always true.

If the seller allows the buyer to operate under the seller’s permit, payor contracts, wholesaler accounts, DEA registration or PBM credentials after closing, the seller may remain exposed. If claims are submitted under the seller’s identifiers after control has changed, the seller may be pulled into later audits, recoupment demands, board inquiries or payor investigations. If controlled substances are ordered under the seller’s registration but directed by the buyer, that can create serious regulatory questions.

Sellers should make sure the transaction documents clearly define when control transfers, when the seller’s authority ends, what the buyer may and may not do before approvals are obtained, and how post-closing cooperation will be handled. Sellers should not casually sign broad powers of attorney or transition documents without understanding the regulatory consequences.

The Practical Lesson

A pharmacy CHOW is not just a closing checklist item. It is a core part of the transaction.

The buyer is not simply buying shelves, inventory, goodwill, and prescription files. The buyer is stepping into a regulated healthcare business that depends on proper licensure, accurate ownership disclosures, payor participation, controlled substance compliance, and PBM network access. If those pieces are not handled correctly, the transaction can create immediate operational and enforcement risk.

The old way of doing pharmacy deals casually, with rushed closings and broad power of attorney arrangements, is becoming increasingly dangerous. Boards of Pharmacy, PBMs, payors, wholesalers and regulators are paying closer attention to ownership, control, credentialing, and accountability.

For pharmacy owners considering a sale, and for buyers looking to acquire pharmacies, the message is straightforward: do not treat CHOW as paperwork. Treat it as a regulatory transaction.

A properly handled CHOW should be planned before closing, coordinated across all relevant agencies and payors, documented carefully and aligned with the actual transfer of control. When handled correctly, the transaction can proceed with business continuity. When handled incorrectly, it can invite Board scrutiny, PBM disruption, delayed reimbursement, wholesaler problems and unnecessary enforcement exposure.

In today’s pharmacy environment, the deal is not truly done until the licenses, payor enrollments, PBM credentialing, controlled substance registrations and operational transition all line up.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.