Private Equity Investment in Specialty Pharmacies – How DIR Fees May Affect a Pharmacy’s Value (and What Prospective Investors Can Do)

The specialty pharmacy space has proven to be a rewarding investment for private equity, as specialty medications typically lead the pharmacy trend cost curve, which will only continue as more than 60 new specialty medications expected to receive FDA approval in 2021. Equally so has been a great focus in the home infusion space, with the effects of COVID-19 lockdowns poised to change the nature of how and where we receive care. However, before investing or infusing capital in a specialty pharmacy, investors must make themselves aware of the potential liabilities endemic in specialty pharmacy contractual relationships with pharmacy benefits managers (“PBMs”). Chief among these potential liabilities are Direct and Indirect Remuneration (“DIR”) fees. DIR fees are ostensibly part of a PBM’s “pay-for-performance” program, though in a practical sense, and especially as applied to specialty pharmacies, the fees are assessed regardless of superior performance. DIR fees have a particularly disparate impact on specialty pharmacies, as PBMs have not tailored their DIR Programs to accurately measure the categories of performance relevant to specialty. These fees can present a liability that private equity may overlook as firms conduct their due diligence.
How Frier Levitt Can Help
Frier Levitt can help bridge that gap in knowledge and offers services to private equity investors including, among other services, due diligence and consultation for private equity firms seeking to invest in specialty pharmacies. We are at the forefront of DIR Program analysis, having reviewed DIR contracts on behalf of dozens of Specialty Pharmacies. This expertise equips us with the ability to recognize potential liabilities incumbent in such programs for investors, providing a robust understanding of the value of specialty contracts. Contact us today to learn more about our services for private equity, and how we can assist you in selecting, vetting, closing, and pursuing litigation on behalf of your investment.
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