Woonsocket, RI-based CVS Health plans to sell its long-term care pharmacy business, Cincinnati-based Omnicare, reporting a $2.5 billion loss in the third quarter, the company announced Wednesday.
“We continue to strategically evaluate our portfolio and make decisions about assets that do not strategically fit into our portfolio. Omnicare is a good example of that,” said President and CEO Karen Lynch on Wednesday morning when it announced its third-quarter results.
“The Company determined that its LTC business is no longer a strategic asset and committed to a plan to sell the LTC business in the third quarter of 2022,” CVS said in a filing with the Securities and Exchange Commission on Wednesday connection with the call.
Omnicare serves senior living communities, qualified care facilities and All Inclusive Care for the Elderly (PACE) programs.
For accounting purposes, “Omnicare satisfied the criteria for classification as held for sale and the net assets have been classified as assets held for sale,” the company reported on Wednesday. “The carrying amount of the LTC business was determined to be greater than its fair value and a loss on assets held for sale was recorded in the third quarter of 2022.”
In the third quarter, the company recorded a $2.5 billion pretax loss on assets held for sale to write down the company’s long-term care business in the current year, partially offset by the lack of a $431 million goodwill impairment, according to CVS was charged to the remaining goodwill of the Omnicare unit in the previous year.
According to published sources, CVS acquired Omnicare in 2015 for $10.4 billion plus assuming $2.3 billion of Omnicare debt. At the time, then-CEO Larry Merlo said the purchase gave the retail pharmacy giant “access to a new distribution channel for pharmacies.”
Rumors of a potential Omnicare sale began circulating in August 2020, according to a CVS spokeswoman McKnight’s senior life that it would consolidate positions within the long-term care business. Some put the number of jobs at stake at more than 700, although CVS did not confirm an exact number.
“The healthcare industry is evolving as patients and clients change how they interact with providers and payer programs evolve,” said Shelly Bendit, senior communications consultant at CVS Health, at the time. “We regularly evaluate all of our businesses to ensure we are able to provide the best service to our customers while running our operations as efficiently as possible.”
CVS had not publicly stated any intention to exit the long-term care business at the time, but a few months earlier, in January 2020, Merlo had described the company’s experience with Omnicare as “disappointing.” In his remarks during a session of the JP Morgan Healthcare Conference, he also noted that the skilled care sector is “challenged” and that people’s desire to recover at home continues to weigh on demand for long-term institutional pharmacy services.
“We continue to see opportunity in the growth of assisted living and independent living and that is what we continue to focus on,” he said, according to a transcript at the time.
At an August 2020 earnings call, CVS executives noted that the COVID-19 pandemic had “significantly impacted” Omnicare and the company’s overall long-term care footprint.
“If you look at the challenges facing the industry, we’ve seen that admissions are down about 20% and some facilities continue to not accept new patients but are not closing per se,” said Eva Boratto, vice president and chief financial officer of CVS Health , back then .
Lynch joined CVS in February 2021 as the new CEO. Earlier this year, Ahmed Hassan was named President of Omnicare effective July 1, having joined CVS Health in 2015. At the time, he called Omnicare “a rock-solid company full of passionate long-term care professionals.”
Costs the company money
But the company has also lost money due to nursing lawsuits.
For example, in May 2020, Omnicare agreed to pay a $15.3 million civil penalty to resolve allegations that it violated federal law by allowing the dispensing of opioids and other controlled substances without a valid prescription have.
Omnicare denied the allegations but settled the lawsuit “to avoid the expense and uncertainty of a potential litigation,” a company spokesman said McKnight’s senior life back then.
Separately and not specific to long-term care, CVS on Wednesday announced an agreement in principle to pay approximately $5.2 billion over 10 years beginning in 2023 to settle what Lynch described as “substantially all of the opioid lawsuits and Claims by states against CVS Health” referred to political subdivisions and tribes.”
This result, she said, “is in the best interests of all parties and will help put a decades-old problem behind us as we remain focused on providing a superior healthcare experience for the millions of consumers who rely on us.” “
On Wednesday’s earnings conference call, Lynch also noted that CVS had signed an agreement to sell online filing/management system bswift (to global investment firm Francisco Partners), a company she also described as “non-strategic.” . CVS acquired the company as part of Aetna Buy in 2018.
“While we divest assets, we will continue to invest in areas consistent with our strategy using a disciplined approach to capital allocation,” she said. The company also recently sold health savings account business Payflex (to Millennium Trust) and part of its international business, Aetna, Lynch noted.
Not all sales
But it’s not all divestitures for the company.
In September, CVS announced it was buying Signify Health, a company focused on “health risk assessments, value-based care and service delivery,” for $8 billion.
“This acquisition will enhance our connection to consumers at home and enable providers to better serve patients’ needs as we execute on our vision of redefining the healthcare experience. Additionally, this combination will strengthen our ability to expand and develop new product offerings in a multi-payer approach,” Lynch said at the time.
On Wednesday, she said the transaction is expected to close in the first half of next year and also hinted at future budget spending.
“We said we wanted to stay in the home. That’s what we’re going to invest in,” Lynch said, echoing comments she made at the Morgan Stanley Global Healthcare Conference in September.
Over $3 billion in revenue expected for segment in 2022
Despite the potential sale of Omnicare, CVS’ retail/long-term care segment is expected to generate more than $3 billion in revenue in 2022 due to COVID-19, said Shawn Guertin, executive vice president and chief financial officer.
“It is not prudent to expect similar levels of COVID-related revenue in the future,” he said, however, “and we expect the economics of vaccines and diagnostic tests to improve after the end of the COVID-19 emergency that we have forecast.” public health change will take place early in the first quarter of 2023.”
Overall, the retail/long-term care segment, which includes CVS Pharmacy locations serving the general public in addition to Omnicare, “continues to exceed expectations,” Lynch said, with revenue of $2.67 billion for the quarter, representing growth of nearly 7% from last year’s adjusted operating income of $1.4 billion, executives said.
“Performance at both the front store and the pharmacy has been strong,” Lynch said, noting that front store sales are up about 4% and that demand for COVID vaccines and over-the-counter testing and cough, cold, and – and flu products. stays high.
The number of prescriptions issued increased 1.8% year over year in the third quarter, or 3.6% excluding COVID vaccines.
“This growth has helped our retail pharmacy business deliver another quarter of year-over-year market share gains, continuing a trend that began in the first quarter of 2020,” Lynch said.
In addition to the retail/long-term care segment, CVS also has a healthcare services segment and a pharmacy services segment.
Overall, Lynch described the quarter as “outstanding.”
“In the third quarter, we grew revenue 10% year over year to more than $81 billion and adjusted operating income increased nearly 4% year over year to $4.2 billion,” she said. “Adjusted earnings per share for the quarter were $2.09, an increase of over 6% year over year.”
Learn more about the company’s performance in the third quarter on the CVS corporate website.