Woonsocket, RI-based CVS Health, plans to sell its Cincinnati-based long-term care pharmacy business, 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 on assets that do not strategically fit our portfolio. Omnicare is a good example of that,” President and CEO Karen Lynch said Wednesday morning during the company’s third-quarter earnings call.
“The Company has determined that its LTC business is no longer a strategic asset and, during the third quarter of 2022, has embarked on a plan to sell the LTC business,” CVS said in a filing with the Securities and Exchange Commission on Wednesday, in conjunction with the appeal.
Omnicare serves senior living communities, skilled nursing facilities, and All-Inclusive Care for the Elderly (PACE) programs.
For accounting purposes, Omnicare “has met the criteria for accounting held for sale and the net assets have been accounted for as assets held for sale,” the company reported Wednesday. “The carrying value of the SLD business was determined to be greater than its fair value and a loss on assets held for sale was recorded during the third quarter of 2022.”
In the third quarter, according to CVS, the company recorded a pretax loss of $2.5 billion on assets held for sale to write down the company’s long-term care business in the current year. , which was partially offset by the absence of a goodwill impairment of $431 million. charge on the remaining goodwill of the Omnicare unit recorded in the previous year.
CVS acquired Omnicare in 2015 for $10.4 billion plus the assumption of $2.3 billion in debt from Omnicare, according to published sources. At the time, then-CEO Larry Merlo said the purchase gave the retail drugstore giant “access to a new pharmaceutical distribution channel.”
Rumors of a possible sale of Omnicare circulated in August 2020, when a CVS spokeswoman said McKnight Senior Residence that it would consolidate its positions within the long-term care business. Some put the number of positions in play at more than 700, although CVS has not confirmed a specific amount.
“The healthcare industry is changing as patients and customers change the way they interact with service providers and as payment programs evolve,” said Shelly Bendit, senior communications consultant at the time. at CVS Health. “We regularly evaluate all of our activities to ensure that we are well positioned to best serve our customers while running our operations as efficiently as possible.”
CVS hadn’t publicly expressed any intention to exit the long-term care business at this point, but a few months earlier, in January 2020, Merlo had called the company’s experience with Omnicare “disappointing.” Speaking at a JP Morgan Healthcare conference session, he also noted that the skilled nursing sector was ‘challenged’ and people’s desire to recover at home continued to affect demand for services. long-term institutional pharmaceuticals.
“We continue to see the opportunity in the growth of assisted and independent living, and that’s where our focus remains,” he said at the time, according to a transcript.
During an August 2020 earnings call, CVS executives noted that the COVID-19 pandemic had “significantly affected” Omnicare and the company’s overall long-term care presence.
“Looking at the challenges in the industry, we’ve seen admissions down about 20% and some facilities are still not accepting new patients but aren’t closed per se,” the VP said at the time. president and chief financial officer of CVS Health, Eva Boratto. .
Lynch joined CVS as the new CEO in February 2021. Earlier this year, effective July 1, Ahmed Hassan was named President of Omnicare, having joined CVS Health in 2015. At the time, he called Omnicare “a rock-solid company filled with passionate long-term care experts.
Cost the company money
But legal actions related to long-term care have also cost the company money.
In May 2020, for example, Omnicare agreed to pay a $15.3 million civil penalty to settle allegations that it violated federal law by allowing the dispensing of opioids and other controlled substances without a valid prescription. .
Omnicare denied the allegations but settled the lawsuit “to avoid the expense and uncertainty of potential litigation,” a company spokesperson said. McKnight Senior Residence at the time.
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 “virtually all of the Opioid lawsuits and claims against CVS Health by states, political subdivisions and tribes.
This outcome, she said, “is in the best interests of all parties and will help put a decades-old problem behind us as we continue to focus on delivering a superior healthcare experience to people.” millions of consumers who rely on us”.
During Wednesday’s earnings call, Lynch also noted that CVS had signed an agreement to sell the creator of the online benefits enrollment/administration system bswift (to global investment firm Francisco Partners), a business she also described as “non-strategic”. CVS had acquired the company as part of the purchase of Aetna in 2018.
“As we divest assets, we will continue to invest in areas aligned with our strategy with a disciplined approach to capital allocation,” she said. The company also recently sold the Payflex health savings account business (to Millennium Trust) and part of its Aetna international business, Lynch noted.
Not all sales
But these are not all divestments for the company.
In September, CVS announced it was acquiring Signify Health, a company focused on “health risk assessment, value-based care and provider empowerment,” for $8 billion.
“This acquisition will enhance our connection with consumers in the home and enable providers to better meet patient needs as we execute on our vision to redefine 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 deal is expected to close in the first half of next year, and she also hinted at future home-related expenses.
“We said we wanted to be home. We will make investments around that,” Lynch said, echoing comments she made in September at Morgan Stanley’s Global Healthcare Conference.
Over $3 billion in revenue expected for the segment in 2022
Despite the potential sale of Omnicare, CVS’s retail and long-term care segment is expected to generate more than $3 billion in revenue in 2022 due to COVID-19, the executive vice president and CEO said. Chief Financial Officer Shawn Guertin.
“It is not prudent to anticipate a similar level of COVID-based revenue in the future,” he said, “and we expect the economics of vaccines and diagnostic tests changes following the expiration of the public health emergency, which we anticipate will occur 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 in the quarter, representing nearly 7% growth from a year earlier, with $1.4 billion in adjusted operating profit, executives said.
“Performance in both the front store and the pharmacy has been strong,” Lynch said, noting that front store sales were up about 4% and demand for COVID vaccines and over-the-counter tests , as well as cough, cold and flu products, remains high.
The number of prescriptions filled, she said, was up 1.8% year-over-year in the third quarter, or 3.6% if COVID vaccines are excluded.
“This growth helped propel our retail pharmacy business toward 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 its retail/long-term care segment, CVS also has a healthcare benefits segment and a pharmaceutical services segment.
Overall, Lynch called the quarter “outstanding.”
“During the third quarter, we grew revenue 10% year over year to more than $81 billion and adjusted operating income nearly 4% year over year to reach $4.2 billion,” she said. “Adjusted earnings per share for the quarter were $2.09, an increase of more than 6% over the prior year.”
Read more about the company’s third quarter performance on the CVS website.
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