Omnicare Remains a Burden for CVS Health

CVS Health purchased Omnicare in 2015 for $12.9 billion. Looking back at the rationale for the acquisition:

• Omnicare’s complementary specialty pharmacy platform and clinical expertise will augment CVS Health’s capabilities
• CVS Health will significantly expand its ability to dispense prescriptions in facilities serving the senior patient population, which is expected to grow significantly.

More than three years have passed since the acquisition and CVS Health executives continue to blame industry performance in the nursing home market as causing ongoing headaches in a review of its year-end 2018 financial results.

CVS Health is struggling with their financial performance at the same time that their attention and Wall Street attention is focused on the company’s integration of Aetna and the turbulent market affecting its Caremark business.

CVS Health outlined a four-point plan in August 2018 to improve the performance of Omnicare including:

• Installing a new leadership team
• Targeting ways to better retain clients
• Finding efficiencies to help lower costs for skilled care customers
• Targeting upward of $150 million in cost takeout opportunities

CVS Health stated that progress is being made as a result of its plan, but the benefits are being offset by the external factors impacting the skilled nursing business. Work is underway to accelerate the action plan timeline to achieve the benefits more quickly.

CVS Health’s value proposition is to be able to provide continuity of care as people progress through the different phases of aging and they move from independent living to assisted living.

CVS Health executives stated that the growth opportunity with Omnicare was always focused on the independent and assisted living spaces. Those opportunities still exist and are consistent with the company’s strategy of putting the customer at the new place of transforming care. The challenge facing CVS Health is that Omnicare’s business with skilled nursing facilities (SNF) are worse than the company originally expected.

CVS Health, in order to stabilize Omnicare’s SNF business plans to leverage the strength of its Advanced Care Scripts (ACS) specialty pharmacy business and provide higher levels of service to the facilities. Omnicare has invested in account management personnel and is seeing improvements in the business.

Omnicare plans to grow in assisted living through the implementation of a new service model, called community care centers, so that there’s a single point of contact with that community staff for senior living. Omnicare has also introduced multi-dose packaging that is an advantage over barcode scanning.

Omnicare is also leveraging the CVS retail pharmacies for staff deliveries to customer facilities that are closer than Omnicare pharmacies. This will allow them to respond more rapidly and develop a local relationship with these facilities along with the Omnicare pharmacy.