Omnicare Results Continue To Disappoint

CVS Health recently reported third quarter 2019 financial results. Total revenues increased 36.5% for the three months ended September 30, 2019 compared to the prior year. Operating income increased 13.8% and 48.9% for the three months ended September 30, 2019 compared to the prior year.

Financial  growth was primarily driven by the impact of the Aetna acquisition. The financial results was partially offset by continued price compression in the Pharmacy Services segment, reimbursement pressure in the Retail/LTC segment and an increased generic dispensing rate.

Omnicare, which serves more than one million patients per year, has been a drag on CVS Health’s financial results since its acquisition. CVS Health outlined a four-point plan in August 2018 to improve the performance of Omnicare, stating earlier this year that progress is being made as a result of its plan, but the benefits are being offset by the external factors such as industry consolidation and divestitures impact the skilled nursing business.

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 stated that the growth opportunity with Omnicare was always focused on the independent and assisted living spaces.

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.

CVS Health stated that the long-term care business is performing slightly better than expected in 2019, and the company has started to see improvement in its new sales and retention, given service improvements. Omnicare also continues to improve its cost structure.

Takeaway: CVS Health continues to find the LTC pharmacy market to be challenging as the industry consolidation and client divestiture of facilities continues