CVS Health CEO Larry Merlo recently described the company’s experience with its Omnicare long-term pharmacy subsidiary, as “disappointing.” This continues the trend that CVS has experienced since purchasing Omnicare in 2015.
Continuing weak margins due to staffing struggles, recent generic introductions, and decreasing reimbursements remain the leading drivers of the poor results. Also, last year’s $2.2 billion impairment charge related to the Omnicare business and the more recent federal government allegations accusing Omnicare of routinely filling prescriptions that had expired or run out of refills have contributed to the ongoing troubles.
Merlo has emphasized that progress is being made with making improvements with Omincare’s productivity while improving the level of service to clients. He also noted that home health continues to eat into demand for long-term institutional pharmacy services.
CVS continues to shift Omnicare toward assisted and independent living for better growth opportunities. Omnicare performed slightly better than expected in 2019 with improvement in new sales and retention as a result of service improvements. And at the same time we also continue to improve our cost structure.
Takeaway: We expect CVS Health to shed more light on Omnicare in its upcoming fourth quarter 2019 financial results, although this is a problem that continues to concern the company.