Has CVS Health Reached the Tipping Point with Omnicare?

Omnicare, which serves more than one million patients per year, has been a drag on CVS Health’s financial results since its acquisition.

Omnicare operates two primary businesses through two operating segments, Long-Term Care Group and Specialty Care Group, each serving different customer populations but sharing a common objective: advancing health outcomes at the lowest possible cost.

CVS Health outlined a four-point plan in August 2018 to improve the performance of Omnicare, but the benefits have been offset by external factors such as the coronavirus and industry consolidation and divestitures that impact the skilled nursing business.

CVS Health stated that the long-term care business performed slightly better than expected in 2019, and the company started to see improvement in its new sales and retention, given service improvements.

However, in January, 2020, CVS Health CEO Larry Merlo described the company’s experience with Omnicare as “disappointing” during a J.P. Morgan Healthcare Conference session. In those remarks, he also noted that the skilled nursing space was challenged and that home health was continuing to eat into demand for long-term institutional pharmacy services.

On a second-quarter 2020 earnings call, CVS executives noted that the COVID-19 pandemic has “substantially affected” Omnicare and the company’s long-term care presence overall.

Recently, it has been reported by McKnight’s Senior Living that CVS Health is proceeding with layoffs that could exceed 700 employees within Omnicare. Omnicare had approximately 13,000 employees when it was acquired by CVS.

The company recently reported that admissions are down about 20% and facilities, with some facilities continuing to not accept new patients. Overall, long-term care contributes less than 2% of CVS Health’s overall enterprise profitability.

Takeaway: CVS Health has been aggressively managing Omnicare’s cost structure, but it may not be enough in today’s challenging environment