CVS Health CEO: Omnicare Long-Term Care Pharmacy Business ‘Disappointing’

CVS Health (NYSE: CVS) CEO Larry Merlo this week described the health care giant’s experience with its Omnicare long-term pharmacy subsidiary, which serves nursing homes nationwide, as “disappointing.”

Speaking Tuesday at the J.P. Morgan Healthcare Conference in San Francisco, Merlo made a small reference to frustrations over struggles in the long-term care space since CVS acquired Omnicare in 2015 for $12.9 billion.

“The Omnicare business — obviously, it has been disappointing,” Merlo said in response to a question about whether the pharmacy still fits into CVS’s overall business strategy. “And it’s a challenging business environment.”

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Since the deal closed, nursing homes have struggled with squeezed margins due to staffing struggles and decreasing reimbursements, leading to overall financial distress for operators and vendors alike. CVS last February was forced to take a $2.2 billion impairment charge related to the Omnicare business, which the Woonsocket, R.I.-based company blamed on overarching headwinds — despite internal initiatives to help streamline the business.

“While progress is being made in the identified areas, the benefits are being offset by the external factors impacting the skilled nursing business. And work is underway to accelerate the action plan timeline to achieve the benefits more quickly,” Merlo said at the time.

The CEO this week emphasized that difficulties remain in the sector despite what he described as progress in 2019.

“Over the ’19 year, we’ve made a lot of progress in terms of making improvements in the efficiencies, productivity of the business — while dramatically improving the level of service to the clients that we serve,” he said.

That said, Merlo noted that home health continues to eat into demand for long-term institutional pharmacy services.

“The skilled nursing space continues to be challenged, as there continues to be a greater focus on convalescent in the home,” he said.

Merlo highlighted CVS’s shifting eye toward assisted and independent living for better growth opportunities within Omnicare.

“That’s where our focus remains,” he said.

CVS’s often difficult partnership with Omnicare has made industry headlines since 2015. In addition to the $2.2 billion impairment charge, Omnicare and CVS faced a federal lawsuit in December over alleged billing fraud — with the federal government accusing the long-term care pharmacy of illegally extending prescriptions without a physician’s consent.

CVS claimed that the allegations have no merit, and that Omnicare followed state regulations in its pharmacy practices.

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