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Woonsocket, RI-based CVS Health plans to sell its long-term care pharmacy business to Cincinnati-based Omnicare, which reported an associated loss of $2.5 billion in the third quarter, the company announced Wednesday.
“We continue to strategically review our portfolio and make decisions around properties that are not a good fit for our portfolio. Omnicare is a great example of that,” President and CEO Karen Lynch said on the company’s third-quarter earnings call Wednesday morning.
“The company has determined that its LTC business is no longer a strategic asset and plans to sell the LTC business in the third quarter of 2022,” CVS said in a filing with the Securities and Exchange Commission on Wednesday, accompanying the call.
Omnicare serves senior living communities, skilled nursing facilities and All Inclusive Aging (PACE) programs.
For accounting purposes, Omnicare “has met the accounting requirements held for sale and net assets are considered assets held for sale,” the company reported Wednesday. “LTC trading value is determined to be higher than fair value and a loss on assets held for sale is recorded in the third quarter of 2022.”
In the third quarter, CVS said the company booked a $2.5 billion pretax loss on assets held for sale to write down the company’s long-term care business in the current year. Charge off the Omnicare portion recorded in the previous year against the remaining goodwill.
Finding 2015
CVS in 2010 It acquired Omnicare in 2015 for $10.4 billion plus $2.3 billion in Omnicare debt, according to published sources. At the time, then-CEO Larry Merlo said the acquisition helped the retail pharmacy giant “enter a new arena of pharmacy distribution.”
A CVS spokesperson said rumors of a possible sale of Omnicare in August 2020 have circulated. McKnight’s Senior Living As it strengthens positions in the long-term care business. Some put the number of positions at more than 700, though CVS has not confirmed a specific number.
“The healthcare industry is evolving as how patients and customers interact with providers and payer programs change,” said Shelly Benditt, senior communications consultant at CVS Health. We regularly review all of our businesses to ensure that we are operating as efficiently as possible to better serve our customers.
CVS didn’t publicly say it planned to exit the long-term care business at the time, but a few months ago, in January 2020, Merlo described the company’s experience with OmniCare as “disappointing.” Speaking at a JP Morgan healthcare conference, he said the skilled nursing sector was “challenged” and that people’s desire to heal at home was impacting demand for long-term institutional pharmacy services.
“We continue to see opportunity in the development of assisted and independent living, and that’s where our focus remains,” he said at the time, according to a transcript.
In an August 2020 earnings call, CVS executives said the Covid-19 outbreak has “significantly impacted” OmniCare and the company’s long-term care presence overall.
“When you look at the industry challenges, admissions are down about 20% and some facilities continue to refuse new patients but are not closing on their own,” CVS Health vice president and chief financial officer Eva Borato said at the time.
Lynch will join CVS as its new CEO in February 2021. Earlier this year, Ahmed Hassan was named president of OmniCare, effective July 1, having joined CVS Health in 2015. At the time, he called Omnicare a “rock-solid company full of passion.” Long-term care professionals.
The cost of the company’s money
But legal actions related to long-term care have drained the company of money.
In May 2020, for example, Omnicare agreed to pay a $15.3 million civil penalty to settle allegations that it violated federal law by allowing opioids and other controlled substances to be dispensed without a valid prescription.
Omnicare has denied the lawsuit but said it would settle the lawsuit “to avoid the expense and uncertainty of litigation,” a company spokeswoman said. McKnight’s Senior Living by the time.
Separately and long-term care are no exception, CVS announced Wednesday that it has agreed to pay approximately $5.2 billion over 10 years beginning in 2023 to settle what Lynch described as “generally all claims against CVS Health by the states.” , political divisions and clans.
“This result will benefit all parties and help put decades of problems behind us as we continue to deliver superior health experiences to the millions of consumers who rely on us,” she said.
On Wednesday’s earnings call, Lynch also disclosed that CVS has signed an agreement to sell online benefits enrollment/management system maker BSwift (to global investment firm Francisco Partners), a deal she described as “non-strategic.” CVS acquired the company in 2018 as part of its acquisition of Aetna.
“As we dispose of assets, we continue to invest in a capital allocation approach that is consistent with our strategy,” she said. The company recently sold its health savings account business PayFlex (to Millennium Trust) and Aetna’s global business, Lynch said.
Not all sales
But that’s not all the differences are for the company.
In September, CVS announced it was buying CVS “a company focused on health risk assessments, value-based care and delivery” for $8 billion.
“This acquisition enhances our relationship with consumers at home and enables providers to better address patient needs as we execute our vision to redefine the healthcare experience. In addition, this combination strengthens our ability to expand and develop new product offerings in a multi-payer approach,” Lynch said at the time.
On Wednesday, she said the transaction could close in the first half of next year, and hinted at future home-related costs.
“We said we want to be at home. We’re going to invest around this,” Lynch said.
By 2022, $3B+ revenues are expected for the segment
Despite the potential sale of Omnicare, CVS’s retail/long-term care division is expected to see revenues of more than $3 billion in 2022 due to Covid-19, executive vice president and chief financial officer Shawn Guertin said.
However, it is unwise to assume that Covid-based revenues will reach similar levels in the future, and we expect the economics of vaccination and testing to change after the public health emergency we are dealing with has passed. It will take place at the beginning of the first quarter of 2023.
Overall, the retail/long-term care segment, which serves the broader population including CVS Pharmacy locations, continued to perform as expected, Lynch said, with revenue of $2.67 billion in the quarter, up 7% from last year. Adjusted operating income of $1.4 billion, according to executives.
Front-store sales were up roughly 4%, and demand for COVID vaccines and over-the-counter tests as well as cough, cold and flu products “performance in the front-store and pharmacy was strong,” Lynch said. It remains high.
The number of prescriptions rose 1.8 percent year-on-year in the third quarter, or 3.6 percent excluding Covid vaccines.
“This growth helped propel our retail pharmacy business to another quarter-over-year market share gain, extending a trend that began in the first quarter of 2020,” Lynch said.
In addition to the retail/long-term care division, CVS has a health care benefits division and a pharmacy services division.
Overall, Lynch described the quarter as “fantastic.”
“During the third quarter, we grew revenue by 10 percent year-over-year to more than $81 billion and adjusted operating income by nearly 4 percent year-over-year to $4.2 billion,” she said. “Adjusted earnings for the quarter were $2.09, up more than 6 percent from last year.”
Learn more about the company’s third quarter performance on the CVS corporate website.
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