Woonsocket, RI-based CVS Well being plans to promote its long-term care pharmacy enterprise, Cincinnati-based Omnicare, reporting a $2.5 billion loss associated to it within the third quarter, the corporate introduced Wednesday.
“We proceed to judge our portfolio strategically and are making choices round property that don’t match into our portfolio strategically. Omnicare is an efficient instance of that,” President and CEO Karen Lynch mentioned Wednesday morning on the corporate’s third-quarter earnings name.
“The Firm decided that its LTC enterprise was not a strategic asset and through the third quarter of 2022 dedicated to a plan to promote the LTC enterprise,” CVS mentioned in a filing with the Securities and Change Fee on Wednesday, made along side the decision.
Omnicare serves senior residing communities, expert nursing amenities and Packages of All-Inclusive Look after the Aged (PACE).
For accounting functions, Omnicare “met the standards for held-for-sale accounting and the online property had been accounted for as property held on the market,” the corporate reported Wednesday. “The carrying worth of the LTC enterprise was decided to be higher than its honest worth and a loss on property held on the market was recorded through the third quarter of 2022.”
Within the third quarter, in accordance with CVS, the corporate recorded a $2.5 billion pretax loss on property held on the market to jot down down the corporate’s long-term care enterprise within the present 12 months, which partially was offset by the absence of a $431 million goodwill impairment cost on the remaining goodwill of the Omnicare unit recorded within the prior 12 months.
CVS acquired Omnicare in 2015 for $10.4 billion plus the belief of $2.3 billion in Omnicare debt, in accordance with printed sources. On the time, then-CEO Larry Merlo said that the acquisition gave the retail pharmacy big “entry into a brand new pharmacy shelling out channel.”
Rumors of a possible Omnicare sale circulated in August 2020, when a CVS spokeswoman instructed McKnight’s Senior Residing that it might be consolidating positions inside the long-term care enterprise. Some put the variety of positions at stake at greater than 700, though CVS didn’t affirm a certain quantity.
“The healthcare trade is evolving as sufferers and shoppers change how they work together with service suppliers and as payer applications evolve,” Shelly Bendit, a senior communications guide with CVS Well being, mentioned on the time. “We repeatedly consider all of our companies to make sure that we’re positioned to finest serve our clients whereas operating our operations as effectively as doable.”
CVS had not publicly expressed an intention to go away the long-term care enterprise at that time, however just a few months earlier, in January 2020, Merlo had described the corporate’s expertise with Omnicare as “disappointing.” In remarks throughout a J.P. Morgan Healthcare Convention session, he additionally famous that the expert nursing sector was “challenged” and that folks’s need to convalesce at residence was persevering with to have an effect on demand for long-term institutional pharmacy companies.
“We proceed to see the chance within the development of assisted and unbiased residing, and that’s the place our focus stays,” he mentioned on the time, in accordance with a transcript.
On an August 2020 earnings call, CVS executives famous that the COVID-19 pandemic had “considerably affected” Omnicare and the corporate’s long-term care presence total.
“As you take a look at the trade challenges, we’ve seen admissions down about 20% and a few amenities persevering with to not settle for new sufferers however not be shut down per se,” CVS Well being Vice President and Chief Monetary Officer Eva Boratto mentioned on the time.
Lynch joined CVS as its new CEO in February 2021. Early this 12 months, efficient July 1, Ahmed Hassan was appointed president of Omnicare, having joined CVS Well being in 2015. On the time, he referred to as Omnicare “a rock-solid firm crammed with passionate long-term care specialists.”
Costing the corporate cash
However long-term care-related authorized actions even have price the corporate cash.
In Could 2020, for example, Omnicare agreed to pay a $15.3 million civil penalty to settle allegations that it violated federal regulation by permitting opioids and different managed substances to be disbursed and not using a legitimate prescription.
Omnicare denied the allegations however settled the lawsuit “to keep away from the expense and uncertainty of potential litigation,” an organization spokesman instructed McKnight’s Senior Residing on the time.
Individually and never particular to long-term care, on Wednesday, CVS announced an settlement in precept to pay roughly $5.2 billion over 10 years, starting in 2023, to settle what Lynch described as “considerably all opioid lawsuits and claims in opposition to CVS Well being by states, political subdivisions and tribes.”
That end result, she mentioned, “is in the perfect curiosity of all events and one that can assist put a decades-old subject behind us as we proceed to deal with delivering a superior well being expertise for the tens of millions of customers who depend on us.”
On the Wednesday earnings name, Lynch additionally famous that CVS had signed an settlement to promote on-line advantages enrollment/administration system creator bswift (to world funding agency Francisco Companions), a enterprise she additionally described as “nonstrategic.” CVS had acquired the corporate as a part of Aetna purchase in 2018.
“As we divest property, we’ll proceed to put money into areas aligned with our technique with a disciplined method to capital allocation,” she mentioned. The corporate additionally just lately sold well being financial savings account enterprise Payflex (to Millennium Belief) and a part of its Aetna worldwide enterprise, Lynch famous.
Not all gross sales
However it’s not all divestitures for the corporate.
In September, CVS introduced that it was shopping for Signify Well being, an organization centered on “well being danger assessments, value-based care and supplier enablement,” for $8 billion.
“This acquisition will improve our connection to customers within the residence and permits suppliers to higher handle affected person wants as we execute our imaginative and prescient to redefine the healthcare expertise. As well as, this mixture will strengthen our skill to increase and develop new product choices in a multi-payer method,” Lynch said on the time.
Wednesday, she mentioned that the transaction is anticipated to shut within the first half of subsequent 12 months, and he or she additionally hinted at future home-related spending.
“We mentioned we wished to be within the residence. We’ll make investments round that,” Lynch mentioned
$3B+ revenues anticipated for section in 2022
Regardless of the potential sale of Omnicare, CVS’ retail/long-term care section is anticipated to see greater than $3 billion in revenues in 2022 as a consequence of COVID-19, Government Vice President and Chief Monetary Officer Shawn Guertin mentioned.
“It’s not prudent to anticipate the same degree of COVID-based revenues going ahead,” nevertheless, he mentioned, “and we anticipate that the economics on vaccines and diagnostic testing will change following the expiration of the general public well being emergency, which we mission will occur within the early a part of the primary quarter of 2023.”
General, the retail/long-term care section, which incorporates CVS Pharmacy places serving most people, “continues to outperform expectations,” Lynch mentioned, with revenues of $2.67 billion within the quarter representing development of virtually 7% versus the prior 12 months, with $1.4 billion in adjusted working revenue, in accordance with executives.
“Efficiency in each the entrance retailer and pharmacy was sturdy,” Lynch mentioned, noting that entrance retailer gross sales had been up roughly 4% and that demand for COVID vaccines and over-the-counter exams, in addition to cough, chilly and flu merchandise, stays excessive.
The variety of prescriptions stuffed, she mentioned, grew 1.8% year-over-year within the third quarter, or 3.6% if COVID vaccines are excluded.
“This development helped propel our retail pharmacy enterprise to a different quarter of year-over-year market share beneficial properties, extending a pattern that began within the first quarter of 2020,” Lynch mentioned.
Along with its retail/long-term care section, CVS additionally has a healthcare advantages section and a pharmacy companies section.
General, Lynch characterised the quarter as “excellent.”
“Through the third quarter, we grew income by 10% versus the prior 12 months to over $81 billion and grew adjusted working revenue by almost 4% over the prior 12 months to $4.2 billion,” she mentioned. “Adjusted earnings per share within the quarter was $2.09, a rise of over 6% from the prior 12 months.”
Study extra concerning the firm’s third-quarter efficiency on the CVS corporate website.