CVS Health Records $2.2B Impairment on Omnicare, Still Bullish on Senior Living

Shares of pharmacy and insurance giant CVS Health (NYSE: CVS) dipped sharply Wednesday on the heels of a troubled Q4 2018 earnings report, which included a $2.2 billion impairment charge related to the company’s long-term care business. However, CVS Health executives are still bullish on the prospects for this division, particularly through expansion into independent living and assisted living.

CVS acquired Omnicare, the nation’s largest long-term care pharmacy, in a 2015 deal valued at $12.9 billion. Since that time, headwinds have battered Omnicare’s clients, particularly skilled nursing facilities (SNFs). These challenges have included tighter reimbursement levels and shifting payment models, heightened regulatory scrutiny, rising wages and ultra-competitive labor markets.

As a result, the long-term care pharmacy business has not grown as CVS expected back in 2015. In Q4 2018, clients’ operational and financial issues — including a the bankruptcy of one customer — caused the business unit to miss its financial forecasts. Further deterioration is expected in 2019, leading to the $2.2 billion goodwill impairment charge.


Pressed by analysts about the future value of Omnicare to CVS Health, executives on Wednesday’s earnings call said they can turn the tide.
On the SNF side, CVS Health has invested in account management personnel and technology to assist these customers in communicating with the pharmacy. Meanwhile, the private-pay senior living market remains a big opportunity.

“The growth opportunity with Omnicare was always focused on the independent and assisted living spaces. And those opportunities still exist,” CVS Health CEO Larry Merlo said on the earnings call.

To support this growth into the private-pay market, CVS Health has taken several steps:

  • Implementing “community care centers” to create a single point of contact for the senior living community staff
  • Multi-dose packaging
  • Leveraging local retail pharmacies for medication delivery and a nearby point of contact for senior living communities

“We think we’ll be able to not only grow our penetration rate in these assisted living facilities, but we’re seeing existing clients where we didn’t have all of the existed living facilities actually give us more of their facilities because of the services and changes and enhancements that we’ve made,” Executive Vice President and COO Jonathan Roberts said on the call.

Expanding into private-pay senior living is “consistent with our strategy of putting the customer at the new place of transforming care,” Merlo remarked. This strategy formed the basis of CVS’ $70 billion acquisition of insurer Aetna last year.

In coming together, the two companies painted a picture of how they could create convenient, community-based care anchored in CVS locations and supported by Aetna benefits packages. This “retail-ization” of health care could theoretically enable people to age in place — including in senior living communities — by making it easier for individuals to access products and services to maintain their wellness. This would also keep overall health care costs down by reducing hospitalizations and other costly interventions.

Recommended SHN+ Exclusives

However, for 2019, CVS Health is not anticipating any significant financial upside from the Aetna deal, as the company will have to invest significantly on the integration. This forecast contributed to CVS Health’s share price dropping 8% on Wednesday, to its lowest point since November 2016, according to CNBC.

Companies featured in this article:

, ,