Woonsocket, RI-based CVS Health Corp. remains “very bullish” on its ability to increase its presence in assisted living, despite the fact that its Omnicare long-term care pharmacy business is not performing as well as had been expected, executives told analysts and shareholders participating in a fourth-quarter and full-year 2018 earnings call on Wednesday.
“The growth opportunity with Omnicare was always focused on the independent and assisted living spaces, and those opportunities still exist, and they’re consistent with our strategy of putting the customer at the nucleus of transforming care,” President and CEO Larry Merlo said. “The challenges that we have in that business are really around the skilled nursing facilities, which have been worse than we originally expected.”
Specifically, the company said, industrywide challenges — “lower occupancy rates in skilled nursing facilities; significant deterioration in the financial health of numerous skilled nursing facility customers, which resulted in a number of customer bankruptcies in 2018; and continued facility reimbursement pressures” — have affected its ability to expand the long-term care pharmacy business at the rate that it estimated when it acquired Omnicare for $12.9 billion in 2015. CVS recorded a goodwill impairment charge of $3.9 billion during the second quarter of 2018 and a $2.2 billion goodwill impairment charge after a goodwill impairment test performed as of the end of December.
Omnicare, CVS Chief Operating Officer Jonathan Roberts said, is working to stabilize the skilled nursing business by increasing service to facilities and installing technology to help facilities communicare with the pharmacy. “We think service ties directly to retention, and we’ve made significant improvements there,” he said.
Merlo said that the company’s four-point plan to get the long-term care business “back on track,” outlined in August, is making progress, although external factors related to skilled nursing are offsetting that progress.
“Work is underway to accelerate the action plan timeline to achieve the benefits more quickly,” he said. “And we’ve already begun to see some progress, realizing nearly $80 million in process improvement savings, with more to come.”
In assisted living, Roberts said, Omnicare has implemented a new service model.
“We call them ‘community care centers,’ ” he said. “There’s a single point of contact with that community staff for senior living. That was not the case prior to this past year.”
Also, Roberts said, Omnicare has introduced multi-dose packaging and other tools that it believes will appeal to assisted living communities.
“We’re also leveraging our CVS retail pharmacies for staff deliveries to these facilities,” he said. “These pharmacies are closer than the Omnicare pharmacies; they can respond more rapidly and actually develop a local relationship with these facilities along with the Omnicare pharmacy.”
The efforts, Roberts said, have increased the company’s penetration within individual assisted living communities. ”We’re [also] seeing existing clients where we didn’t have all of the assisted living facilities, actually give us more of their facilities because of these services and changes and enhancements that we’ve made,” he added.
Independent living and assisted living communities “are trying to be able to provide continuity of care as people progress through the different phases of aging and they move from independent living to assisted living,” Roberts noted. “And so we think our value proposition will resonate even more based on these changing dynamics and what we’ve seen historically.”
