CVS Health subsidiary Omnicare files for Ch. 11 bankruptcy protection

Key Points

• Omnicare, a subsidiary of CVS Health, has filed for Chapter 11 bankruptcy protection following a court ruling that ordered it to pay $949 million for fraudulent prescription claims.
• The company was accused of billing Medicaid and Medicare for drugs dispensed without valid prescriptions from 2010 to 2018, but Omnicare's president stated that no allegations of patient harm were made.
• Omnicare reported having up to $10 billion in debt against a backdrop of financial struggles in the long-term care pharmacy industry, seeking to restructure through bankruptcy.
• The company will continue providing pharmacy services during the bankruptcy process and has secured $110 million in debtor-in-possession financing to maintain operations.

CVS Health subsidiary Omnicare has filed for Chapter 11 bankruptcy protection two months after the long-term care business was ordered to pay $949 million when a federal court found it liable for filing fraudulent claims for some prescription drugs.

In 2019 the federal government joined the legal fight against CVS Health that accused Omnicare business of routinely filling prescriptions that had expired or run out of refills. The Department of Justice said that Omnicare’s pharmacies sent drugs to people living in residential facilities based on “stale, invalid prescriptions.” It accused the company of fraudulently billing government-funded programs like Medicaid and Medicare for drugs dispensed without a valid prescription from 2010 to 2018.

CVS Health said at the time that the claims had no merit.

Omnicare President David Azzolina said in a prepared statement Monday that the lawsuit didn't include any allegations of harm to any Omnicare patients and that the government didn't allege that any patient got anything other than the medicine they needed when they needed it.

“The District Court nevertheless imposed an extreme and, we believe, unconstitutional penalty,” Azzolina said. "Given that ruling and a number of other issues facing our business, we now are taking necessary steps to move forward and ensure the continued delivery of safe and reliable pharmacy service to our customers.”

Omnicare, which CVS Health acquired for more than $10 billion in 2015, said in its bankruptcy petition that it had up to $10 billion in debt and up to $500 million in assets.

The Cincinnati company said that the bankruptcy filing would help it resolve issues related to the recent court ruling. Omnicare said that it was also using the process to address other financial challenges facing the broader long-term care pharmacy industry and to evaluate its restructuring options.

CVS Health has been exploring strategic options for Omnicare as booked writedowns for the struggling business.

Omnicare, which filed in the U.S. Bankruptcy Court for the Northern District of Texas, said that it will still provide pharmacy services to long-term care facilities during the court-supervised process.

The company said that it entered into an agreement for $110 million in debtor-in-possession financing. Once it receives court approval, Omnicare expects the financing and cash generated from operations will provide sufficient liquidity for it to meet ongoing business obligations during the court-supervised process.

Shares of CVS Health rose 1% Tuesday.