CVS purchase of Omnicare to bring severe teeth gnashing
James M. Berklan
It's an odd thing to see the king of the jungle become the hunted instead of the hunter. But now that the smoke has started to clear from last week's announcement that pharmacy giant CVS will be buying Omnicare, the future is coming into better focus.
Omnicare, the behemoth long-term care pharmacy provider known for gobbling up competitors, is going to retain its dominant position in senior care. It's just likely to do it with some new managers flipping the switches at the top.
It also will likely become very familiar with the concepts of “streamlining” and “efficiency,” and its customers could very well enjoy purchasing leverage on a previously unheard of scale.
That's because while Omnicare might have been a roaring lion to long-term care operators in recent years, CVS is a roaring Tyrannosaurus rex, capable of sending shivers far beyond a specialty jungle.
CVS is merely the most recent in line to grab a key player in a specialty market.
CVS competitor Rite Aid paid about $2 billion for Envision Pharmaceutical Services (EnvisionRx) in February. A month later, UnitedHealth Group bought Catamaran, another of the largest U.S. pharmacy benefit managers, for $12.8 billion.
What's next? Keep an eye on Walgreen's. It could very well pursue a deal to acquire the No. 2 nursing home pharmacy services provider, PharMerica.
“Omnicare is gone, and next will be PharMerica,” Edward Buthusiem, a managing director at Berkeley Research Group, told me. “Walgreen's obviously is going to take a hard look at that. It would be a logical choice. But they [other mainstream pharmacies] are all looking at it.”
What does such major merger and acquisition activity mean to the local provider? It could result in some kind of moderated pricing — if the parent company shares discounts it drives via its powerful leverage.
In Omnicare's case, the brand name will undoubtedly stay the same, but certain processes are expected to change.
“Omnicare had all kinds of issues. We will see a much more streamlined operation,” Buthusiem predicts.
Actuarial science will take on more prominence. In this business, volume and efficiency rule the day.
Omnicare has had numerous struggles with regulators, lawsuits, pricing and coding issues in recent years. Its new parent has already fought and won many of those battles. Buthusiem describes CVS as a “well-oiled machine” compared to Omnicare.
It appears that Omnicare has entered the truly big leagues with its adoption by CVS.
The Federal Trade Commission will determine how quickly this deal can be fully consummated. And because Omnicare and CVS represent complementary specialty and retail/mail-order segments, respectively, I'm predicting the FTC will find no reason to block the deal.
By February next year, possibly several months later, we should start seeing just how much CVS leadership will mean to Omnicare, and the rest of the long-term care market.
James M. Berklan is McKnight's Editor. Follow him @JimBerklan.