A CVS-owned pharmacy giant has officially filed for Chapter 11 bankruptcy with the court following what the company viewed as an “unconstitutional” penalty.
Omnicare, LLC, a subsidiary of CVS Health, announced on Monday it had started voluntary bankruptcy proceedings in order to straighten out issues pertaining to recent litigation.
The CVS-owned pharmacy giant filed for bankruptcy following legal trouble over prescriptions[/caption]
The pharmacy-services provider had to cough up $949 million due to allegations that it wrongfully dispensed prescription drugs to customers in long-term care.
Omnicare, which CVS Health acquired for over $10 billion in 2015, listed debts ranging from $1 billion to $10 billion and assets of at least $100 million on a Chapter 11 petition.
The $949 million civil judgment was cited as the pharmacy-services provider’s biggest unsecured debt, which the company is challenging.
The subsidiary has entered a deal to secure $110 million in Chapter 11 financing which, when coupled with the money it continues generating from its operations, “will provide sufficient liquidity for Omnicare to meet its ongoing business obligations during the court-supervised process,” the company said in a press release.
Aside from resolving the trouble with its costly lawsuit, the long-term care business plans to use the bankruptcy process to address other monetary troubles hitting the broader long-term care pharmacy sector.
Those include a tightening job market and dropping reimbursement rates as well as a general decline in the use of long-term care facilities.
How does bankruptcy work?
Bankruptcy is a specific legal process that helps companies eliminate debt they can’t repay.
The process allows businesses to start fresh and gain access to new credit.
Supervised by federal courts, bankruptcies allow a company to sell off its assets more easily to pay off creditors, according to Investopedia.
Chapter 11, a common process for companies, is used to restructure a business with the goal of remaining open – even if it means selling off most of the company’s properties.
Chapter 7, on the other hand, sells all of a company’s assets, putting it out of business.
Chapter 15, alternatively, allows for collaboration between American and foreign courts to conduct bankruptcy proceedings with “parties of interest involving more than one country,” per the United States Courts.
The filing will also be used to evaluate the company’s restructuring options, either taking on a standalone restructuring or selling the business.
As Omnicare undergoes the bankruptcy proceedings, the pharmacy giant said it will continue to provide safe and reliable services to long-term care facilities without disruption.
TROUBLE BREWING
Omnicare’s bankruptcy filing came two months after the company was ordered to pay $949 million when a federal court found it responsible for filing fraudulent claims for prescriptions.
A former Omnicare pharmacist filed a whistleblower lawsuit against the company in 2015, and the federal government joined the legal fight in 2019.
The Department of Justice accused the company’s pharmacies of distributing drugs to customers in residential facilities based on prescriptions that had expired or run out of refills, assigning new prescription numbers without required paperwork and pharmacist approvals.
The federal department said Omnicare fraudulently billed government-funded programs such as Medicaid, Medicare, and Tricare for these improperly dispensed drugs from 2010 to 2018.
CVS Health said at the time that the allegations had no merit and continues to deny wrongdoing as the bankruptcy process commences.
“Omnicare has a proud history of providing industry-leading, pharmacy and clinical care solutions to long-term care providers and their residents,” David Azzolina, president of Omnicare, said in the press release.
CVS closes 900 stores
CVS Health is finishing up its three-year plan to close 900 stores.
CEO Karen Lynch said it has shut down 851 so far, The Associated Press reported in August 2024.
The company announced the plan in November 2021, saying that the closures would lead to a retail presence that ensures it has the “right kinds of stores in the right locations for consumers and for the business,” per CNN.
The shutdowns amount to almost 10% of CVS’s footprint, in response to the shifting of “consumer buying patterns.”
The closures are part of a wider change in strategy of the company’s almost 10,000 locations.
Some stores have been removed to include more health services, such as primary care, and an “enhanced version” of CVS’s HealthHub layout.
“We remain focused on the competitive advantage provided by our presence in thousands of communities across the country, which complements our rapidly expanding digital presence,” Lynch said in 2021.
The shutdowns cost the company approximately $1 billion dollars in the fourth quarter of 2021, according to CNN.
He noted that the company was involved in a civil lawsuit claiming Omnicare violated pharmacy law based on practices that the federal government was aware of and approved.
“There were no allegations of harm to any Omnicare patients nor did the government allege that any patient got anything other than the medicine they needed when they needed it,” he said.
“The District Court nevertheless imposed an extreme and, we believe, unconstitutional penalty.
“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 isn’t the only pharmacy giant struggling to stay afloat.
A Walgreens shakeup, for example, sparked patient fear as pharmacies face more closures after 295 shutters.
Meanwhile, dozens of Rite Aid stores are set to become CVS in a last ditch attempt to fend off pharmacy deserts.
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