Long-term care pharmacy Omnicare’s parent company, CVS Health, will lay off 5,000 employees, the company formally announced Wednesday.
The announcement followed reporting of the news on Monday by the Wall Street Journal, which cited an internal memo to employees.
Wednesday on the company’s second-quarter earnings call, CVS Health President and CEO Karen Lynch said the company was announcing a restructuring charge of almost $500 million in association with the layoffs as well as “the impairment of noncore assets.”
“These efforts are expected to generate over $600 million of run rate savings beginning in 2024,” she said.
Lynch said the company “took a very thoughtful and careful approach to this restructuring,” being “very deliberate in making sure that we had non-customer-facing roles and that we weren’t taking any action that would risk the execution of our long-term strategy.”
That long-term strategy, she announced in November 2022, includes plans to sell Omnicare, which serves skilled nursing facilities, assisted living communities and Programs of All-Inclusive Care for the Elderly..
“We continue to evaluate our portfolio strategically and are making decisions around assets that don’t fit into our portfolio strategically. Omnicare is a good example of that,” Lynch said on the company’s third-quarter 2022 earnings call.
In the first quarter of this year, CVS Health recorded a $349 million loss on assets held for sale associated with its long-term care pharmacy business.
Rumors of a possible Omnicare sale had circulated in August 2020, when a CVS spokeswoman told McKnight’s Senior Living that it would be consolidating positions within the long-term care business. Some put the number of positions at stake at more than 700, although CVS did not confirm a specific amount.
Tuesday, in response to a query from McKnight’s Senior Living, a CVS Health spokesman did not identify whether any of the new layoffs would affect Omnicare.
“Our industry is evolving to adapt to new consumer health needs and expectations. As part of an enterprise initiative to reprioritize our investments around care delivery and technology, we must take difficult steps to reduce expenses,” the spokesmen said. “This unfortunately includes the need to eliminate a number of non-customer facing positions across the company. We do not expect there to be any impact to our customer-facing colleagues in our stores, pharmacies, clinics, or customer services centers.”
All affected employees will receive severance pay and benefits, including access to outplacement services, he said.
CVS does not expect clients and customers to be affected, the spokesman added. “The difficult decision we are making will set the company up for long-term success.”
On the Wednesday earnings call, Chief Financial Officer Shawn Guertin said that as part of the restructuring effort, the company has shut down projects and would not hire people to fill some open positions.
The news comes as the company increasingly makes investments related to home care.
Wednesday, Lynch said that in addition to the elimination of about 5,000 jobs, the company’s “optimization efforts” also have focused on using technology to become more efficient.
“For example, we’ve been selectively using artificial intelligence for some time and are increasingly finding opportunities to improve the efficiency of our operations, enhance our customer experience and increase our competitiveness,” she said.
Through June 30, Lynch said, CVS Health generated more than $13 billion of operating cash flow and returned more than $3.5 billion to shareholders. “We expect to continue to return cash to our shareholders and deploy capital to enhance shareholder value,” she added.
In the company’s Pharmacy and Consumer Wellness segment, which includes Omnicare as well as retail pharmacy operations, related pharmacy services and CVS’ retail front store operations, revenue increased almost 8% to $28.8 billion compared with 2022.
“We generated $1.4 billion of adjusted operating income in the quarter, a decrease of 17% from the prior year, largely due to lower COVID-related volumes,” Lynch said.
Overall, CVS’ second-quarter revenues of almost $90 billion increased by more than 10% year over year. Adjusted operating income was almost $4.5 billion, a decrease of about 10% versus 2022, “primarily due to declines in our Healthcare Benefits and Pharmacy and Consumer Wellness segments, partially offset by strong execution in our Pharmacy Services operations,” Guertin said.
“Our ability to generate cash remains outstanding, with year-to-date cash flow from operations of $13.3 billion,” he added.
