CVS Health's long-term care pharmacy subsidiary Omnicare filed for Chapter 11 bankruptcy protection, two months after a federal court ordered the company to pay $949 million for submitting fraudulent prescription drug claims.
The Cincinnati-based company's bankruptcy filing comes as it grapples with what it calls an "extreme” and “unconstitutional penalty" stemming from allegations that it routinely dispensed medications based on expired or depleted prescriptions between 2010 and 2018.
The federal government joined legal proceedings against CVS Health in 2019, alleging that Omnicare pharmacies distributed drugs to nursing home residents using "stale, invalid prescriptions." The Department of Justice accused the company of fraudulently billing Medicare and Medicaid for improperly dispensed medications.
CVS Health initially dismissed the allegations as meritless when the lawsuit was filed.
Omnicare President David Azzolina defended the company's practices in a prepared statement Monday, noting that there was no patient harm alleged in the case.
His statement specifically clarified that the lawsuit did not include any allegations of harm to Omnicare patients and that patients received only their medicine they needed and when they needed it, and that nothing more.
"The District Court nevertheless imposed an extreme and, we believe, unconstitutional penalty,” Azzolina said.
He added that the court ruling, combined with other business challenges, prompted the bankruptcy filing to "ensure the continued delivery of safe and reliable pharmacy service to our customers."
According to bankruptcy documents filed in the U.S. Bankruptcy Court for the Northern District of Texas, Omnicare reported debts of up to $10 billion against assets totaling up to $500 million. CVS Health acquired the company for more than $10 billion in 2015.
The bankruptcy filing looks to address issues related to the recent court decision while tackling broader financial challenges affecting the long-term care pharmacy sector. Omnicare plans to use the process to evaluate other avenues of restructuring its business.
Despite the bankruptcy, Omnicare will continue serving long-term care facilities throughout the court-supervised process. The company secured $110 million in debtor-in-possession financing, which, pending court approval, will give the company operational liquidity alongside cash from its ongoing business.
CVS Health has been exploring other strategic alternatives for the struggling subsidiary while recording significant writedowns for the business.
The parent company's stock price rose 1 percent Tuesday following the bankruptcy announcement.
In October 2024, current CEO David Joyner took over after the drug-store chain replaced Karen Lynch. Joyner is a former executive who returned to the company from retirement in 2023.
“We believe the company's culture, governance and leadership should be strengthened by those with both appropriate industry experience as well as fresh perspectives and that the company would be best served through prompt board evolution,” Glenview said. “This will best serve the long-term interests of the 300,000 employees and 120 million customers of CVS who deserve better now.”