Omnicare: $948.8M False Claims Act Judgment Forces CVS Subsidiary into 363 Sale

Omnicare, LLC—a long-term care pharmacy provider and a subsidiary of CVS Health Corporation since a $12.7 billion acquisition in 2015—filed chapter 11 petitions on September 22, 2025, following a $948.8 million False Claims Act judgment that the company characterized as "extreme and unconstitutional." The bankruptcy encompasses 111 debtor entities serving more than 800,000 patients annually across 4,000+ skilled nursing facilities, assisted living communities, and other long-term care settings in 47 states. Omnicare secured $110 million in debtor-in-possession financing from JMB Capital Partners to fund a 363 sale process.

The judgment stemmed from a 2015 whistleblower lawsuit alleging that Omnicare dispensed medications without valid prescriptions or refills from 2010 to 2018, then billed Medicare, Medicaid, and TRICARE for over 3.3 million false claims. CVS—which recorded multiple impairment charges totaling over $6 billion on the Omnicare acquisition and attempted to sell the business in 2022—now faces a court-supervised sale process while the U.S. Government holds a nearly $1 billion claim.

From $12.7 Billion Acquisition to Bankruptcy

Omnicare's trajectory from CVS acquisition to bankruptcy debtor includes regulatory scrutiny and impairment charges recorded by CVS related to the business.

Omnicare's origins and growth. Incorporated in Delaware on May 19, 1981, Omnicare expanded through acquisitions—seven Midwest pharmacy purchases in 1992, American Mediserve for $222.6 million in 1997, and eleven acquisitions in 1998 including IBAH and CompScript. The company acquired healthcare services from W.R. Grace & Company and Chemed Corporation, with Edward L. Hutton serving as chairman and Joel F. Gemunder as president. By 2001, Omnicare generated $2.15 billion in revenue with 9,000 employees serving over 443,100 patients across 37 states, following the 1990 implementation of the Omnibus Budget Reconciliation Act that strengthened regulations requiring pharmacy consultants in nursing home settings.

The CVS acquisition. On May 21, 2015, CVS Health and Omnicare announced a definitive agreement under which CVS would acquire Omnicare for $98.00 per share in cash. CVS completed the acquisition on August 18, 2015 for approximately $12.9 billion total enterprise value—$10.4 billion in cash plus assumption of $2.3 billion in debt. The deal brought 13,000 employees at 160 locations serving patients in 47 states into the CVS fold. CVS positioned the acquisition as expanding its presence in specialty pharmacy and serving the senior patient population through Omnicare's complementary specialty pharmacy platform and clinical expertise.

Serial impairments. In August 2018, CVS announced a $3.9 billion goodwill impairment charge—representing 59% of Omnicare's recorded value. In February 2019, CVS recorded an additional $2.2 billion impairment due to "further deterioration expected in the business." In 2021, a $431 million impairment charge eliminated remaining goodwill. By the third quarter of 2022, CVS reported a $2.5 billion loss related to Omnicare and declared the long-term care pharmacy business "no longer a strategic asset," initiating sale efforts that were abandoned in 2023. The cumulative impairments exceeded $6 billion—more than half the original purchase price—before the bankruptcy filing.

Failed sale attempt. CVS's November 2022 announcement that it planned to sell Omnicare followed a determination that the carrying value of the LTC business was greater than its fair value. By 2023, CVS had halted those sale efforts without completing a transaction, before the False Claims Act judgment in 2025.

The $948.8 Million False Claims Act Judgment

The judgment that triggered Omnicare's bankruptcy followed earlier False Claims Act settlements involving the company.

Prior Settlements and Compliance History.

Before the $948.8 million judgment, Omnicare's compliance record included settlements over kickback and billing allegations. In 2012, Omnicare settled nearly $50 million over kickback allegations. In 2014, the company paid $124 million for improper financial incentives to nursing homes. In 2016, Omnicare agreed to pay $28.125 million to resolve allegations that it solicited kickbacks from Abbott Laboratories in exchange for promoting the prescription drug Depakote for nursing home patients—payments allegedly disguised as "grants" and "educational funding" whose true purpose was to induce Depakote recommendations. In 2017, Omnicare paid $8 million to settle False Claims Act allegations with the U.S. Attorney's Office of the District of New Jersey, the Department of Justice, and 28 states related to billing for generic drugs different from those actually dispensed and dispensing drugs with patient-specific labels displaying incorrect manufacturer or NDC information.

These settlements totaled over $200 million before the 2025 judgment. The court found that "Omnicare was aware for years of the problems posed by its dispensing practices" yet failed to implement corrective measures.

The Bassan Whistleblower Lawsuit.

In 2015, the same year CVS completed its acquisition, former Omnicare pharmacist Uri Bassan filed a qui tam lawsuit under the False Claims Act's whistleblower provisions. The lawsuit alleged that Omnicare dispensed prescription medications without valid prescriptions or refills from 2010 to 2018. According to the allegations, Omnicare's pharmacies assigned new prescription numbers without necessary paperwork and pharmacist approvals after original prescriptions expired or ran out of refills—essentially auto-renewing prescriptions without the required clinical authorization.

The company then billed Medicare, Medicaid, and TRICARE for these dispensed medications, submitting claims for drugs that lacked the legal authorization required under state pharmacy law. In 2019, the U.S. Government intervened in the lawsuit. The intervention also meant that as the qui tam relator, Bassan would be entitled to 15-25% of any recovery.

The April 2025 Verdict and July 2025 Judgment.

After a four-week trial in the Southern District of New York, a federal jury in April 2025 found Omnicare liable for 3,341,032 false claims over eight years—described by the U.S. Attorney for the Southern District of New York as one of the largest damages awards by a jury in a False Claims Act case. The jury found that Omnicare's dispensing practices resulted in the submission of millions of fraudulent claims to federal healthcare programs over nearly a decade.

Judge Colleen McMahon of the Southern District of New York issued her ruling on July 7, 2025, imposing a total judgment of approximately $948.8 million structured in three components:

CVS was found responsible for causing approximately 30% of the false claims—specifically, 1,016,039 claims submitted after the August 2015 acquisition—and was held jointly and severally liable for $164.8 million of the judgment. The court found that "Omnicare was aware for years of the problems posed by its dispensing practices" yet failed to implement corrective measures.

Constitutional Challenges and Penalty Proportionality.

The court's penalty analysis addressed constitutional questions about the proportionality of False Claims Act penalties. Judge McMahon acknowledged that strict application of the FCA's $5,000-per-violation penalty would have yielded approximately $26.9 billion. The court rejected Omnicare's argument that penalties should be limited to a 1:1 ratio with damages, finding instead that "a 4:1 ratio was constitutionally permissible" under the Eighth Amendment's Excessive Fines Clause.

The court clarified that "the Eighth Amendment's Excessive Fines Clause, rather than due process concerns, governs the constitutionality of FCA penalties."

Omnicare's President David Azzolina characterized the penalty as "extreme and, we believe, unconstitutional," noting that 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." CVS echoed this position, stating that "the decision on penalties is unconstitutional, especially given the fact that there is no evidence that a single patient suffered harm." In August 2025, a federal judge denied Omnicare's motion to overturn the judgment, leaving bankruptcy as the remaining path to address the liability.

Industry Context: The Long-Term Care Pharmacy Duopoly

Omnicare's bankruptcy occurs within a highly consolidated industry dominated by two major players, with reimbursement pressures, workforce challenges, and customer distress.

Market Structure and Consolidation.

The long-term care pharmacy market totals approximately $18-$19 billion, with national long-term care pharmacies controlling over 90% of market share. Omnicare and PharMerica together comprise over 90% of the skilled nursing facility pharmacy market—a duopoly structure that extends across virtually all U.S. states. A 2023 study of 75 skilled nursing facilities in Rhode Island found that 68 facilities (91%) were served by either Omnicare (43%) or PharMerica (48%), with only 7 facilities (9%) served by other LTC pharmacies. Omnicare covered larger facilities compared to its primary competitor.

The U.S. institutional pharmacies industry totals $24.8 billion in 2025, with Omnicare Inc. and PharMerica Corp. identified as the biggest companies operating in the industry. The global long-term care pharmacy services market is projected to grow from $20.5 billion in 2025 to approximately $33.7 billion by 2032, a compound annual growth rate of 7.2%, driven by demographic trends and technological factors including the aging population and advances in pharmacy automation.

Omnicare's bankruptcy and potential sale would shift ownership of one of the two dominant providers in the SNF pharmacy market.

Reimbursement Pressures and Industry Headwinds.

The First Day Declaration identifies multiple factors that compounded Omnicare's financial distress beyond the False Claims Act judgment. The COVID-19 pandemic had lasting impacts on skilled nursing facilities, affecting occupancy rates and operational stability across the customer base. Inflation affected operating costs throughout the pharmacy supply chain. A tightening labor market created staffing challenges for both Omnicare and its customers. Evolving Medicare policies and declining reimbursement rates from payors compressed margins across the sector.

The shift from traditional Medicare to Medicare Advantage, combined with inadequate Medicaid funding, has resulted in revenue not keeping pace with higher costs for skilled nursing operators. Workforce challenges—particularly the availability of direct care staff—continue to pressure the entire long-term care ecosystem. CMS finalized a 4.2% increase in Medicare payments to skilled nursing facilities for fiscal year 2025, translating to approximately $1.4 billion in additional Medicare Part A payments, but this increase may be partially offset by elevated operating costs.

Customer Distress: The Genesis Healthcare Bankruptcy.

Omnicare's financial challenges were compounded by distress among its largest customers. Genesis Healthcare—one of the nation's largest skilled nursing facility operators—filed chapter 11 bankruptcy on July 9, 2025 with $2.3 billion in debt. The bankruptcy affected over 15,000 residents and 27,000 employees across 200 skilled nursing facilities and senior living centers in 18 states. Genesis faced more than 200 malpractice and wrongful death lawsuits and was spending $8 million monthly to litigate and settle cases before bankruptcy.

Customer bankruptcies contributed to Omnicare's bad debt and revenue erosion. The long-term care pharmacy business depends on the financial stability of its facility customers to maintain patient volumes and collect receivables. When major customers enter distress, those effects flow directly to pharmacy service providers. The Genesis bankruptcy represented a major customer event for Omnicare.

The 363 Sale Process

Omnicare is conducting a 363 sale of substantially all assets under DIP financing milestones that require transaction execution by mid-2026. The sale process is structured around the False Claims Act liability through the bankruptcy.

DIP Financing Structure.

The debtors secured $110 million in aggregate DIP financing from JMB Capital Partners to fund operations and the sale process. The financing was structured in two tranches: $25 million available upon the September 24, 2025 DIP Interim Order, and $85 million upon the November 3, 2025 DIP Final Order. This staged approach allowed the debtors to access immediate liquidity while completing the due diligence and documentation required for the larger final facility.

The DIP matures on the earlier of June 30, 2026, the effective date of a chapter 11 plan, consummation of a 363 sale, acceleration following an event of default, case dismissal, conversion to chapter 7, or appointment of a trustee. The commitment and exit fees total approximately 7% of the facility size.

Bidding Procedures and Sale Timeline.

Judge Jernigan entered the Bidding Procedures Order on December 3, 2025, establishing the framework for the sale process. The DIP financing includes milestones requiring a stalking horse bidder by January 31, 2026—a deadline that will determine whether the sale proceeds with price protection for a lead bidder or through an open auction without a floor.

The debtors are marketing substantially all assets, meaning that potential bidders can acquire the entire Omnicare platform—pharmacy locations, customer contracts, technology systems, and workforce—as a package.

Professional Team and Stakeholder Representation.

The debtors retained a professional team for the sale process and related matters:

An Official Committee of Unsecured Creditors was appointed and retained its own professional advisors:

The U.S. Government Claim.

On December 22, 2025, the United States filed a motion seeking approval of a stipulation regarding its False Claims Act claims—the $948.8 million judgment that triggered the bankruptcy. The resolution of this claim will be central to any confirmed plan or sale closing. As the largest creditor by claim amount, the U.S. Government's recovery and treatment will determine the distribution waterfall for all other stakeholders.

The government's position is further complicated by the whistleblower component. Because the government intervened in the qui tam lawsuit, Uri Bassan—the former pharmacist who filed the original complaint—is entitled to 15-25% of any recovery. This means that the government's claim effectively includes a built-in allocation to the relator, and any settlement or claim treatment must account for this statutory sharing requirement.

CVS was found jointly and severally liable for $164.8 million of the judgment, and the parent company remains outside the bankruptcy and solvent. The government can pursue collection from CVS independent of the bankruptcy estate.

First Day Relief and Case Administration

The bankruptcy filing on September 22, 2025 was accompanied by first day motions related to continuing operations for the 4,000+ long-term care facilities and 800,000+ patients using Omnicare's pharmacy services.

The court entered a Joint Administration Order on September 24, 2025, consolidating the 111 debtor entities for procedural purposes while preserving their separate legal identities. The interim DIP order on the same date provided immediate access to $25 million in liquidity. Key first day relief included authorization to continue existing cash management systems, pay prepetition employee wages and benefits, and maintain critical vendor relationships.

Bar date procedures were established through a December 3, 2025 Bar Date Order after resolving an objection filed on December 1, 2025. Multiple stay relief motions have been filed and resolved through agreed stipulations with facility operators, allowing counterparties to exercise certain rights while the sale process proceeds.

Key Timeline

Frequently Asked Questions

Why did Omnicare file for bankruptcy?

Omnicare filed chapter 11 after a federal court in July 2025 imposed a $948.8 million judgment against the company for False Claims Act violations. The judgment stemmed from a 2015 whistleblower lawsuit alleging that Omnicare dispensed medications without valid prescriptions from 2010 to 2018 and billed Medicare, Medicaid, and TRICARE for over 3.3 million false claims. After courts denied Omnicare's attempts to overturn or reduce the judgment, the company filed for bankruptcy to address the liability while preserving the operating business.

Who is the parent company and how did they acquire Omnicare?

CVS Health Corporation acquired Omnicare for approximately $12.7 billion ($10.4 billion cash plus $2.3 billion in debt assumption) in August 2015. The acquisition was intended to expand CVS's specialty pharmacy business and presence in the senior patient market. CVS subsequently recorded over $6 billion in impairment charges on the investment, declared the business "no longer a strategic asset" in 2022, attempted to sell it, then abandoned sale efforts in 2023 before the False Claims Act judgment forced the bankruptcy filing.

What was the False Claims Act violation?

A jury found that Omnicare dispensed prescription medications without valid prescriptions or refills from 2010 to 2018. The company allegedly assigned new prescription numbers without required paperwork and pharmacist approvals after original prescriptions expired or ran out of refills, then billed government healthcare programs for the dispensed drugs. The jury found 3,341,032 separate false claims over the eight-year period. There were no allegations of patient harm—patients received the medications they needed, but the claims lacked proper legal authorization.

How large is the bankruptcy case?

The case includes 111 jointly administered debtor entities. Omnicare serves more than 800,000 patients annually across 4,000+ long-term care facilities in 47 states. Court filings show assets between $100 million and $500 million and liabilities between $1 billion and $10 billion. The assets and liabilities reflect the False Claims Act judgment on the liability side.

What is the DIP financing and sale process?

Omnicare secured $110 million in DIP financing from JMB Capital Partners at 10% interest to fund operations and the sale process. The financing includes milestones requiring a stalking horse bidder by January 31, 2026, with an outside maturity date of June 30, 2026. The court approved bidding procedures on December 3, 2025, and the company is marketing substantially all assets through a 363 sale.

Will Omnicare's pharmacy services continue?

Yes. Omnicare committed to maintaining uninterrupted pharmacy services and continuing employee wages and benefits throughout the bankruptcy process. The company is operating while pursuing a sale. The 4,000+ long-term care facilities and 800,000+ patients served by Omnicare continue to receive pharmacy services without interruption.

What other legal issues did Omnicare have before this judgment?

Omnicare had a history of False Claims Act settlements: nearly $50 million in 2012 for kickback allegations; $124 million in 2014 for improper financial incentives to nursing homes; $28.125 million in 2016 for accepting kickbacks from Abbott Laboratories to promote Depakote; and $8 million in 2017 for billing for drugs different from those dispensed. The 2025 judgment followed a pattern of compliance issues, and the court found Omnicare had failed to implement corrective measures.

How large is the long-term care pharmacy industry?

The U.S. institutional pharmacy market totals approximately $24.8 billion, with the long-term care pharmacy segment at $18-$19 billion. The market is highly consolidated—Omnicare and PharMerica together control over 90% of the skilled nursing facility pharmacy market. The global market is projected to grow from $20.5 billion in 2025 to $33.7 billion by 2032, driven by demographic trends including the aging population.

Is CVS Health also in bankruptcy?

No. CVS Health Corporation remains solvent and outside the bankruptcy. By filing Omnicare as a separate subsidiary bankruptcy, CVS isolated the long-term care pharmacy business and the nearly $1 billion judgment from its core retail pharmacy and health services operations. However, CVS was found jointly and severally liable for approximately $164.8 million of the judgment related to false claims submitted after the 2015 acquisition, and that exposure remains regardless of the Omnicare bankruptcy outcome.

What happens to the U.S. Government's $948.8 million claim?

The U.S. Government is the largest creditor in the bankruptcy case. On December 22, 2025, the government filed a motion seeking approval of a stipulation regarding its False Claims Act claims. The resolution of this claim—whether through settlement, allowed claim treatment in a sale, or otherwise—will be central to the bankruptcy's outcome. The whistleblower who filed the original lawsuit, Uri Bassan, is entitled to 15-25% of any government recovery, adding another stakeholder to the claim resolution process.

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