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Omnicare Facing Ominous Trends

Some of Omnicare's (OCR) biggest customers don't seem to like paying full freight.

Recently, two major operators of long-term care facilities have sought cheaper prices from the giant institutional pharmacy.

Closely held Life Care Centers of America has actually sued Omnicare, claiming that the company has been overcharging it for years. Meanwhile, Genesis Healthcare (GHCI) has already negotiated a new contract with Omnicare that's expected to save it money.

For its part, Omnicare has downplayed both developments as the ordinary course of business. Omnicare portrays the Life Care lawsuit as a mere contract dispute, lacking merit, and points out that the company remains a long-term customer. Similarly, Omnicare says that it saw the Genesis changes coming, adding that it "knew that a re-pricing of the contract was likely to occur to bring it more in line with market pricing," and that its guidance fully reflects that expectation.

Still, Omnicare continues to battle with even bigger players, such as the government and UnitedHealth (UNH), over the rates it charges for its services. The government claims that Omnicare has been bilking Medicaid and has launched multiple investigations, including a criminal probe, in response. And UnitedHealth has decided to take matters into its own hands by paying Omnicare less money than the company has demanded.

Even some long-time Omnicare bulls have started feeling uneasy as a result. Several analysts have downgraded Omnicare's stock in recent months, expressing concern about the company's relationships with its customers and its compliance program as well. Meanwhile, bears have grown increasingly comfortable with their big bets against the company.

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