UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)                                                                                                                
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2008
or
[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.

Commission File Number 1-8269

OMNICARE, INC.
(Exact name of registrant as specified in its charter)

Delaware	31-1001351
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

100 East RiverCenter Boulevard, Covington, Kentucky 41011
(Address of principal executive offices) (Zip Code)

(859) 392-3300
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant:

1)	has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
2)	has been subject to such filing requirements for the past 90 days.

Yes [ x ]      No [    ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	[ x ]	Accelerated filer	[    ]
Non-accelerated filer	[    ] (Do not check if a smaller reporting company)	Smaller reporting company	[    ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [    ]      No [ x ]

COMMON STOCK OUTSTANDING

	Number of
	Shares	Date
Common Stock, $1 par value	118,352,515	September 30, 2008

OMNICARE, INC. AND

SUBSIDIARY COMPANIES

FORM 10-Q QUARTERLY REPORT SEPTEMBER 30, 2008

INDEX

		PAGE
PART I - FINANCIAL INFORMATION:
ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)
	Consolidated Statements of Income –
	Three and nine months ended – September 30, 2008 and 2007	3
	Consolidated Balance Sheets –
	September 30, 2008 and December 31, 2007	4
	Consolidated Statements of Cash Flows –
	Nine months ended – September 30, 2008 and 2007	5
	Notes to Consolidated Financial Statements	6
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF
	FINANCIAL CONDITION AND RESULTS OF OPERATIONS	42
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
	MARKET RISK	70
ITEM 4.	CONTROLS AND PROCEDURES	72
PART II - OTHER INFORMATION:
ITEM 1.	LEGAL PROCEEDINGS	72
ITEM 1A.	RISK FACTORS	75
ITEM 2.	UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF
	PROCEEDS	84
ITEM 6.	EXHIBITS	84

PART I - FINANCIAL INFORMATION:

ITEM 1. - FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF INCOME
OMNICARE, INC. AND SUBSIDIARY COMPANIES
UNAUDITED
(in thousands, except per share data)

	Three months ended,						Nine months ended
	September 30,						September 30,
	2008			2007			2008			2007
Net sales	$	1,603,389		$	1,536,989		$	4,712,520		$	4,663,211
Cost of sales		1,187,585			1,151,327			3,531,809			3,492,429
Heartland matters (Note 11)		1,041			3,320			4,175			11,631
Gross profit		414,763			382,342			1,176,536			1,159,151
Selling, general and administrative
expenses		237,889			229,683			711,505			683,300
Provision for doubtful accounts		28,911			30,362			85,070			89,165
Restructuring and other related
charges (Note 10)		7,655			4,957			24,887			20,381
Litigation and other related professional fees (Note 11)		13,479			9,192			51,143			25,109
Heartland matters (Note 11)		129			328			628			2,720
Operating income		126,700			107,820			303,303			338,476
Investment income		1,441			2,369			6,011			6,392
Interest expense		(36,908	)		(40,925	)		(109,904	)		(124,691	)
Income before income taxes		91,233			69,264			199,410			220,177
Income tax provision		33,528			26,667			74,956			85,352
Net income	$	57,705		$	42,597		$	124,454		$	134,825
Earnings per share:
Basic	$	0.50		$	0.36		$	1.06		$	1.13
Diluted	$	0.49		$	0.35		$	1.05		$	1.11
Dividends per common share	$	0.0225		$	0.0225		$	0.0675		$	0.0675
Weighted average number of common
shares outstanding:
Basic		115,983			119,466			117,904			119,312
Diluted		117,483			121,229			118,764			121,320
Comprehensive income	$	58,486		$	47,334		$	133,558		$	142,540

The Notes to Consolidated Financial Statements are an integral part of these statements.

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CONSOLIDATED BALANCE SHEETS
OMNICARE, INC. AND SUBSIDIARY COMPANIES
(in thousands, except share data)

	(UNAUDITED)
	September 30,			December 31,
	2008			2007
ASSETS
Current assets:
Cash and cash equivalents	$	181,108		$	274,448
Restricted cash		15,397			3,155
Accounts receivable, less allowances of $339,372 (2007-$334,061)		1,374,770			1,376,288
Unbilled receivables, CRO		26,765			24,855
Inventories		422,392			448,183
Deferred income tax benefits		129,550			126,239
Other current assets		195,151			202,982
Total current assets		2,345,133			2,456,150
Properties and equipment, at cost less accumulated depreciation of
$347,653 (2007-$311,422)		213,398			199,449
Goodwill		4,254,320			4,342,169
Identifiable intangible assets, less accumulated amortization of
$142,805 (2007-$115,042)		338,431			323,637
Rabbi trust assets for settlement of pension obligations		124,448			123,035
Other noncurrent assets		140,745			149,339
Total noncurrent assets		5,071,342			5,137,629
Total assets	$	7,416,475		$	7,593,779
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	325,128		$	371,020
Accrued employee compensation		58,031			32,696
Deferred revenue, CRO		20,017			22,068
Current debt		2,434			3,192
Other current liabilities		220,476			223,184
Total current liabilities		626,086			652,160
Long-term debt, notes and convertible debentures		2,766,723			2,820,751
Deferred income tax liabilities		325,939			449,789
Other noncurrent liabilities		362,373			379,376
Total noncurrent liabilities		3,455,035			3,649,916
Total liabilities		4,081,121			4,302,076
Commitments and contingencies (Note 11)
Stockholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized, none
issued and outstanding		-			-
Common stock, $1 par value, 200,000,000 shares authorized,
125,501,100 shares issued (2007-124,599,300 shares issued)		125,501			124,599
Paid-in capital		1,938,114			1,917,062
Retained earnings		1,514,205			1,397,831
Treasury stock, at cost-7,148,600 shares (2007-2,827,300 shares) (Note 2)		(193,572	)		(89,791	)
Accumulated other comprehensive income		(48,894	)		(57,998	)
Total stockholders' equity		3,335,354			3,291,703
Total liabilities and stockholders' equity	$	7,416,475		$	7,593,779

The Notes to Consolidated Financial Statements are an integral part of these statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS
OMNICARE, INC. AND SUBSIDIARY COMPANIES
UNAUDITED
(in thousands)

	Nine months ended
	September 30,
	2008			2007
Cash flows from operating activities:
Net income	$	124,454		$	134,825
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation		39,265			41,374
Amortization		48,522			43,742
Changes in assets and liabilities, net of effects from acquisition
of businesses:
Accounts receivable and unbilled receivables, net of
provision for doubtful accounts		35,483			66,589
Inventories		34,084			28,635
Other current and noncurrent assets		3,520			(68,391	)
Accounts payable		(67,989	)		54,149
Accrued employee compensation		27,741			10,693
Deferred revenue		(2,051	)		(8,682	)
Current and noncurrent liabilities		88,856			128,305
Net cash flows from operating activities		331,885			431,239
Cash flows from investing activities:
Acquisition of businesses, net of cash received		(201,032	)		(105,979	)
Capital expenditures		(46,982	)		(33,104	)
Transfer of cash to trusts for employee health and severance
costs, net of payments out of the trust		(11,419	)		(10,423	)
Other		(574	)		(184	)
Net cash flows used in investing activities		(260,007	)		(149,690	)
Cash flows from financing activities:
Payments on revolving credit facility and term A loan		(50,000	)		(150,000	)
Payments on long-term borrowings and obligations		(2,172	)		(4,673	)
(Decrease) increase in cash overdraft balance		(2,312	)		2,664
Payments for Omnicare common stock repurchases (Note 2)		(100,165	)		-
Payments for stock awards and exercise of stock options,
net of stock tendered in payment		(1,183	)		(8,068	)
Excess tax benefits from stock-based compensation		750			4,089
Dividends paid		(8,080	)		(8,226	)
Net cash flows used in financing activities		(163,162	)		(164,214	)
Effect of exchange rate changes on cash		(2,056	)		1,653
Net (decrease) increase in cash and cash equivalents		(93,340	)		118,988
Cash and cash equivalents at beginning of period		274,448			138,034
Cash and cash equivalents at end of period	$	181,108		$	257,022

The Notes to Consolidated Financial Statements are an integral part of these statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OMNICARE, INC. AND SUBSIDIARY COMPANIES
UNAUDITED

Note 1 - Interim Financial Data, Description of Business and Summary of Significant Accounting Policies

Interim Financial Data

The interim financial data is unaudited; however, in the opinion of the management of Omnicare, Inc., the interim data includes all adjustments (which include only normal adjustments, except as described in the “Restructuring and Other Related Charges” and “Commitments and Contingencies” notes) considered necessary for a fair statement of the consolidated results of operations, financial position and cash flows of Omnicare, Inc. and its consolidated subsidiaries (“Omnicare” or the “Company”). These financial statements should be read in conjunction with the Consolidated Financial Statements and related notes included in Omnicare’s Annual Report on Form 10-K for the year ended December 31, 2007 (“Omnicare’s 2007 Annual Report”) and any related updates included in the Company’s periodic quarterly Securities and Exchange Commission (“SEC”) filings. Certain reclassifications of prior year amounts have been made to conform with the current year presentation.

Description of Business and Summary of Significant Accounting Policies

The Company’s description of business and significant accounting policies have been disclosed in Omnicare’s 2007 Annual Report. As previously disclosed, these financial statements should be read in conjunction with the Consolidated Financial Statements and related notes included in Omnicare’s 2007 Annual Report and any related updates contained in the Company’s periodic quarterly SEC filings, including those presented below.

Concentration of Credit Risk

The prescription drug benefit under Medicare Part D (“Part D”) became effective on January 1, 2006. As a result, providers of long-term care pharmacy services, including Omnicare, experienced a significant shift in payor mix beginning in 2006. Approximately 40% of the Company’s revenues in the nine months ended September 30, 2008 were generated under the Part D program. The Company estimates that approximately 23.3% of these Part D revenues during the nine months ended September 30, 2008 relate to patients enrolled in Part D prescription drug plans sponsored by UnitedHealth Group and its Affiliates (“United”). Prior to the implementation of the Medicare Part D program, most of the Part D residents served by the Company were reimbursed under state Medicaid programs and, to a lesser extent, private pay sources.

Under the Part D benefit, payment is determined in accordance with the agreements Omnicare has negotiated with the Part D Plans. The remainder of Omnicare’s billings are paid or reimbursed primarily by long-term care facilities (including revenues for residents funded under Medicare Part A) and other third party payors, including private insurers, state Medicaid programs, as well as individual residents.

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The Medicaid and Medicare programs are highly regulated. The failure, even if inadvertent, of Omnicare and/or client facilities to comply with applicable reimbursement regulations could adversely affect Omnicare’s reimbursement under these programs and Omnicare’s ability to continue to participate in these programs. In addition, failure to comply with these regulations could subject the Company to other penalties.

As noted, the Company obtains reimbursement for drugs it provides to enrollees of a given Part D Plan in accordance with the terms of the agreement negotiated between it and that Part D Plan. The Company has entered into such agreements with nearly all Part D Plan sponsors under which it will provide drugs and associated services to their enrollees. The Company continues to have ongoing discussions with Part D Plans in the ordinary course of business. The Company may, as appropriate, renegotiate agreements. Moreover, as expected in the transition to a program of this magnitude, certain administrative and payment issues have arisen, resulting in higher operating expenses, as well as outstanding gross accounts receivable (net of allowances for contractual adjustments, and prior to any allowance for doubtful accounts), particularly for copays. As of September 30, 2008, copays outstanding from Part D Plans were approximately $22 million relating to 2006 and 2007. The Company is pursuing solutions, including legal actions against certain Part D payors, to collect outstanding copays, as well as certain rejected claims.

On July 11, 2007, the Company commenced legal action against a group of its customers for, among other things, the collection of past-due receivables that are owed to the Company. Specifically, approximately $97 million (excluding interest) is owed to the Company by this group of customers as of September 30, 2008, of which approximately $91 million is past due based on applicable payment terms (a significant portion of which is not reserved based on the relevant facts and circumstances).

Until these administrative and payment issues relating to the Part D Drug Benefit as well as the aforementioned legal action against a group of Omnicare’s customers are fully resolved, there can be no assurance that the impact of these matters on the Company’s results of operations, financial position or cash flows will not change based on the outcome of any unforeseen future developments.

Cash and Cash Equivalents

A summary of cash and cash equivalents follows (in thousands):

		September 30,		December 31,
		2008		2007
Cash	$	68,280	$	109,630
Money market funds		112,828		12,134
United States (U.S.) government-backed repurchase agreements		-		152,684
	$	181,108	$	274,448

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Accumulated Other Comprehensive Income (Loss)

The accumulated other comprehensive income (loss) balances at September 30, 2008 and December 31, 2007, net of aggregate applicable tax benefits of $34.6 million and $40.2 million, respectively, by component and in the aggregate, follow (in thousands):

	September 30,			December 31,
	2008			2007
Cumulative foreign currency translation adjustments	$	5,555		$	3,888
Unrealized gain on fair value of investments		3,465			2,400
Pension and postemployment benefits		(57,914	)		(64,286	)
Total accumulated other comprehensive loss adjustments, net	$	(48,894	)	$	(57,998	)

Recently Issued Accounting Standards

In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). Among other changes, SFAS 141R requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction at fair value; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed, including earn-out provisions. SFAS 141R is generally effective for business combinations occurring in the first annual reporting period beginning after December 15, 2008. The Company is evaluating the anticipated effect of this recently issued standard on its future consolidated results of operations, financial position and cash flows, and there can be no assurance that the impact of this new requirement will not be material upon adoption.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”). Among other items, SFAS 160 requires all entities to report noncontrolling (minority) interests in subsidiaries in the same way as equity in the consolidated financial statements. SFAS 160 is effective for the first annual reporting period beginning after December 15, 2008. The Company is evaluating the anticipated effect of this recently issued standard on its consolidated results of operations, financial position and cash flows. As of September 30, 2008, Omnicare’s minority interest obligation is not material to the Company’s financial position as a whole.

In December 2007, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (“SFAS 161”). Among other items, SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of, and gains and losses on, derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for the first annual reporting period beginning after November 15, 2008. The Company does not anticipate the effect of this recently issued standard to be material on its consolidated results of operations, financial position and cash flows based on its capital structure and financial instruments outstanding at quarter end.

8

In May 2008, the FASB issued FASB Staff Position (FSP) No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). Among other items, FSP APB 14-1 specifies that issuers of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company is evaluating the impact of this recently issued standard on its consolidated results of operations, financial position and cash flows, and there can be no assurance that the impact of this new requirement will not be material upon adoption.

Note 2 - Common Stock Repurchase Program

On March 27, 2008, the Company announced that its Board of Directors authorized a program to repurchase, from time to time, shares of Omnicare's outstanding common stock having an aggregate value of up to $100 million, depending on market conditions and other factors. In the three months ended June 30, 2008, the Company repurchased approximately 4.1 million shares at a cost of approximately $100 million. Accordingly, the Company has utilized the full amount of share repurchase authority and successfully completed the program. These repurchases were made in open market or privately negotiated transactions in compliance with Securities and Exchange Commission Rule 10b-18 and other applicable legal requirements. On September 30, 2008, Omnicare had approximately 118.4 million shares of common stock outstanding.

Note 3 - Acquisitions

Since 1989, the Company has been involved in a program to acquire providers of pharmaceutical products and related pharmacy services to long-term care facilities and their residents as well as patients in other care settings. The Company’s strategy has included the acquisition of freestanding institutional pharmacy businesses as well as other assets, generally insignificant in size, which have been combined with existing pharmacy operations to augment their internal growth. From time-to-time the Company may acquire other businesses, such as pharmacy consulting companies, specialty pharmacy companies, medical supply and service companies, hospice pharmacy companies and companies providing distribution and product support services for specialty pharmaceuticals, as well as contract research organizations, which complement the Company’s core businesses.

During the first nine months of 2008, Omnicare completed nine acquisitions of businesses in the Pharmacy Services segment, none of which were, individually or in the aggregate, significant to the Company. Acquisitions of businesses, including the July 2008 acquisition of Advanced Care Scripts, Inc., a specialty pharmacy services company, required outlays of $201.0 million (including amounts payable pursuant to acquisition agreements relating to pre-2008 acquisitions) in the nine months ended September 30, 2008. The impact of these aggregate acquisitions on the Company’s overall goodwill balance has been reflected in the disclosures at the “Goodwill and Other Intangible Assets” note. The Company continues to evaluate the tax effects, identifiable intangible assets and other pre-acquisition contingencies relating to certain acquisitions. Omnicare is in the process of completing its allocation of the purchase price for certain

9

acquisitions and, accordingly, the goodwill and other identifiable intangible assets balances are preliminary and subject to change. The net assets and operating results of acquisitions have been included in the Company’s consolidated financial statements from their respective dates of acquisition.

Note 4 - Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill for the nine months ended September 30, 2008, by business segment, are as follows (in thousands):

	Pharmacy			CRO
	Services			Services			Total
Balance as of December 31, 2007	$	4,250,114		$	92,055		$	4,342,169
Goodwill acquired in the nine months
ended September 30, 2008		112,769			-			112,769
Other		(200,217	)		(401	)		(200,618	)
Balance as of September 30, 2008	$	4,162,666		$	91,654		$	4,254,320

The “Other” caption above includes the settlement of acquisition matters relating to prior-year acquisitions (including, where applicable, payments pursuant to acquisition agreements such as deferred payments, indemnification payments and payments originating from earnout provisions, as well as adjustments for the finalization of purchase price allocations, including identifiable intangible asset determinations). “Other” also includes the effect of adjustments due to foreign currency translations, which relate solely to the Contract Research Organization (“CRO”) Services segment and one pharmacy located in Canada that is included in the Pharmacy Services segment. During the third quarter of 2008, the Company recorded a decrease in goodwill and a corresponding decrease in deferred tax liabilities in the amount of approximately $186 million to adjust previously recorded book and tax basis differences in the stock of subsidiaries acquired in the acquisition of NeighborCare, Inc. The Company does not believe this adjustment is material to its current or prior year Consolidated Financial Statements.

The increase in the September 30, 2008 net carrying amount of the Company’s other identifiable intangible assets of approximately $15 million from December 31, 2007, primarily relates to customer relationship assets and non-compete agreements associated with recent acquisitions, having a weighted-average life of approximately 10 years, partially offset by decreases largely attributable to amortization expense recorded during the nine-month period.

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Note 5 - Debt

A summary of debt follows (in thousands):

	September 30,			December 31,
	2008			2007
Revolving loans, due 2010, $800 million	$	-		$	-
Term loan, due 2010		48,160			50,602
Senior term A loan, due 2010		400,000			450,000
6.125% senior subordinated notes, due 2013		250,000			250,000
6.75% senior subordinated notes, due 2013		225,000			225,000
6.875% senior subordinated notes, due 2015		525,000			525,000
4.00% junior subordinated convertible debentures, due 2033		345,000			345,000
3.25% convertible senior debentures, due 2035		977,500			977,500
Capitalized lease and other debt obligations		5,934			8,831
Subtotal		2,776,594			2,831,933
(Subtract) interest rate swap agreement		(7,437	)		(7,990	)
(Subtract) current portion of debt		(2,434	)		(3,192	)
Total long-term debt, net	$	2,766,723		$	2,820,751

The Company’s debt instruments, including related terms and certain financial covenants as well as a description of Omnicare’s Credit Agreement, have been disclosed in further detail at the “Debt” note of the Notes to Consolidated Financial Statements in Omnicare’s 2007 Annual Report.

At September 30, 2008, there was no outstanding balance under the Company’s $800 million revolving credit facility, maturing on July 28, 2010 (“Revolving Loans”), and $400 million outstanding under the Company’s senior term A loan facility, maturing on July 28, 2010 (the “Term Loans”). The Company repaid $50 million on the Term Loans during the nine months ended September 30, 2008. The interest rate on the Term Loans was 5.45% at September 30, 2008. As of September 30, 2008, the Company had approximately $27 million outstanding relating to standby letters of credit, substantially all of which are subject to automatic annual renewals. The Company amortized to expense $6.1 million of deferred debt issuance costs during the nine months ended September 30, 2008 and 2007.

Interest on the outstanding balances of the Revolving Loans and the Term Loans is payable, at the Company’s option, (i) at a Eurodollar Base Rate plus a margin based on the Company’s senior unsecured long-term debt securities rating and the Company’s Capitalization Ratio (as defined in the Credit Agreement), that can range from 0.50% to 1.75% or (ii) at an Alternate Base Rate (defined as, for any day, a rate of interest per annum equal to the higher of (a) the Prime Rate for such day and (b) the sum of Federal Funds Effective Rate (as defined in the Credit Agreement) for such day plus 0.50% per annum).

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Of the Company’s $800 million undrawn revolving credit facility, a subsidiary of Lehman Brothers Holdings, Inc., is committed to fund $22 million. It is unknown whether this subsidiary will participate in funding any future draws thereunder.

At September 30, 2008, the overall weighted-average interest rate on the Company’s variable interest portion of its long-term debt, excluding the interest rate swap agreement, was 5.50% . The estimated floating interest rate on the interest rate swap agreement was 6.40% at September 30, 2008.

Note 6 - Fair Value

On January 1, 2008, the Company partially adopted the provisions of SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines a hierarchy which prioritizes the inputs in fair value measurements. “Level 1” measurements are measurements using quoted prices in active markets for identical assets or liabilities. “Level 2” measurements use significant other observable inputs. “Level 3” measurements are measurements using significant unobservable inputs which require a company to develop its own assumptions. In recording the fair value of assets and liabilities, companies must use the most reliable measurement available. The impact to the Company’s consolidated results of operations, financial position and cash flows upon partial adoption of SFAS 157 was not material. The Company elected to partially defer adoption of SFAS 157 related to goodwill and indefinite-lived intangible assets in accordance with FASB Staff Position 157-2.

				Based on
				Quoted Prices		Other
	Fair Value			in Active		Observable			Unobservable
	at September 30,			Markets		Inputs			Inputs
	2008			(Level 1)		(Level 2)			(Level 3)
Assets and (Liabilities) Measured at Fair Value
on a Recurring Basis:(1)
Rabbi trust assets (2)	$	124,448		$	124,448	$	-		$	-
Interest rate swap agreement - fair value hedge (3)		(7,437	)		-		(7,437	)		-
Derivatives (4)		-			-		-			-
Total	$	117,011		$	124,448	$	(7,437	)	$	-

(1)      For cash and cash equivalents, restricted cash, accounts receivable, unbilled receivables, and accounts payable, the net carrying value of these items approximates their fair value at period end. Further, at period end, the fair value of Omnicare’s variable rate debt facilities approximates the carrying value, as the effective interest rates fluctuate with changes in market rates. The fair value of the Company’s fixed-rate debt facilities is based on quoted market prices and, while not recorded on the Consolidated Balance Sheets and thus excluded from the fair value table above, these fair values are summarized at the “Quantitative and Qualitative Disclosures About Market Risk” section at Part I, Item 3 of this Filing.

(2)The fair value of restricted funds held in trust (rabbi trust assets) for settlement of the Company’s pension obligations is based on quoted market prices of the investments held by the trustee.

(3)      In connection with its offering of $250 million of 6.125% senior subordinated notes due 2013 (the “6.125% Senior Notes”), the Company entered into an interest rate swap agreement

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(the “Swap Agreement”) with respect to all $250 million of the aggregate principal amount of the 6.125% Senior Notes. The Swap Agreement hedges against exposure to long-term U.S. dollar interest rates, and is designated and accounted for as a fair value hedge. The Company is accounting for the Swap Agreement in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, so changes in the fair value of the Swap Agreement are offset by changes in the recorded carrying value of the related 6.125% Senior Notes. The fair value of the Swap Agreement is recorded in the “Other noncurrent assets” or “Other noncurrent liabilities” line of the Consolidated Balance Sheets, as applicable, and as an adjustment to the book carrying value of the related 6.125% Senior Notes. The fair value of over-the-counter derivative instruments, such as the Company’s interest rate swap, can be modeled for valuation using a variety of techniques. The Company’s interest rate swap is valued using market inputs with mid-market pricing as a practical expedient for the bid/ask spread as allowed by SFAS 157. As such, the swap is categorized within Level 2 of the hierarchy.

(4)Embedded in the Company’s 4.00% Trust Preferred Income Equity Redeemable Securities due 2033 (the “Old Trust PIERS”), Series B 4.00% Trust Preferred Income Equity Redeemable Securities due 2033 (the “New Trust PIERS”), and the 3.25% convertible senior debentures due 2035 (the “3.25% Convertible Debentures”) are two derivative instruments, specifically, a contingent interest provision and a contingent conversion parity provision. In addition, the 3.25% Convertible Debentures include an interest reset provision. The embedded derivatives are periodically valued, and at period end, the values of the derivatives embedded in the Old Trust PIERS, the New Trust PIERS and the 3.25% Convertible Debentures were not material. However, the values are subject to change, based on market conditions, which could affect the Company’s consolidated future results of operations, financial position or cash flows and fair value disclosures.

Note 7 - Stock-Based Compensation

At September 30, 2008, the Company had four stock-based employee compensation plans under which incentive awards were outstanding, which are described in further detail at the “Stock-Based Compensation” note of the Notes to Consolidated Financial Statements in Omnicare’s 2007 Annual Report. Omnicare believes that the incentive awards issued under these plans serve to better align the interests of its employees with those of its stockholders. As further described in Omnicare’s 2007 Annual Report, non-vested stock awards are granted to key employees at the discretion of the Compensation and Incentive Committee of the Board of Directors.

Total pretax stock-based compensation expense recognized in the Consolidated Statement of Income as part of S,G&A expense for stock options and stock awards for the three and nine months ended September 30, 2008 and 2007 is as follows (in thousands):

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	Three months ended,				Nine months ended
	September 30,				September 30,
		2008		2007		2008		2007
Stock awards	$	5,572	$	4,989	$	16,636	$	14,426
Stock options		1,370		1,040		3,615		3,082
Total stock-based compensation
expense	$	6,942	$	6,029	$	20,251	$	17,508

The assumptions used to value stock options granted during the periods ended September 30, 2008 and 2007 are as follows:

	2008			2007
Expected volatility		31.3	%		33.1	%
Risk-free interest rate		3.4	%		4.5	%
Expected dividend yield		0.3	%		0.2	%
Expected term of options (in years)		4.7			4.6
	Three months ended						Nine months ended
	September 30,						September 30,
	2008			2007			2008		2007
Weighted average fair value per option	$	9.48		$	11.60		$	7.52	$	11.96

A summary of stock option activity under the plans for the nine months ended September 30, 2008, is presented below (in thousands, except exercise price and term data):

					Weighted-
			Weighted-		Average
			Average		Remaining	Aggregate
			Exercise		Contractual	Intrinsic
	Shares		Price		Term	Value
Options outstanding, beginning of period	7,259		$	30.78
Options granted	784			23.80
Options exercised	(184	)		15.71
Options forfeited	(448	)		36.60
Options outstanding, end of period	7,411		$	30.06	5.1	$	32,520
Options exercisable, end of period	5,866		$	29.62	4.1	$	28,545

The total exercise date intrinsic value of options exercised during the nine months ended September 30, 2008 was $2.7 million.

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A summary of non-vested restricted stock awards for the nine months ended September 30, 2008 is presented below (in thousands, except grant price data):

				Weighted-
				Average
				Grant Date
	Shares			Price
Non-vested shares, beginning of period	2,103		$	37.27
Shares awarded	714			23.55
Shares vested	(511	)		30.73
Shares forfeited	(20	)		32.08
Non-vested shares, end of period	2,286		$	34.50

As of September 30, 2008, there was approximately $74 million of total unrecognized compensation cost related to non-vested stock awards and stock options granted to Omnicare employees, which is expected to be recognized as expense prospectively over a remaining weighted-average period of approximately six years. The total grant date fair value of shares vested during the nine months ended September 30, 2008 related to stock awards and stock options was approximately $16.5 million.

Note 8 - Employee Benefit Plans

The Company has various defined contribution savings plans under which eligible employees can participate by contributing a portion of their salary for investment, at the direction of each employee, in one or more investment funds, as further described in Omnicare’s 2007 Annual Report. Expense relating primarily to the Company’s matching contributions for these defined contribution plans was $2.0 million and $5.6 million for the three and nine months ended September 30, 2008, respectively, and $2.1 million and $5.4 million for the three and nine months ended September 30, 2007, respectively.

The Company has a non-contributory, defined benefit pension plan covering certain corporate headquarters employees and the employees of several companies sold by the Company in 1992, for which benefits ceased accruing upon the sale (the “Qualified Plan”). Benefits accruing under this plan to corporate headquarters employees were fully vested and frozen as of January 1, 1994.

The Company also has an excess benefit plan (“EBP”) that provides retirement payments to certain headquarters employees in amounts generally consistent with what they would have received under the Qualified Plan. The retirement benefits provided by the EBP are generally comparable to those that would have been earned in the Qualified Plan, if payments under the Qualified Plan were not limited by the Internal Revenue Code.

In addition, the Company has a supplemental pension plan (“SPP”) in which certain of its officers participate. Retirement benefits under the SPP are calculated on the basis of a specified percentage of the officers’ covered compensation, years of credited service and a vesting

15

schedule, as specified in the plan document. All benefits under the SPP became fully vested and accrued as of January 1, 2008. In February of 2008, all participants received a lump sum payment of all their fully accrued benefits under the SPP.

The Qualified Plan is funded with an irrevocable trust, which consists of assets held in the Vanguard Intermediate Term Treasury Fund Admiral Shares fund (“Vanguard Fund”), a mutual fund holding U.S. Treasury obligations. In addition, the Company has established rabbi trusts, which are also held in the Vanguard Fund, to provide for retirement obligations under the EBP. The Company’s general approach is to fund its pension obligations in accordance with the funding provisions of the Employee Retirement Income Security Act.

The following table presents the components of net periodic pension cost for all pension plans for the three and nine months ended September 30, 2008 and 2007 (pretax, in thousands):

	Three months ended						Nine months ended
	September 30,						September 30,
		2008			2007			2008			2007
Service cost	$	1,280		$	1,087		$	4,059		$	3,261
Interest cost		2,374			2,051			7,133			6,153
Amortization of deferred amounts
(primarily prior actuarial losses)		3,674			2,901			11,021			8,703
Return on assets		(54	)		(47	)		(162	)		(141	)
Other		-			-			(268	)		-
Net periodic pension cost	$	7,274		$	5,992		$	21,783		$	17,976

As of September 30, 2008, the aggregate defined benefit plans’ liabilities total approximately $174 million. During the first nine months of 2008, the Company made $2 million in payments related to funding the rabbi trusts for the settlement of the Company’s pension obligations, resulting in aggregate assets with a fair value of approximately $124 million at September 30, 2008. The Company currently does not anticipate making any additional contributions during the remainder of the 2008 year. The aggregate defined benefit plans’ liabilities are the projected benefit obligation to be paid based upon services through retirement. The aggregate assets in the rabbi trusts are the amounts required to fund the lump sum benefits of the EBP. These benefits are fully funded as of September 30, 2008.

Note 9 - Earnings Per Share Data

Basic earnings per share are computed based on the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share include the dilutive effect of stock options, warrants and restricted stock awards, as well as convertible debentures.

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The following is a reconciliation of the numerator and denominator of the basic and diluted earnings per share (“EPS”) computations (in thousands, except per share data):

	Three months ended September 30,
					Per
			Common		Common
	Income		Shares		Share
2008:	(Numerator)		(Denominator)		Amounts
Basic EPS
Net income	$	57,705	115,983	$	0.50
Effect of Dilutive Securities
4.00% junior subordinated convertible
debentures		70	275
Stock options, warrants and awards		-	1,225
Diluted EPS
Net income plus assumed conversions	$	57,775	117,483	$	0.49
2007:
Basic EPS
Net income	$	42,597	119,466	$	0.36
Effect of Dilutive Securities
4.00% junior subordinated convertible
debentures		70	275
Stock options, warrants and awards		-	1,488
Diluted EPS
Net income plus assumed conversions	$	42,667	121,229	$	0.35

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	Nine months ended September 30,
					Per
			Common		Common
	Income		Shares		Share
2008:	(Numerator)		(Denominator)		Amounts
Basic EPS
Net income	$	124,454	117,904	$	1.06
Effect of Dilutive Securities
4.00% junior subordinated convertible
debentures		209	275
Stock options, warrants and awards		-	585
Diluted EPS
Net income plus assumed conversions	$	124,663	118,764	$	1.05
2007:
Basic EPS
Net income	$	134,825	119,312	$	1.13
Effect of Dilutive Securities
4.00% junior subordinated convertible
debentures		214	302
Stock options, warrants and awards		-	1,706
Diluted EPS
Net income plus assumed conversions	$	135,039	121,320	$	1.11

During the three and nine months ended September 30, 2008 and 2007, the anti-dilutive effect associated with certain stock options, warrants and awards was excluded from the computation of diluted EPS, since the exercise price was greater than the average market price of the Company’s common stock during these periods. The aggregate number of stock options, warrants and awards excluded from the computation of diluted EPS for the quarters ended September 30, 2008 and 2007 totaled 4.5 million and 4.3 million, respectively, and for the nine months ended September 30, 2008 and 2007, totaled 6.7 million and 3.7 million, respectively.

Note 10 - Restructuring and Other Related Charges

Omnicare Full Potential Program

In 2006, the Company commenced the implementation of the “Omnicare Full Potential” Plan, a major initiative primarily designed to re-engineer the Company’s pharmacy operating model to increase efficiency and enhance customer growth. The Omnicare Full Potential Plan is expected to optimize resources across the entire organization by implementing best practices, including the realignment and right-sizing of functions, and a “hub-and-spoke” model, whereby certain key administrative and production functions will be transferred to regional support centers (“hubs”)

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specifically designed and managed to perform these tasks, with local pharmacies (“spokes”) focusing on time-sensitive services and customer-facing processes.

This program is expected to be completed over a multi-year period and is estimated to result in total pretax restructuring and other related charges of approximately $93 million. The charges primarily include severance pay, employment agreement buy-outs, excess lease costs and professional fees, as well as other related costs. The Company recorded restructuring and other related charges for the Omnicare Full Potential Plan of approximately $8 million and $25 million pretax (approximately $5 million and $15 million aftertax) during the three and nine months ended September 30, 2008, respectively, and approximately $29 million pretax during the year ended December 31, 2007 (approximately $5 million and $22 million pretax in the three and nine months ended September 30, 2007, respectively). The Omnicare Full Potential Plan initiatives required cumulative aggregate restructuring and other related charges of approximately $72 million before taxes through the third quarter of 2008. The remainder of the overall restructuring and other related charges will be recognized and disclosed prospectively, as the project is finalized and implemented. The Company eliminated approximately 1,200 positions in completing its initial phase of the program. The remainder of the program is currently estimated to result in a net reduction of approximately 1,200 positions (1,900 positions eliminated, net of 700 new positions filled in different geographic locations as well as to perform new functions required by the hub-and-spoke model of operations), of which approximately 100 positions had been eliminated as of September 30, 2008. The foregoing reductions do not include additional savings expected from lower levels of overtime and reduced temporary labor. The Company currently estimates reductions in overtime, excess hours and temporary help, as well as productivity gains, to equal an additional 820 full-time equivalents.

The restructuring charges primarily include severance pay, the buy-out of employment agreements, lease terminations, and other exit-related asset disposals, professional fees and facility exit costs. The other related charges are primarily comprised of professional fees. Details of the Omnicare Full Potential Plan restructuring and other related charges follow (pretax, in thousands):

	Balance at		2008		Utilized			Balance at
	December 31,		Provision/		during			September 30,
Restructuring charges:	2007		Accrual		2008			2008
Employee severance	$	35	$	4,048	$	(4,083	)	$	-
Employment agreement buy-outs		1,199		282		(1,282	)		199
Lease terminations		3,128		3,673		(2,510	)		4,291
Other assets, fees and facility exit costs		1,858		12,379		(11,489	)		2,748
Total restructuring charges	$	6,220		20,382	$	(19,364	)	$	7,238
Other related charges				4,505
Total restructuring and other related charges			$	24,887

As of September 30, 2008, the Company has made cumulative payments of approximately $15.4 million of severance and other employee-related costs for the Omnicare Full Potential Plan. The remaining liabilities at September 30, 2008, represent amounts not yet paid relating to actions

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taken in connection with the program (primarily employment agreement buy-out related payments, lease payments and professional fees) and will be settled as these matters are finalized. The provision/accrual and corresponding payment amounts relating to employee severance are being accounted for primarily in accordance with SFAS No. 112, “Employers’ Accounting for Postemployment Benefits;” and the provision/accrual and corresponding payment amounts relating to employment agreement buy-outs are being accounted for primarily in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”).

2005 Program

In connection with the previously disclosed consolidation plans and other productivity initiatives to streamline pharmacy services (related, in part, to the NeighborCare, Inc. acquisition) and contract research organization operations, including maximizing workforce and operating asset utilization, and producing a more cost-efficient, operating infrastructure (the “2005 Program”), the Company had liabilities of $5.3 million at December 31, 2007, of which $1.4 million was utilized in the nine months ended September 30, 2008. The remaining liabilities of $3.9 million at September 30, 2008 represent amounts not yet paid relating to actions taken in connection with the program (primarily lease payments) and will be settled as these matters are finalized. As previously disclosed, the Company recorded a credit to restructuring and other related charges of approximately ($1.6) million pretax (approximately ($1.0) million aftertax) during the nine months ended September 30, 2007 in connection with the finalization of certain liabilities under the 2005 program.

Note 11 - Commitments and Contingencies

Omnicare continuously evaluates contingencies based upon the best available information. The Company believes that liabilities have been provided to the extent necessary in cases where the outcome is considered probable and reasonably estimable. To the extent that resolution of contingencies results in amounts that vary from the Company’s recorded liabilities, future earnings will be charged or credited accordingly.

As previously disclosed, the United States Attorney’s Office, District of Massachusetts is conducting an investigation relating to the Company’s relationships with certain manufacturers and distributors of pharmaceutical products and certain customers, as well as with respect to contracts with certain companies acquired by the Company. Any actions resulting from this investigation could result in civil or criminal proceedings against the Company. The Company believes that it has complied with all applicable laws and regulations with respect to these matters.

On October 27, 2008, the U.S. District Court in Boston, Massachusetts (the “Court”) unsealed a qui tam complaint against the Company that was originally filed under seal with the Court on July 16, 2002. This action was brought by Deborah Maguire as a private party "qui tam relator" on behalf of the federal government and various state governments. On September 16, 2008, the U.S. Government filed a Notice that it is not intervening in the action at this time.

A qui tam action is always filed under seal. Before a qui tam action is unsealed, and typically following an investigation by the government initiated after the filing of the qui tam action, the government is required to notify the court of its decision whether to intervene in the action. The government could seek to intervene in this qui tam action in the future with permission from the Court. Where the government ultimately declines to intervene, the qui tam relators may continue to pursue the litigation at their own expense on behalf of the federal or state government and, if successful, would receive a portion of the government's recovery.

The action brought by Ms. Maguire alleges civil violations of the False Claims Act, 31 U.S.C. 3729 et seq. and various state false claims statutes based on allegations that the Company: submitted claims for name brand drugs when actually providing generic versions of the same drug to nursing homes; provided consultant pharmacist services to its customers at below-market rates to induce the referral of pharmaceutical business in violation of the Anti-Kickback Statute, 42 U.S.C. 1320a-7b; and accepted discounts from drug manufacturers in return for recommending that certain pharmaceuticals be prescribed to nursing home residents in violation of the Anti-Kickback Statute. The unsealed action seeks damages provided for in the Anti-Kickback Statute and applicable state statutes. The Company is also aware of five other qui tam complaints against the Company and other companies that have been filed with the Court and remain under seal.

The Company believes that the allegations are without merit and intends to vigorously defend itself in this action if pursued.

The federal government and certain states had been investigating allegations relating to three generic pharmaceuticals provided by the Company in connection with the substitution of capsules for tablets (Ranitidine), tablets for capsules (Fluoxetine) and two 7.5 mg tablets for one 15 mg tablet (Buspirone). On November 14, 2006, the Company entered into a voluntary civil settlement agreement, under which the Company paid the federal government and participating state governments $51 million to satisfy all of the federal and state civil claims and related

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plaintiff legal fees. The Company recorded a special litigation charge, for the settlement and related legal fees, of $57.5 million pretax ($45.3 million aftertax) in its financial results for 2006 to establish a reserve relating to the aforementioned investigation. The settlement agreement also resulted in the dismissal, with prejudice, of a number of other allegations included in complaints filed by two qui tam relators. Another issue alleged by one of the qui tam relators remains under seal and was not resolved by the settlement. The settlement agreement did not include any finding of wrongdoing or any admission of liability. As part of the settlement agreement, on November 9, 2006, the Company entered into a Corporate Integrity Agreement with the Department of Health and Human Services Office of the Inspector General with a term of five years from November 9, 2006. The Corporate Integrity Agreement requires that the Company maintain its compliance program in accordance with the terms of the Corporate Integrity Agreement. The agreement contains specific requirements regarding the development and implementation of therapeutic interchange programs and the general training of certain Company employees as to the requirements of the Company’s compliance program and the Corporate Integrity Agreement. The requirements of the Corporate Integrity Agreement have resulted in increased costs to maintain the Company’s compliance program and could result in greater scrutiny by federal regulatory authorities. Violations of the Corporate Integrity Agreement could subject the Company to significant monetary and/or administrative penalties.

On July 11, 2006, the Attorney General’s Office in Michigan provided the Company’s legal counsel with information concerning its investigation relating to certain billing issues under the Michigan Medicaid program at Specialized Pharmacy Services, a subsidiary of the Company located in Michigan. On October 5, 2006, the Company entered into a voluntary settlement agreement and a two-year Corporate Integrity Agreement with the State of Michigan to resolve the Michigan Attorney General’s investigation relating to certain billing issues under the Michigan Medicaid program at Specialized Pharmacy Services. Under the terms of the settlement agreement, the Company paid the State of Michigan approximately $43 million, with an additional amount of approximately $6 million to be paid over the following three years. The Company also reached an agreement in principle with the State of Michigan to resolve claims relating to billing by Specialized Pharmacy Services for drugs provided to hospice patients for a settlement amount of approximately $3.5 million. On October 26, 2007, the Company entered into settlement agreements with the federal government and the State of Michigan to resolve these hospice claims. Under the terms of the October 26, 2007 settlement agreements, the Company paid the federal government and the State of Michigan an aggregate amount of approximately $3.5 million. In connection with the settlements, the November 9, 2006 Corporate Integrity Agreement with the Department of Health and Human Services Office of the Inspector General was also amended to cover certain hospice billing matters. The settlement agreements do not include any finding of wrongdoing or any admission of liability. The Company recorded a special litigation charge of $54.0 million pretax ($46.7 million aftertax) in its financial results for 2006 based on the terms of the settlement agreement. The Corporate Integrity Agreement with the State of Michigan requires that the Company and Specialized Pharmacy Services maintain Specialized Pharmacy Services’ compliance program in accordance with the terms of the Corporate Integrity Agreement. The agreement contains specific requirements regarding compliance with Medicaid policies governing access to pharmacy facilities and records, unit dose billing agreements, consumption billing, hospice patient terminal illness prescriptions and prescriptions dispensed after a patient’s death. The requirements of the

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Corporate Integrity Agreement have resulted in increased costs to maintain Specialized Pharmacy Services’ compliance program and could result in greater scrutiny by Michigan regulatory authorities. Violations of the Corporate Integrity Agreement could subject the Company to significant monetary and/or administrative penalties.

On February 2 and February 13, 2006, respectively, two substantially similar putative class action lawsuits, entitled Indiana State Dist. Council of Laborers & HOD Carriers Pension & Welfare Fund v. Omnicare, Inc., et al., No. 2:06cv26 (“HOD Carriers”), and Chi v. Omnicare, Inc., et al., No. 2:06cv31 (“Chi”), were filed against Omnicare and two of its officers in the United States District Court for the Eastern District of Kentucky purporting to assert claims for violation of §§10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and seeking, among other things, compensatory damages and injunctive relief. The complaints, which purported to be brought on behalf of all open-market purchasers of Omnicare common stock from August 3, 2005 through January 27, 2006, alleged that Omnicare had artificially inflated its earnings by engaging in improper generic drug substitution and that defendants had made false and misleading statements regarding the Company’s business and prospects. On April 3, 2006, plaintiffs in the HOD Carriers case formally moved for consolidation and the appointment of lead plaintiff and lead counsel pursuant to the Private Securities Litigation Reform Act of 1995. On May 22, 2006, that motion was granted, the cases were consolidated, and a lead plaintiff and lead counsel were appointed. On July 20, 2006, plaintiffs filed a consolidated amended complaint, adding a third officer as a defendant and new factual allegations primarily relating to revenue recognition, the valuation of receivables and the valuation of inventories. On October 31, 2006, plaintiffs moved for leave to file a second amended complaint, which was granted on January 26, 2007, on the condition that no further amendments would be permitted absent extraordinary circumstances. Plaintiffs thereafter filed their second amended complaint on January 29, 2007. The second amended complaint (i) expands the putative class to include all purchasers of Omnicare common stock from August 3, 2005 through July 27, 2006, (ii) names two members of the Company’s board of directors as additional defendants, (iii) adds a new plaintiff and a new claim for violation of Section 11 of the Securities Act of 1933 based on alleged false and misleading statements in the registration statement filed in connection with the Company’s December 2005 public offering, (iv) alleges that the Company failed to timely disclose its contractual dispute with UnitedHealth, and (v) alleges that the Company failed to timely record certain special litigation reserves. The defendants filed a motion to dismiss the second amended complaint on March 12, 2007, claiming that plaintiffs had failed adequately to plead loss causation, scienter or any actionable misstatement or omission. That motion was fully briefed as of May 1, 2007. In response to certain arguments relating to the individual claims of the named plaintiffs that were raised in defendants’ pending motion to dismiss, plaintiffs filed a motion to add, or in the alternative, to intervene an additional named plaintiff, Alaska Electrical Pension Fund, on July 27, 2007. On October 12, 2007, the court issued an opinion and order dismissing the case and denying plaintiffs’ motion to add an additional named plaintiff. On November 9, 2007, plaintiffs filed a notice of appeal with the United States Court of Appeals for the Sixth Circuit with respect to the dismissal of their case. Oral argument was held on September 18, 2008.

On February 13, 2006, two substantially similar shareholder derivative actions, entitled Isak v. Gemunder, et al., Case No. 06-CI-390, and Fragnoli v. Hutton, et al., Case No. 06-CI-389, were

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filed in Kentucky State Circuit Court, Kenton Circuit, against the members of Omnicare’s board of directors, individually, purporting to assert claims for breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment arising out of the Company’s alleged violations of federal and state health care laws based upon the same purportedly improper generic drug substitution that is the subject of the federal purported class action lawsuits. The complaints seek, among other things, damages, restitution and injunctive relief. The Isak and Fragnoli actions were later consolidated by agreement of the parties. On January 12, 2007, the defendants filed a motion to dismiss the consolidated action on the grounds that the dismissal of the substantially identical shareholder derivative action, Irwinv. Gemunder, et al., 2:06cv62, by the United States District Court for the Eastern District of Kentucky on November 20, 2006 should be given preclusive effect and thus bars re-litigation of the issues already decided in Irwin. Instead of opposing that motion, on March 16, 2007, the plaintiffs filed an amended consolidated complaint, which continues to name all of the directors as defendants and asserts the same claims, but attempts to bolster those claims by adding nearly all of the substantive allegations from the most recent complaint in the federal securities class action (see discussion of HOD Carriers above) and an amended complaint in Irwin that added the same factual allegations that were added to the consolidated amended complaint in the HOD Carriers action. On April 16, 2007, defendants filed a supplemental memorandum of law in further support of their pending motion to dismiss contending that the amended complaint should be dismissed on the same grounds previously articulated for dismissal, namely, the preclusive effect of the dismissal of the Irwin action. That motion has been fully briefed, oral argument was held on August 21, 2007, and the court reserved decision.

The Company believes the above-described purported class and derivative actions are without merit and will be vigorously defended.

The three and nine months ended September 30, 2008 included a $13.5 million pretax charge ($8.2 million after taxes) and a $51.1 million pretax charge ($31.3 million after taxes), respectively, and the three and nine months ended September 30, 2007 included a $9.2 million pretax charge ($5.6 million after taxes) and a $25.1 million pretax charge ($15.4 million after taxes), respectively, reflected in the “Litigation and other related professional fees” line of the Consolidated Statements of Income, primarily for litigation-related professional expenses in connection with the Company’s lawsuit against United, certain other large customer disputes, the investigation by the United States Attorney’s Office, District of Massachusetts, the purported class and derivative actions, the investigation by the federal government and certain states relating to drug substitutions, the Company’s response to subpoenas it received relating to other legal proceedings to which the Company is not a party, and the inquiry conducted by the Attorney General’s Office in Michigan relating to certain billing issues under the Michigan Medicaid program.

During 2006, the Company experienced certain quality control and product recall issues, as well as fire damage, at one of its repackaging facilities, Heartland Repack Services (“Heartland”). As a precautionary measure, the Company voluntarily and temporarily suspended operations at Heartland. During the time that the Heartland facility was closed, the Company conducted certain environmental tests at the facility. Based on the results of these tests, which showed very low levels of beta lactam residue, and the time and expense associated with completing the

23

necessary remediation procedures, as well as the short remaining term on the lease for the current facility, the Company decided not to reopen the Heartland facility. The Company continues to work to address and resolve all issues, and restore centralized repackaging to full capacity. In order to temporarily replace the capacity of the Heartland facility, the Company ramped up production in its other repackaging facility, as well as onsite in its individual pharmacies for use by their patients. As a result, the Company has been and continues to be able to meet the needs of all of its client facilities and their residents. Addressing these issues served to increase costs and, as a result, the three months ended September 30, 2008 included special charges of approximately $1.2 million pretax (approximately $1.0 million and approximately $0.1 million was recorded in the cost of sales and operating expenses sections of the Consolidated Statements of Income, respectively) ($0.7 million after taxes) for costs associated with the quality control, product recall and fire damage issues at Heartland (“Heartland Matters”). The associated costs for the nine months ended September 30, 2008 totaled $4.8 million pretax ($4.2 million and $0.6 million was recorded in the cost of sales and operating expenses sections of the Consolidated Statements of Income, respectively) ($2.9 million after taxes). The three months ended September 30, 2007 included special charges of approximately $3.6 million pretax ($3.3 million and $0.3 million was recorded in the cost of sales and operating expenses sections of the Consolidated Statements of Income, respectively) ($2.2 million after taxes) for costs associated with the Heartland Matters. The associated costs for the nine months ended September 30, 2007 totaled $14.4 million pretax ($11.6 million and $2.7 million was recorded in the cost of sales and operating expenses sections of the Consolidated Statements of Income, respectively) ($8.8 million after taxes). The Company maintains product recall, property and casualty and business interruption insurance, and the extent of insurance recovery for these expenses continues to be reviewed by its outside advisors. As of September 30, 2008, the Company has received no material insurance recoveries. Further, in order to replace the repackaging capacity of the Heartland facility, on February 27, 2007, Omnicare entered into an agreement for the Repackaging Services division of Cardinal Health to serve as the contract repackager for pharmaceutical volumes previously repackaged at the Heartland facility. The agreement initially extends through October 2010.

Although the Company cannot know with certainty the ultimate outcome of the matters described in the preceding paragraphs, there can be no assurance that the resolution of these matters will not have a material adverse impact on the Company’s consolidated results of operations, financial position or cash flows or, in the case of the investigations regarding certain drug substitutions and the matters relating to the Heartland facility, that these matters will be resolved in an amount that would not exceed the amount of the pretax charges recorded by the Company.

As part of its ongoing operations, the Company is subject to various inspections, audits, inquiries and similar actions by third parties, as well as governmental/regulatory authorities responsible for enforcing the laws and regulations to which the Company is subject. The Company is also involved in various legal actions arising in the normal course of business. These matters are continuously being evaluated and, in many cases, are being contested by the Company and the outcome is not predictable. Consequently, an estimate of the possible loss or range of loss associated with certain actions cannot be made. Although occasional adverse outcomes (or settlements) may occur and could possibly have an adverse effect on the results of operations and

24

cash flows in any one accounting period, outside of the matters described in the preceding paragraphs, the Company is not aware of any such matters whereby it is presently believed that the final disposition will have a material adverse affect on the Company’s overall consolidated financial position.

The Company indemnifies the directors and officers of the Company for certain liabilities that might arise from the performance of their job responsibilities for the Company. Additionally, in the normal course of business, the Company enters into contracts that contain a variety of representations and warranties and which provide general indemnifications. The Company’s maximum exposure under these arrangements is unknown, as this involves the resolution of claims made, or future claims that may be made, against the Company, its directors and/or officers, the outcomes of which is unknown and not currently predictable. Accordingly, no liabilities have been recorded for the indemnifications.

Note 12 - Segment Information

Based on the “management approach,” as defined by SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” Omnicare has two operating segments. The Company’s larger segment is Pharmacy Services. Pharmacy Services primarily provides distribution of pharmaceuticals, related pharmacy consulting and other ancillary services, data management services, medical supplies, and distribution and patient assistance services for specialty pharmaceuticals. The Company’s customers are primarily skilled nursing, assisted living, hospice and other providers of healthcare services in 47 states in the United States, the District of Columbia and in Canada at September 30, 2008. The Company’s other segment is CRO Services, which provides comprehensive product development and research services to client companies in pharmaceutical, biotechnology, medical devices and diagnostics industries in 30 countries around the world at September 30, 2008, including the United States. Certain reclassification of prior-year depreciation and amortization amounts have been made to conform with the current-year presentation.

25

The table below presents information about the segments as of and for the three and nine months ended September 30, 2008 and 2007, and should be read in conjunction with the paragraph that follows (in thousands):

	Three months ended September 30,
	Pharmacy			CRO			Corporate and			Consolidated
2008:	Services			Services			Consolidating			Totals
Net sales	$	1,551,925		$	51,464		$	-		$	1,603,389
Depreciation and amortization		(22,479	)		(473	)		(7,172	)		(30,124	)
Restructuring and other related charges		(6,806	)		-			(849	)		(7,655	)
Litigation and other related professional fees		(13,479	)		-			-			(13,479	)
Heartland matters		(1,170	)		-			-			(1,170	)
Operating income (expense)		151,832			4,544			(29,676	)		126,700
Total assets		6,870,171			186,192			360,112			7,416,475
Capital expenditures		(18,233	)		(224	)		(57	)		(18,514	)
2007:
Net sales	$	1,488,518		$	48,471		$	-		$	1,536,989
Depreciation and amortization		(20,652	)		(457	)		(6,799	)		(27,908	)
Restructuring and other related charges		(4,389	)		(141	)		(427	)		(4,957	)
Litigation and other related professional fees		(9,192	)		-			-			(9,192	)
Heartland matters		(3,648	)		-			-			(3,648	)
Operating income (expense)		129,655			3,682			(25,517	)		107,820
Total assets		7,041,947			187,368			377,450			7,606,765
Capital expenditures		(13,201	)		(520	)		(458	)		(14,179	)

26

	Nine months ended September 30,
	Pharmacy			CRO			Corporate and			Consolidated
2008:	Services			Services			Consolidating			Totals
Net sales	$	4,558,252		$	154,268		$	-		$	4,712,520
Depreciation and amortization		(63,410	)		(1,362	)		(23,015	)		(87,787	)
Restructuring and other related charges		(21,124	)		(1,374	)		(2,389	)		(24,887	)
Litigation and other related professional fees		(51,143	)		-			-			(51,143	)
Heartland matters		(4,803	)		-			-			(4,803	)
Operating income (expense)		378,583			11,012			(86,292	)		303,303
Total assets		6,870,171			186,192			360,112			7,416,475
Capital expenditures		(44,377	)		(2,294	)		(311	)		(46,982	)
2007:
Net sales	$	4,517,079		$	146,132		$	-		$	4,663,211
Depreciation and amortization		(63,532	)		(1,411	)		(20,173	)		(85,116	)
Restructuring and other related charges		(14,145	)		(2,211	)		(4,025	)		(20,381	)
Litigation and other related professional fees		(25,109	)		-			-			(25,109	)
Heartland matters		(14,351	)		-			-			(14,351	)
Operating income (expense)		409,519			7,316			(78,359	)		338,476
Total assets		7,041,947			187,368			377,450			7,606,765
Capital expenditures		(30,301	)		(1,182	)		(1,621	)		(33,104	)

In accordance with Emerging Issues Task Force (“EITF”) Issue No. 01-14, “Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred” (“EITF No. 01-14”), Omnicare included in its reported CRO segment net sales amount, for the three and nine month periods ended September 30, 2008, reimbursable out-of-pockets totaling $8.3 million and $24.5 million, respectively, and $7.9 million and $23.3 million for the three and nine months ended September 30, 2007, respectively.

27

Note 13 - Guarantor Subsidiaries

The Company’s 6.125% senior subordinated notes due 2013, the 6.75% senior subordinated notes due 2013 and the 6.875% senior subordinated notes due 2015 are fully and unconditionally guaranteed on an unsecured, joint and several basis by certain wholly-owned subsidiaries of the Company (the “Guarantor Subsidiaries”). The following condensed consolidating financial data illustrates the composition of Omnicare, Inc. (“Parent”), the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries as of September 30, 2008 and December 31, 2007 for the balance sheets, the three and nine months ended September 30, 2008 and 2007 for the statements of income, and the statements of cash flows for the nine months ended September 30, 2008 and 2007. Management believes separate complete financial statements of the respective Guarantor Subsidiaries would not provide information that would be necessary for evaluating the sufficiency of the Guarantor Subsidiaries, and thus are not presented. No consolidating/eliminating adjustment column is presented for the condensed consolidating statements of cash flows since there were no significant consolidating/eliminating adjustment amounts during the periods presented.

28

Note 13 - Guarantor Subsidiaries (Continued)

Summary Consolidating Statements of Income - Unaudited
(in thousands)

	Three months ended September 30,
							Non-			Consolidating/			Omnicare,
				Guarantor			Guarantor			Eliminating			Inc. and
2008:	Parent			Subsidiaries			Subsidiaries			Adjustments			Subsidiaries
Net sales	$	-		$	1,547,066		$	56,323		$	-		$	1,603,389
Cost of sales		-			1,145,520			42,065			-			1,187,585
Heartland matters		-			1,041			-			-			1,041
Gross profit		-			400,505			14,258			-			414,763
Selling, general and administrative expenses		4,690			226,485			6,714			-			237,889
Provision for doubtful accounts		-			27,634			1,277			-			28,911
Restructuring and other related charges		-			7,655			-			-			7,655
Litigation and other related professional fees		-			13,479			-			-			13,479
Heartland matters		-			129			-			-			129
Operating income (loss)		(4,690	)		125,123			6,267			-			126,700
Investment income		105			1,336			-			-			1,441
Interest expense		(35,925	)		(206	)		(777	)		-			(36,908	)
Income (loss) before income taxes		(40,510	)		126,253			5,490			-			91,233
Income tax (benefit) expense		(15,866	)		47,251			2,143			-			33,528
Equity in net income of subsidiaries		82,349			-			-			(82,349	)		-
Net income	$	57,705		$	79,002		$	3,347		$	(82,349	)	$	57,705
2007:
Net sales	$	-		$	1,486,175		$	50,814		$	-		$	1,536,989
Cost of sales		-			1,114,122			37,205			-			1,151,327
Heartland matters		-			3,320			-			-			3,320
Gross profit		-			368,733			13,609			-			382,342
Selling, general and administrative expenses		2,110			216,734			10,839			-			229,683
Provision for doubtful accounts		-			29,375			987			-			30,362
Restructuring and other related charges		-			4,957			-			-			4,957
Litigation and other related professional fees		-			9,192			-			-			9,192
Heartland matters		-			328			-			-			328
Operating income (loss)		(2,110	)		108,147			1,783			-			107,820
Investment income		1,196			1,173			-			-			2,369
Interest expense		(39,720	)		(297	)		(908	)		-			(40,925	)
Income (loss) before income taxes		(40,634	)		109,023			875			-			69,264
Income tax (benefit) expense		(16,498	)		42,785			380			-			26,667
Equity in net income of subsidiaries		66,733			-			-			(66,733	)		-
Net income	$	42,597		$	66,238		$	495		$	(66,733	)	$	42,597

29

Note 13 - Guarantor Subsidiaries (Continued)

Summary Consolidating Statements of Income - Unaudited
(in thousands)

	Nine months ended September 30,
							Non-			Consolidating/			Omnicare,
				Guarantor			Guarantor			Eliminating			Inc. and
2008:	Parent			Subsidiaries			Subsidiaries			Adjustments			Subsidiaries
Net sales	$	-		$	4,534,493		$	178,027		$	-		$	4,712,520
Cost of sales		-			3,396,199			135,610			-			3,531,809
Heartland matters		-			4,175			-			-			4,175
Gross profit		-			1,134,119			42,417			-			1,176,536
Selling, general and administrative expenses		8,987			677,468			25,050			-			711,505
Provision for doubtful accounts		-			81,436			3,634			-			85,070
Restructuring and other related charges		-			24,663			224			-			24,887
Litigation and other related professional fees		-			51,143			-			-			51,143
Heartland matters		-			628			-			-			628
Operating income (loss)		(8,987	)		298,781			13,509			-			303,303
Investment income		1,496			4,515			-			-			6,011
Interest expense		(105,756	)		(1,632	)		(2,516	)		-			(109,904	)
Income (loss) before income taxes		(113,247	)		301,664			10,993			-			199,410
Income tax (benefit) expense		(44,030	)		114,712			4,274			-			74,956
Equity in net income of subsidiaries		193,671			-			-			(193,671	)		-
Net income	$	124,454		$	186,952		$	6,719		$	(193,671	)	$	124,454
2007:
Net sales	$	-		$	4,497,905		$	165,306		$	-		$	4,663,211
Cost of sales		-			3,370,000			122,429			-			3,492,429
Heartland matters		-			11,631			-			-			11,631
Gross profit		-			1,116,274			42,877			-			1,159,151
Selling, general and administrative expenses		6,383			646,111			30,806			-			683,300
Provision for doubtful accounts		-			87,294			1,871			-			89,165
Restructuring and other related charges		-			19,471			910			-			20,381
Litigation and other related professional fees		-			25,109			-			-			25,109
Heartland matters		-			2,720			-			-			2,720
Operating income (loss)		(6,383	)		335,569			9,290			-			338,476
Investment income		2,531			3,861			-			-			6,392
Interest expense		(121,326	)		(866	)		(2,499	)		-			(124,691	)
Income (loss) before income taxes		(125,178	)		338,564			6,791			-			220,177
Income tax (benefit) expense		(49,233	)		131,914			2,671			-			85,352
Equity in net income of subsidiaries		210,770			-			-			(210,770	)		-
Net income	$	134,825		$	206,650		$	4,120		$	(210,770	)	$	134,825

30

Note 13 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Balance Sheets
(inthousands)

					Non-		Consolidating/			Omnicare,
			Guarantor		Guarantor		Eliminating			Inc. and
As of September 30, 2008 (Unaudited):	Parent		Subsidiaries		Subsidiaries		Adjustments			Subsidiaries
ASSETS
Cash and cash equivalents	$	121,591	$	41,336	$	18,181	$	-		$	181,108
Restricted cash		-		15,397		-		-			15,397
Accounts receivable, net (including intercompany)		-		1,346,614		69,428		(41,272	)		1,374,770
Unbilled receivables, CRO		-		26,765		-		-			26,765
Inventories		-		411,790		10,602		-			422,392
Deferred income tax benefits, net-current		-		132,773		67		(3,290	)		129,550
Other current assets		1,431		187,579		6,141		-			195,151
Total current assets		123,022		2,162,254		104,419		(44,562	)		2,345,133
Properties and equipment, net		-		204,550		8,848		-			213,398
Goodwill		-		4,153,285		101,035		-			4,254,320
Identifiable intangible assets, net		-		333,432		4,999		-			338,431
Other noncurrent assets		46,203		218,771		219		-			265,193
Investment in subsidiaries		6,034,986		-		-		(6,034,986	)		-
Total assets	$	6,204,211	$	7,072,292	$	219,520	$	(6,079,548	)	$	7,416,475
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities (including intercompany)	$	54,937	$	596,245	$	16,176	$	(41,272	)	$	626,086
Long-term debt, notes and convertible debentures		2,715,063		2,978		48,682		-			2,766,723
Deferred income tax liabilities, net-noncurrent		91,420		227,979		9,830		(3,290	)		325,939
Other noncurrent liabilities		7,437		353,669		1,267		-			362,373
Stockholders’ equity		3,335,354		5,891,421		143,565		(6,034,986	)		3,335,354
Total liabilities and stockholders’ equity	$	6,204,211	$	7,072,292	$	219,520	$	(6,079,548	)	$	7,416,475

31

Note 13 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Balance Sheets - (Continued)
(inthousands)

					Non-		Consolidating/			Omnicare,
			Guarantor		Guarantor		Eliminating			Inc. and
As of December 31, 2007:	Parent		Subsidiaries		Subsidiaries		Adjustments			Subsidiaries
ASSETS
Cash and cash equivalents	$	171,779	$	70,088	$	32,581	$	-		$	274,448
Restricted cash		-		3,155		-		-			3,155
Accounts receivable, net (including intercompany)		-		1,348,504		30,386		(2,602	)		1,376,288
Unbilled receivables, CRO		-		24,855		-		-			24,855
Inventories		-		436,639		11,544		-			448,183
Deferred income tax benefits, net-current		878		125,474		-		(113	)		126,239
Other current assets		1,336		196,474		5,172		-			202,982
Total current assets		173,993		2,205,189		79,683		(2,715	)		2,456,150
Properties and equipment, net		-		188,340		11,109		-			199,449
Goodwill		-		4,238,547		103,622		-			4,342,169
Identifiable intangible assets, net		-		318,255		5,382		-			323,637
Other noncurrent assets		52,135		219,906		333		-			272,374
Investment in subsidiaries		5,939,714		-		-		(5,939,714	)		-
Total assets	$	6,165,842	$	7,170,237	$	200,129	$	(5,942,429	)	$	7,593,779
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities (including intercompany)	$	33,105	$	600,095	$	21,562	$	(2,602	)	$	652,160
Long-term debt, notes and convertible debentures		2,764,510		4,505		51,736		-			2,820,751
Deferred income tax liabilities, net-noncurrent		68,534		372,110		9,258		(113	)		449,789
Other noncurrent liabilities		7,990		370,352		1,034		-			379,376
Stockholders’ equity		3,291,703		5,823,175		116,539		(5,939,714	)		3,291,703
Total liabilities and stockholders’ equity	$	6,165,842	$	7,170,237	$	200,129	$	(5,942,429	)	$	7,593,779

32

Note 13 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Statements of Cash Flows - Unaudited
(in thousands)

	Nine months ended September 30,
										Omnicare, Inc.
				Guarantor			Non-Guarantor			and
2008:	Parent			Subsidiaries			Subsidiaries			Subsidiaries
Cash flows from operating activities:
Net cash flows from operating activities	$	(45,536	)	$	388,174		$	(10,753	)	$	331,885
Cash flows from investing activities:
Acquisition of businesses, net of cash received		-			(201,032	)		-			(201,032	)
Capital expenditures		-			(47,143	)		161			(46,982	)
Transfer of cash to trusts for employee health and severance
costs, net of payments out of the trust		-			(11,419	)		-			(11,419	)
Other		-			(574	)		-			(574	)
Net cash flows used in investing activities		-			(260,168	)		161			(260,007	)
Cash flows from financing activities:
Payments on line of credit facilities and term A loan		(50,000	)		-			-			(50,000	)
Payments on long-term borrowings and obligations		(2,172	)		-			-			(2,172	)
(Decrease) increase in cash overdraft balance		(4,026	)		1,714			-			(2,312	)
Payments for Omnicare common stock repurchases		(100,165	)		-			-			(100,165	)
Payments for stock awards and exercise of stock options,
net of stock tendered in payment		(1,183	)		-			-			(1,183	)
Excess tax benefits from stock-based compensation		750			-			-			750
Dividends paid		(8,080	)		-			-			(8,080	)
Other		160,224			(160,224	)		-			-
Net cash flows used in financing activities		(4,652	)		(158,510	)		-			(163,162	)
Effect of exchange rate changes on cash		-			1,752			(3,808	)		(2,056	)
Net (decrease) in cash and cash equivalents		(50,188	)		(28,752	)		(14,400	)		(93,340	)
Cash and cash equivalents at beginning of period		171,779			70,088			32,581			274,448
Cash and cash equivalents at end of period	$	121,591		$	41,336		$	18,181		$	181,108

33

Note 13 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Statements of Cash Flows - (Continued) - Unaudited
(in thousands)

	Nine months ended September 30,
										Omnicare, Inc.
				Guarantor			Non-Guarantor			and
2007:	Parent			Subsidiaries			Subsidiaries			Subsidiaries
Cash flows from operating activities:
Net cash flows from operating activities	$	(22,321	)	$	439,766		$	13,794		$	431,239
Cash flows from investing activities:
Acquisition of businesses, net of cash received		-			(105,979	)		-			(105,979	)
Capital expenditures		-			(32,133	)		(971	)		(33,104	)
Transfer of cash to trusts for employee health and severance
costs, net of payments out of the trust		-			(10,423	)		-			(10,423	)
Other		-			(184	)		-			(184	)
Net cash flows used in investing activities		-			(148,719	)		(971	)		(149,690	)
Cash flows from financing activities:
Payments on line of credit facilities and term A loan		(150,000	)		-			-			(150,000	)
Payments on long-term borrowings and obligations		(4,673	)		-			-			(4,673	)
Increase (decrease) in cash overdraft balance		3,456			(792	)		-			2,664
Payments for stock awards and exercise of stock options,
net of stock tendered in payment		(8,068	)		-			-			(8,068	)
Excess tax benefits from stock-based compensation		4,089			-			-			4,089
Dividends paid		(8,226	)		-			-			(8,226	)
Other		301,241			(301,241	)		-			-
Net cash flows from financing activities		137,819			(302,033	)		-			(164,214	)
Effect of exchange rate changes on cash		-			-			1,653			1,653
Net increase (decrease) in cash and cash equivalents		115,498			(10,986	)		14,476			118,988
Cash and cash equivalents at beginning of period		43,494			74,262			20,278			138,034
Cash and cash equivalents at end of period	$	158,992		$	63,276		$	34,754		$	257,022

34

Note 13 - Guarantor Subsidiaries (Continued)

The Company’s 3.25% convertible senior debentures due 2035 are fully and unconditionally guaranteed on an unsecured basis by Omnicare Purchasing Company, LP, a wholly-owned subsidiary of the Company (the “Guarantor Subsidiary”). The following condensed consolidating financial data illustrates the composition of Omnicare, Inc. (“Parent”), the Guarantor Subsidiary and the Non-Guarantor Subsidiaries as of September 30, 2008 and December 31, 2007 for the balance sheets, the three and nine months ended September 30, 2008 and 2007 for the statements of income, and the statements of cash flows for the nine months ended September 30, 2008 and 2007. Management believes separate complete financial statements of the respective Guarantor Subsidiary would not provide information that would be necessary for evaluating the sufficiency of the Guarantor Subsidiary, and thus are not presented. The Guarantor Subsidiary does not have any material net cash flows in the condensed consolidating statements of cash flows. No consolidating/eliminating adjustments column is presented for the condensed consolidating statements of cash flows since there were no significant consolidating/eliminating adjustment amounts during the periods presented.

35

Summary Consolidating Statements of Income - Unaudited
(in thousands)

	Three months ended September 30,
							Non-			Consolidating/			Omnicare,
				Guarantor			Guarantor			Eliminating			Inc. and
2008:	Parent			Subsidiary			Subsidiaries			Adjustments			Subsidiaries
Net sales	$	-		$	-		$	1,603,389		$	-		$	1,603,389
Cost of sales		-			-			1,187,585			-			1,187,585
Heartland matters		-			-			1,041			-			1,041
Gross profit		-			-			414,763			-			414,763
Selling, general and administrative expenses		4,690			365			232,834			-			237,889
Provision for doubtful accounts		-			-			28,911			-			28,911
Restructuring and other related charges		-			-			7,655			-			7,655
Litigation and other related professional fees		-			-			13,479			-			13,479
Heartland matters		-			-			129			-			129
Operating income (loss)		(4,690	)		(365	)		131,755			-			126,700
Investment income		105			-			1,336			-			1,441
Interest expense		(35,925	)		-			(983	)		-			(36,908	)
Income (loss) before income taxes		(40,510	)		(365	)		132,108			-			91,233
Income tax (benefit) expense		(15,866	)		(146	)		49,540			-			33,528
Equity in net income of subsidiaries		82,349			-			-			(82,349	)		-
Net income (loss)	$	57,705		$	(219	)	$	82,568		$	(82,349	)	$	57,705
2007:
Net sales	$	-		$	-		$	1,536,989		$	-		$	1,536,989
Cost of sales		-			-			1,151,327			-			1,151,327
Heartland matters		-			-			3,320			-			3,320
Gross profit		-			-			382,342			-			382,342
Selling, general and administrative expenses		2,110			266			227,307			-			229,683
Provision for doubtful accounts		-			-			30,362			-			30,362
Restructuring and other related charges		-			-			4,957			-			4,957
Litigation and other related professional fees		-			-			9,192			-			9,192
Heartland matters		-			-			328			-			328
Operating income (loss)		(2,110	)		(266	)		110,196			-			107,820
Investment income		1,196			-			1,173			-			2,369
Interest expense		(39,720	)		-			(1,205	)		-			(40,925	)
Income (loss) before income taxes		(40,634	)		(266	)		110,164			-			69,264
Income tax (benefit) expense		(16,498	)		(108	)		43,273			-			26,667
Equity in net income of subsidiaries		66,733			-			-			(66,733	)		-
Net income (loss)	$	42,597		$	(158	)	$	66,891		$	(66,733	)	$	42,597

36

Note 13 - Guarantor Subsidiaries (Continued)

Summary Consolidating Statements of Income - Unaudited
(in thousands)

	Nine months ended September 30,
							Non-			Consolidating/			Omnicare,
				Guarantor			Guarantor			Eliminating			Inc. and
2008:	Parent			Subsidiary			Subsidiaries			Adjustments			Subsidiaries
Net sales	$	-		$	-		$	4,712,520		$	-		$	4,712,520
Cost of sales		-			-			3,531,809			-			3,531,809
Heartland matters		-			-			4,175			-			4,175
Gross profit		-			-			1,176,536			-			1,176,536
Selling, general and administrative expenses		8,987			1,011			701,507			-			711,505
Provision for doubtful accounts		-			-			85,070			-			85,070
Restructuring and other related charges		-			-			24,887			-			24,887
Litigation and other related professional fees		-			-			51,143			-			51,143
Heartland matters		-			-			628			-			628
Operating income (loss)		(8,987	)		(1,011	)		313,301			-			303,303
Investment income		1,496			-			4,515			-			6,011
Interest expense		(105,756	)		-			(4,148	)		-			(109,904	)
Income (loss) before income taxes		(113,247	)		(1,011	)		313,668			-			199,410
Income tax (benefit) expense		(44,030	)		(396	)		119,382			-			74,956
Equity in net income of subsidiaries		193,671			-			-			(193,671	)		-
Net income (loss)	$	124,454		$	(615	)	$	194,286		$	(193,671	)	$	124,454
2007:
Net sales	$	-		$	-		$	4,663,211		$	-		$	4,663,211
Cost of sales		-			-			3,492,429			-			3,492,429
Heartland matters		-			-			11,631			-			11,631
Gross profit		-			-			1,159,151			-			1,159,151
Selling, general and administrative expenses		6,383			807			676,110			-			683,300
Provision for doubtful accounts		-			-			89,165			-			89,165
Restructuring and other related charges		-			-			20,381			-			20,381
Litigation and other related professional fees		-			-			25,109			-			25,109
Heartland matters		-			-			2,720			-			2,720
Operating income (loss)		(6,383	)		(807	)		345,666			-			338,476
Investment income		2,531			-			3,861			-			6,392
Interest expense		(121,326	)		-			(3,365	)		-			(124,691	)
Income (loss) before income taxes		(125,178	)		(807	)		346,162			-			220,177
Income tax (benefit) expense		(49,233	)		(317	)		134,902			-			85,352
Equity in net income of subsidiaries		210,770			-			-			(210,770	)		-
Net income (loss)	$	134,825		$	(490	)	$	211,260		$	(210,770	)	$	134,825

37

Note 13 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Balance Sheets
(inthousands)

					Non-		Consolidating/			Omnicare,
			Guarantor		Guarantor		Eliminating			Inc. and
As of September 30, 2008 (Unaudited):	Parent		Subsidiary		Subsidiaries		Adjustments			Subsidiaries
ASSETS
Cash and cash equivalents	$	121,591	$	-	$	59,517	$	-		$	181,108
Restricted cash		-		-		15,397		-			15,397
Accounts receivable, net (including intercompany)		-		98		1,374,770		(98	)		1,374,770
Unbilled receivables, CRO		-		-		26,765		-			26,765
Inventories		-		-		422,392		-			422,392
Deferred income tax benefits, net-current		-		-		132,840		(3,290	)		129,550
Other current assets		1,431		-		193,720		-			195,151
Total current assets		123,022		98		2,225,401		(3,388	)		2,345,133
Properties and equipment, net		-		28		213,370		-			213,398
Goodwill		-		-		4,254,320		-			4,254,320
Identifiable intangible assets, net		-		-		338,431		-			338,431
Other noncurrent assets		46,203		19		218,971		-			265,193
Investment in subsidiaries		6,034,986		-		-		(6,034,986	)		-
Total assets	$	6,204,211	$	145	$	7,250,493	$	(6,038,374	)	$	7,416,475
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities (including intercompany)	$	54,937	$	46	$	571,201	$	(98	)	$	626,086
Long-term debt, notes and convertible debentures		2,715,063		-		51,660		-			2,766,723
Deferred income tax liabilities, net-noncurrent		91,420		-		237,809		(3,290	)		325,939
Other noncurrent liabilities		7,437		-		354,936		-			362,373
Stockholders’ equity		3,335,354		99		6,034,887		(6,034,986	)		3,335,354
Total liabilities and stockholders’ equity	$	6,204,211	$	145	$	7,250,493	$	(6,038,374	)	$	7,416,475

38

Note 13 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Balance Sheets - (Continued)
(inthousands)

					Non-		Consolidating/			Omnicare,
			Guarantor		Guarantor		Eliminating			Inc. and
As of December 31, 2007:	Parent		Subsidiary		Subsidiaries		Adjustments			Subsidiaries
ASSETS
Cash and cash equivalents	$	171,779	$	-	$	102,669	$	-		$	274,448
Restricted cash		-		-		3,155		-			3,155
Accounts receivable, net (including intercompany)		-		43		1,376,288		(43	)		1,376,288
Unbilled receivables, CRO		-		-		24,855		-			24,855
Inventories		-		-		448,183		-			448,183
Deferred income tax benefits, net-current		878		-		125,361		-			126,239
Other current assets		1,336		-		201,646		-			202,982
Total current assets		173,993		43		2,282,157		(43	)		2,456,150
Properties and equipment, net		-		28		199,421		-			199,449
Goodwill		-		-		4,342,169		-			4,342,169
Identifiable intangible assets, net		-		-		323,637		-			323,637
Other noncurrent assets		52,135		19		220,220		-			272,374
Investment in subsidiaries		5,939,714		-		-		(5,939,714	)		-
Total assets	$	6,165,842	$	90	$	7,367,604	$	(5,939,757	)	$	7,593,779
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities (including intercompany)	$	33,105		$ -	$	619,098	$	(43	)	$	652,160
Long-term debt, notes and convertible debentures		2,764,510		-		56,241		-			2,820,751
Deferred income tax liabilities, net-noncurrent		68,534		-		381,255		-			449,789
Other noncurrent liabilities		7,990		-		371,386		-			379,376
Stockholders’ equity		3,291,703		90		5,939,624		(5,939,714	)		3,291,703
Total liabilities and stockholders’ equity	$	6,165,842	$	90	$	7,367,604	$	(5,939,757	)	$	7,593,779

39

Note 13 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Statements of Cash Flows - Unaudited
(in thousands)

	Nine months ended September 30,
									Omnicare, Inc.
				Guarantor		Non-Guarantor			and
2008:	Parent			Subsidiary		Subsidiaries			Subsidiaries
Cash flows from operating activities:
Net cash flows from operating activities	$	(45,536	)	$	-	$	377,421		$	331,885
Cash flows from investing activities:
Acquisition of businesses, net of cash received		-			-		(201,032	)		(201,032	)
Capital expenditures		-			-		(46,982	)		(46,982	)
Transfer of cash to trusts for employee health and severance
costs, net of payments out of the trust		-			-		(11,419	)		(11,419	)
Other		-			-		(574	)		(574	)
Net cash flows used in investing activities		-			-		(260,007	)		(260,007	)
Cash flows from financing activities:
Payments on line of credit facilities and term A loan		(50,000	)		-		-			(50,000	)
Payments on long-term borrowings and obligations		(2,172	)		-		-			(2,172	)
(Decrease) increase in cash overdraft balance		(4,026	)		-		1,714			(2,312	)
Payments for Omnicare common stock repurchases		(100,165	)		-		-			(100,165	)
Payments for stock awards and exercise of stock options,
net of stock tendered in payment		(1,183	)		-		-			(1,183	)
Excess tax benefits from stock-based compensation		750			-		-			750
Dividends paid		(8,080	)		-		-			(8,080	)
Other		160,224			-		(160,224	)		-
Net cash flows used in financing activities		(4,652	)		-		(158,510	)		(163,162	)
Effect of exchange rate changes on cash		-			-		(2,056	)		(2,056	)
Net (decrease) in cash and cash equivalents		(50,188	)		-		(43,152	)		(93,340	)
Cash and cash equivalents at beginning of period		171,779			-		102,669			274,448
Cash and cash equivalents at end of period	$	121,591		$	-	$	59,517		$	181,108

40

Note 13 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Statements of Cash Flows - (Continued) - Unaudited
(in thousands)

	Nine months ended September 30,
									Omnicare, Inc.
				Guarantor		Non-Guarantor			and
2007:	Parent			Subsidiary		Subsidiaries			Subsidiaries
Cash flows from operating activities:
Net cash flows from operating activities	$	(22,321	)	$	-	$	453,560		$	431,239
Cash flows from investing activities:
Acquisition of businesses, net of cash received		-			-		(105,979	)		(105,979	)
Capital expenditures		-			-		(33,104	)		(33,104	)
Transfer of cash to trusts for employee health and severance
costs, net of payments out of the trust		-			-		(10,423	)		(10,423	)
Other		-			-		(184	)		(184	)
Net cash flows used in investing activities		-			-		(149,690	)		(149,690	)
Cash flows from financing activities:
Payments on line of credit facilities and term A loan		(150,000	)		-		-			(150,000	)
Payments on long-term borrowings and obligations		(4,673	)		-		-			(4,673	)
Increase (decrease) in cash overdraft balance		3,456			-		(792	)		2,664
Payments for stock awards and exercise of stock options,
net of stock tendered in payment		(8,068	)		-		-			(8,068	)
Excess tax benefits from stock-based compensation		4,089			-		-			4,089
Dividends paid		(8,226	)		-		-			(8,226	)
Other		301,241			-		(301,241	)		-
Net cash flows from financing activities		137,819			-		(302,033	)		(164,214	)
Effect of exchange rate changes on cash		-			-		1,653			1,653
Net increase (decrease) in cash and cash equivalents		115,498			-		3,490			118,988
Cash and cash equivalents at beginning of period		43,494			-		94,540			138,034
Cash and cash equivalents at end of period	$	158,992		$	-	$	98,030		$	257,022

41

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“MD&A”)

The following discussion should be read in conjunction with the Consolidated Financial Statements, related notes and other financial information appearing elsewhere in this report. In addition, see “Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Regarding Forward-Looking Information.” The reader should also refer to the Consolidated Financial Statements and notes thereto and MD&A, including critical accounting policies, for the year ended December 31, 2007, which appear in the Company’s Annual Report on Form 10-K, (“Omnicare’s 2007 Annual Report”), which was filed with the Securities and Exchange Commission on February 28, 2008.

Overview of Three and Nine Months Ended September 30, 2008 and Results of Operations

Omnicare, Inc. (“Omnicare” or the “Company”) is a leading geriatric pharmaceutical services company. Omnicare is the nation’s largest provider of pharmaceuticals and related pharmacy and ancillary services to long-term healthcare institutions. Omnicare’s clients include primarily skilled nursing facilities (“SNFs”), assisted living facilities (“ALFs”), retirement centers, independent living communities, hospitals, hospice, and other healthcare settings and service providers. At September 30, 2008, Omnicare served long-term care facilities as well as chronic care and other settings comprising approximately 1,432,000 beds, including approximately 67,000 patients served by the patient assistance programs of its specialty pharmacy services business. The comparable number at September 30, 2007 was approximately 1,452,000 (including approximately 56,000 patients served by patient assistance programs). Omnicare provides its pharmacy services in 47 states in the United States, the District of Columbia and Canada at September 30, 2008. As well, Omnicare provides operational software and support systems to long-term care pharmacy providers across the United States. Omnicare’s pharmacy services also include distribution and patient assistance services for specialty pharmaceuticals. Omnicare provides comprehensive product development and research services for the pharmaceutical, biotechnology, medical device and diagnostic industries in 30 countries worldwide.

The following summary table presents consolidated net sales and results of operations of Omnicare for the three and nine months ended September 30, 2008 and 2007 (in thousands, except per share amounts). In accordance with the Securities and Exchange Commission (“SEC”) release entitled “Conditions for Use of Non-GAAP Financial Measures,” the Company has disclosed in this MD&A, with the exception of EBITDA (discussed below), only those measures that are in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).

42

	Three months ended						Nine months ended
	September 30,						September 30,
		2008			2007			2008			2007
Net sales	$	1,603,389		$	1,536,989		$	4,712,520		$	4,663,211
Net income	$	57,705		$	42,597		$	124,454		$	134,825
Earnings per share:
Basic	$	0.50		$	0.36		$	1.06		$	1.13
Diluted	$	0.49		$	0.35		$	1.05		$	1.11
EBITDA(a)	$	156,824		$	135,728		$	391,090		$	423,592
EBITDA reconciliation to net cash flows
from operating activities:
EBITDA(a)	$	156,824		$	135,728		$	391,090		$	423,592
(Subtract)/Add:
Interest expense, net of investment income		(35,467	)		(38,556	)		(103,893	)		(118,299	)
Income tax provision		(33,528	)		(26,667	)		(74,956	)		(85,352	)
Changes in assets and liabilities, net of
effects from acquisition of businesses		15,444			124,807			119,644			211,298
Net cash flows from operating activities	$	103,273		$	195,312		$	331,885		$	431,239

(a) “EBITDA” represents earnings before interest (net of investment income), income taxes, depreciation and amortization. Omnicare uses EBITDA primarily as an indicator of the Company’s ability to service its debt, and believes that certain investors find EBITDA to be a useful financial measure for the same purpose. However, EBITDA does not represent net cash flows from operating activities, as defined by U.S. GAAP, and should not be considered as a substitute for operating cash flows as a measure of liquidity. The Company’s calculation of EBITDA may differ from the calculation of EBITDA by others.

Three Months Ended September 30, 2008 vs. 2007

Total net sales for the three months ended September 30, 2008 increased to $1,603.4 million from $1,537.0 million in the comparable prior-year period. Net income for the three months ended September 30, 2008 was $57.7 million versus $42.6 million earned in the comparable 2007 period. Diluted earnings per share for the three months ended September 30, 2008 were $0.49 versus $0.35 in the same prior-year period. EBITDA totaled $156.8 million for the three months ended September 30, 2008 as compared with $135.7 million for the same period of 2007.

43

The Company continues to be impacted by the unilateral reduction in April 2006 by UnitedHealth Group, Inc. and its Affiliates (“United”) in the reimbursement rates paid by United to Omnicare by switching to its PacifiCare pharmacy network contract for services rendered by Omnicare to beneficiaries of United’s drug benefit plans under the Medicare Part D program. The differential in reimbursement rates that resulted from United’s action, as compared with reimbursement rates under the originally negotiated contract, reduced sales and operating profit in the third quarter of 2008 by approximately $25 million (approximately $15 million aftertax), and cumulatively since April 2006 by approximately $272 million (approximately $169 million aftertax). This matter is currently the subject of litigation initiated by Omnicare and is before the federal court in the Northern District of Illinois. See further discussion at the “Legal Proceedings” section at Part II, Item 1 of this Filing.

Net sales for the quarter were favorably impacted primarily by drug price inflation, the increased use of certain higher acuity drugs and biologic agents and acquisitions, as well as increased revenues in the specialty pharmacy business and CRO Services. Partially offsetting these factors was the unfavorable sales impact of the increased availability and utilization of generic drugs, a lower number of beds served, combined with a year-over-year shift in mix towards assisted living, reductions in reimbursement and/or utilization for certain drugs as well as competitive pricing issues, and lower revenues reported from copays and rejects under Part D as well as from certain matters currently in litigation. See discussion of sales and operating profit results in more detail at the “Pharmacy Services Segment” and “CRO Services Segment” captions below.

The Company’s consolidated gross profit of $414.8 million increased $32.5 million for the three months ended September 30, 2008, from the same prior-year period amount of $382.3 million. Gross profit as a percentage of total net sales of 25.9% in the three months ended September 30, 2008, was higher than the 24.9% experienced during the comparable 2007 period. Gross profit was favorably affected in the 2008 period largely due to the increased availability and utilization of higher margin generic drugs, the continued integration of acquisitions and productivity enhancements, the favorable effect of drug price inflation, lower incremental costs associated with the closure of the Company’s Heartland repackaging facility as further described below, and, purchasing improvements. Partially offsetting these factors were certain of the aforementioned items that reduced net sales, primarily the lower net number of beds served, competitive pricing issues and the reductions in reimbursement and/or utilization for certain drugs.

Omnicare’s consolidated selling, general and administrative (“operating”) expenses for the three months ended September 30, 2008 of $237.9 million were higher than the comparable prior-year amount of $229.7 million by $8.2 million. Operating expenses as a percentage of net sales amounted to 14.8% in the third quarter of 2008, representing a decrease from the 14.9% experienced in the comparable prior-year period. Operating expenses for the quarter ended September 30, 2008 were favorably impacted largely by the favorable impact of the Company’s continued integration of prior-year acquisitions, purchasing improvements and productivity enhancements. These favorable items were partially offset by increases in employee benefit costs and increased operating costs associated with recent acquisitions.

44

The provision for doubtful accounts for the three months ended September 30, 2008 was $28.9 million versus $30.4 million in the comparable prior-year period, lower by $1.5 million due to improved collections and recovery of previously uncollected copays and rejects.

Investment income for the three months ended September 30, 2008 of $1.4 million was lower than the $2.4 million earned in the comparable prior-year period, primarily due to lower interest rates and lower invested balances versus the prior year.

Interest expense for the three months ended September 30, 2008 of $36.9 million is lower than the $40.9 million in the comparable prior-year period, primarily due to lower debt outstanding resulting from payments aggregating $100 million on the Company’s senior term A loan facility, maturing on July 28, 2010 (the “Term Loans”) during the third quarter of 2007 through the first nine months of 2008, and lower interest rates on variable rate loans.

The effective income tax rate was 36.7% for the three months ended September 30, 2008, as compared to the third quarter of 2007 rate of 38.5% . The year-over-year decrease in the effective tax rate is primarily attributable to the impact of adjustments to deferred taxes. The effective tax rates in 2008 and 2007 are higher than the federal statutory rate largely as a result of the impact of state and local income taxes and various nondeductible expenses.

Special Items:

The three months ended September 30, 2008 included the following charges totaling $22.3 million pretax, which primarily impacted the Pharmacy Services segment. Management believes that these special items are either infrequent occurrences or otherwise not related to Omnicare’s ordinary course of business:

(i)      Operating income included restructuring and other related charges of approximately $7.7 million pretax ($4.7 million aftertax), relating to the implementation of the “Omnicare Full Potential” Plan, a major initiative primarily designed to re-engineer the pharmacy operating model to increase efficiency and enhance customer growth. See further discussion at the “Restructuring and Other Related Charges” note of the Notes to Consolidated Financial Statements and the “Restructuring and Other Related Charges” section of this MD&A.

(ii)      During 2006, the Company experienced certain quality control and product recall issues, as well as fire damage, at one of its repackaging facilities, Heartland Repack Services (“Heartland”), as described in further detail at the “Commitments and Contingencies” note of the Notes to Consolidated Financial Statements (the “Heartland Matters”). In addressing and resolving these Heartland Matters, the Company continues to experience increased costs and, as a result, the three months ended September 30, 2008 included special charges of $1.2 million pretax (approximately $1.0 million and $0.1 million was recorded in the cost of sales and operating expense sections of the Consolidated Statements of Income, respectively) ($0.7 million aftertax) for these increased costs. The Company maintains product recall, property and casualty and business interruption insurance, and the extent of insurance recovery for these expenses continues to be reviewed by its outside advisors. As of September 30, 2008, the Company has received no material insurance recoveries.

45

(iii)     Operating income included special litigation and other related professional fees of $13.5 million pretax ($8.2 million aftertax) for litigation-related professional expenses primarily in connection with the Company’s lawsuit against United, certain other large customer disputes, the investigation by the United States Attorney’s Office, District of Massachusetts, the purported class and derivative actions, the investigation by the federal government and certain states relating to drug substitutions, and the Company’s response to subpoenas it received relating to other legal proceedings to which the Company is not a party. With respect to these proceedings to which the Company is a party, see further discussion at the “Commitments and Contingencies” note of the Notes to Consolidated Financial Statements, and the “Legal Proceedings” section at Part II, Item 1 of this Filing.

The three months ended September 30, 2007 included the following charges totaling $17.8 million pretax, which primarily impacted the Pharmacy Services segment. Management believes that these special items are either infrequent occurrences or otherwise not related to Omnicare’s ordinary course of business:

(i)       Operating income included restructuring and other related charges of approximately $5.0 million pretax ($3.0 million aftertax), relating to the aforementioned “Omnicare Full Potential” Plan, a major initiative primarily designed to re-engineer the pharmacy operating model to increase efficiency and enhance customer growth.

(ii)      During the three months ended September 30, 2007, special charges relating to the aforementioned Heartland Matters of $3.6 million pretax (approximately $3.3 million and $0.3 million was recorded in the cost of sales and operating expense sections of the Consolidated Statements of Income, respectively) ($2.2 million aftertax) were recorded associated with these increased costs. As previously disclosed, the Company maintains product recall, property and casualty, and business interruption insurance, and the extent of insurance recovery for these expenses continues to be reviewed by its outside advisors.

(iii)     Operating income included a special litigation charge of $9.2 million pretax ($5.6 million aftertax) for litigation-related professional expenses primarily in connection with the investigation by the United States Attorney’s Office, District of Massachusetts, the purported class and derivative actions, the Company’s lawsuit against United, the inquiry conducted by the Attorney General’s office in Michigan relating to certain billing issues under the Michigan Medicaid program, the investigation by the federal government and certain states relating to drug substitutions and the Company’s response to subpoenas it received relating to other legal proceedings to which the Company is not a party. With respect to these proceedings to which the Company is a party, see further discussion at the “Commitments and Contingencies” note of the Notes to Consolidated Financial Statements, and the “Legal Proceedings” section at Part II, Item 1 of this Filing.

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Pharmacy Services Segment

		Three months ended
		September 30,
		2008		2007
Net sales	$	1,551,925	$	1,488,518
Operating income	$	151,832	$	129,655

Omnicare’s Pharmacy Services segment recorded sales of $1,551.9 million for the three months ended September 30, 2008, an increase from the comparable 2007 amount of $1,488.5 million by $63.4 million, or 4.3% . At September 30, 2008, Omnicare served long-term care facilities as well as chronic care and other settings comprising approximately 1,432,000 beds, including approximately 67,000 patients served by the patient assistance programs of its specialty pharmacy business. The comparable number at September 30, 2007 was approximately 1,452,000 (including approximately 56,000 patients served by patient assistance programs). Pharmacy Services sales were favorably impacted by drug price inflation, the increased use of certain higher acuity drugs and biologic agents and acquisitions, as well as increased revenues in the specialty pharmacy services business. Partially offsetting these factors were the increased availability and utilization of generic drugs, a lower number of beds served, as well as the impact of a bed mix shift toward assisted living, which typically has lower penetration rates than skilled nursing facilities, reductions in reimbursement and/or utilization of certain drugs as well as competitive pricing issues,and lower revenues reported from copays and rejects under Part D as well as from certain matters currently in litigation. While the Company is focused on reducing its costs to mitigate the impact of drug pricing and reimbursement issues, there can be no assurance that such issues or other pricing and reimbursement pressures will not adversely impact the Pharmacy Services segment.

Operating income of the Pharmacy Services segment was $151.8 million in the third quarter of 2008, a $22.1 million increase as compared with the $129.7 million earned in the comparable period of 2007. As a percentage of the segment’s sales, operating income was 9.8% for the third quarter of 2008, compared with 8.7% in 2007. The 2008 quarter was favorably impacted largely by the increased availability and utilization of higher margin generic drugs, drug price inflation, lower bad debt expense, and purchasing improvements, as well as the Company’s continued integration of prior-period acquisitions and productivity enhancements. Operating income in 2008 was unfavorably affected primarily by the operating income effect of certain of the aforementioned items that reduced net sales, as well as the year-over-year impact of the previously mentioned special items.

The Company derives a significant portion of its revenues directly or indirectly from government-sponsored programs, principally the federal Medicare program and to a lesser extent state Medicaid programs. As part of ongoing operations, the Company and its customers are subject to regulatory changes in the level of reimbursement received from the Medicare and Medicaid programs. Since 1997, Congress has passed a number of federal laws that have effected major changes in the healthcare system and payments to certain providers.

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The Balanced Budget Act of 1997 (the “BBA”) mandated a prospective payment system (“PPS”) for Medicare-eligible residents of skilled nursing facilities (“SNFs”). Under PPS, Medicare pays SNFs a fixed fee per patient per day based upon the acuity level of the resident, covering substantially all items and services furnished during a Medicare-covered stay, including pharmacy services. PPS initially resulted in a significant reduction of reimbursement to SNFs. Congress subsequently sought to restore some of the reductions in reimbursement resulting from PPS. One provision gave SNFs a temporary rate increase for certain specific high-acuity patients beginning April 1, 2000, and ending when the Centers for Medicare & Medicaid Services (“CMS”) implemented a refined patient classification system under PPS. For several years, CMS did not implement such refinements, thus continuing the additional rate increase for certain high-acuity patients through federal fiscal year 2005.

On August 4, 2005, CMS issued its final SNF PPS rule for fiscal year 2006. Under the rule, CMS added nine patient classification categories to the PPS patient classification system, thus triggering the expiration of the high-acuity payments add-ons. However, CMS estimated that the rule would have a slightly positive financial impact on SNFs in fiscal year 2006 because the $1.02 billion reduction from the expiration of the add-on payments would be more than offset by a $510 million increase in the nursing case-mix weight for all of the resource utilization group categories and a $530 million increase associated with various updates to the payment rates (including updates to the wage and market basket indexes), resulting in a $20 million overall increase in payments for fiscal year 2006. The new patient classification refinements became effective on January 1, 2006, and the market basket increase became effective October 1, 2005. On July 31, 2006, CMS issued the update to the SNF PPS rates for fiscal year 2007. Effective October 1, 2006, SNFs received the full 3.1 percent market basket increase to rates, increasing payments to SNFs by approximately $560 million for fiscal year 2007. On August 3, 2007, CMS published its final SNF PPS update for fiscal year 2008. Effective October 1, 2007, SNFs received a 3.3 percent market basket increase, which increases Medicare payments to SNFs by approximately $690 million in fiscal year 2008. The final rule also includes several policy and payment provisions, including rebasing the market basket, which currently reflects data from fiscal 1997, to a base year of fiscal year 2004; revisions to the calculation of the SNF market basket (including revising the pharmacy component); changing the threshold for forecast error adjustments from the current 0.25 percentage point to 0.5 percentage point; and continuing a special adjustment made to cover the additional services required by nursing home residents with HIV/AIDS. On August 8, 2008, CMS published the Medicare SNF PPS final rule for fiscal year 2009, which included a 3.4 percent inflation update that will increase overall payments to SNFs by $780 million. CMS did not adopt a provision included in its May 7, 2008 proposed rule to recalibrate case mix weights to compensate for increased expenditures resulting from refinements made in January 2006, which would have cut overall SNF PPS payments by $770 million in fiscal year 2009. The rule also addresses several SNF policy issues, including, among others, revisions to the Minimum Data Set, development of an integrated post-acute payment system, rehabilitative services in SNFs, and consolidated billing. While recent rulemakings have not decreased payments to SNFs, reimbursement changes could be adopted in the future that could have an adverse effect on the financial condition of the Company’s SNF clients which could, in turn, adversely affect the timing or level of their payments to Omnicare.

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Moreover, on February 8, 2006, the President signed into law the Deficit Reduction Act (“DRA”), which will reduce net Medicare and Medicaid spending by approximately $11 billion over five years. Among other things, the legislation reduces Medicare SNF bad debt payments by 30 percent for those individuals who are not dually eligible for Medicare and Medicaid. This provision is expected to reduce payments to SNFs by $100 million over five years (fiscal years 2006-2010). On February 4, 2008, the Bush Administration released its fiscal year 2009 budget proposal, which includes legislative and administrative proposals that would reduce Medicare spending by approximately $12.2 billion in fiscal year 2009 and $178 billion over five years. Among other things, the budget would provide no annual update for SNFs in 2009 through 2011 and a -0.65 percent adjustment to the update annually thereafter. In addition, the budget would apply a “sequester” of -0.4 percent to all Medicare provider payments when general fund contributions exceed 45 percent of program spending. The sequester order would increase each year by -0.4 percent until general revenue funding is brought back to 45 percent. The budget also would move toward site-neutral post-hospital payments to limit perceived inappropriate incentives for five conditions commonly treated in both SNFs and inpatient rehabilitation facilities. The Administration also proposes to achieve savings by issuing regulations to adjust for case mix distribution in the SNF payment system. CMS included this provision in its proposed SNF prospective payment system update for fiscal year 2009, released May 1, 2008, but this provision was not adopted in the August 8, 2008 final rule. In addition, the budget proposal would eliminate all bad debt reimbursements for unpaid beneficiary cost-sharing over four years. Many provisions of the proposed Bush budget would require Congressional action to implement. Separately, on August 1, 2007, the House of Representatives approved H.R. 3162, the Children’s Health and Medicare Protection Act of 2007, that included a number of Medicare policy changes, including a freeze in fiscal year 2008 SNF PPS rates at fiscal year 2007 levels. While the version of the bill that ultimately passed Congress did not include Medicare provisions impacting SNF reimbursement, Congress may yet consider these and other proposals in the future that would further restrict Medicare funding for SNFs.

In December 2003, Congress enacted the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”), which included a major expansion of the Medicare prescription drug benefit under a new Medicare Part D.

Under the Medicare Part D prescription drug benefit, Medicare beneficiaries may enroll in prescription drug plans offered by private entities (or in a “fallback” plan offered on behalf of the government through a contractor, to the extent private entities fail to offer a plan in a given area), which provide coverage of outpatient prescription drugs (collectively, “Part D Plans”). Part D Plans include both plans providing the drug benefit on a stand-alone basis and Medicare Advantage plans providing drug coverage as a supplement to an existing medical benefit under that Medicare Advantage plan, most commonly a health maintenance organization plan. Medicare beneficiaries generally have to pay a premium to enroll in a Part D Plan, with the premium amount varying from plan to plan, although CMS provides various federal subsidies to Part D Plans to reduce the cost to beneficiaries. Effective January 1, 2006, Medicare beneficiaries who are also entitled to benefits under a state Medicaid program (so-called “dual eligibles”) have their prescription drug costs covered by the new Medicare drug benefit. Many nursing home residents Omnicare serves are dual eligibles, whose drug costs were previously

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covered by state Medicaid programs. In 2007, approximately 42% of Omnicare’s revenue was derived from beneficiaries covered under the federal Medicare Part D program.

CMS provides premium and cost-sharing subsidies to Part D Plans with respect to dual eligible residents of nursing homes. Such dual eligibles are not required to pay a premium for enrollment in a Part D Plan, so long as the premium for the Part D Plan in which they are enrolled is at or below the premium subsidy, nor are they required to meet deductibles or pay copayment amounts. Further, all dual eligibles who do not affirmatively enroll in a Part D Plan are automatically enrolled into a Prescription Drug Plan (“PDP”) by CMS on a random basis from among those PDPs meeting CMS criteria for low-income premiums in the PDP region. As is the case for any nursing home beneficiary, such dual eligible beneficiaries may select a different Part D Plan at any time through the Part D enrollment process. In sum, dual eligible residents of nursing homes are entitled to have their prescription drug costs covered by a Part D Plan, provided that the prescription drugs which they are taking are either on the Part D Plan’s formulary, or an exception to the plan’s formulary is granted. CMS requires the formularies of Part D Plans to include the types of drugs most commonly needed by Medicare beneficiaries and to offer an exceptions process to provide coverage for medically necessary drugs.

Pursuant to the final Part D rule, effective January 1, 2006, the Company obtains reimbursement for drugs it provides to enrollees of a given Part D Plan in accordance with the terms of agreements negotiated between it and that Part D Plan. The Company has entered into such agreements with nearly all Part D Plan sponsors under which it will provide drugs and associated services to their enrollees. The Company continues to have ongoing discussions with Part D Plans in the ordinary course. Moreover, the Company may, as appropriate, renegotiate agreements. Further, the proportion of the Company’s Part D business serviced under specific agreements may change over time based upon beneficiary choice, reassignment of dual eligibles to different Part D Plans or Part D Plan consolidation. Consequently, there can be no assurance that the reimbursement terms which currently apply to the Company’s Part D business will not change. In addition, as expected in the transition to a new program of this magnitude, certain administrative and payment issues have arisen, resulting in higher operating expenses, as well as outstanding gross accounts receivable (net of allowances for contractual adjustments, and prior to any allowance for doubtful accounts), particularly for copays. As of September 30, 2008, copays outstanding from Part D Plans were approximately $22 million relating to 2006 and 2007. The Company is pursuing solutions, including legal actions against certain Part D payors, to collect outstanding copays, as well as certain rejected claims. Participants in the long-term care pharmacy industry continue to address these issues with CMS and the Part D Plans and attempt to develop solutions. However, until all administrative and payment issues are fully resolved, there can be no assurance that the impact of the Part D drug benefit on the Company’s results of operations, financial position or cash flows will not change based on the outcome of any unforeseen future developments.

The MMA does not change the manner in which Medicare pays for drugs for Medicare beneficiaries covered under a Medicare Part A stay. The Company continues to receive reimbursement for drugs provided to such residents from the SNFs, in accordance with the terms of the agreements it has negotiated with each SNF. The Company also continues to receive reimbursement from the state Medicaid programs, albeit to a greatly reduced extent, for those

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Medicaid beneficiaries not eligible for the Part D program, including those under age 65, and for certain drugs specifically excluded from Medicare Part D.

CMS has issued subregulatory guidance on many aspects of the final Part D rule, including the provision of pharmaceutical services to long-term care residents. CMS has also expressed some concerns about pharmacies’ receipt of discounts, rebates and other price concessions from drug manufacturers. Specifically, in a finalized “Call Letter” for the 2007 calendar year, CMS indicated that beginning in 2007, Part D sponsors must have policies and systems in place, as part of their drug utilization management programs, to protect beneficiaries and reduce costs when long-term care pharmacies are subject to incentives to move market share through access/performance rebates from drug manufacturers. For the purposes of managing and monitoring drug utilization, especially where such rebates exist, CMS instructs Part D Plan sponsors to require pharmacies to disclose to the Part D Plan sponsor any discounts, rebates and other direct or indirect remuneration designed to directly or indirectly influence or impact utilization of Part D drugs. CMS stated that Plan sponsors should provide assurances that such information will remain confidential. CMS has issued subregulatory guidelines specifying the information that CMS is requiring from Plan sponsors with respect to rebates paid to long-term care pharmacies. CMS has also issued reporting requirements for 2008 which, among other things, require disclosure of rebates provided to long-term care pharmacies at a more detailed level. The Company has agreed with various Plan sponsors and their agents with respect to the format, terms and conditions for providing such information and the Company intends to continue to work with other sponsors with respect to providing such information.

On July 15, 2008, Congress enacted into law H.R. 6331, the "Medicare Improvements for Patients and Providers Act of 2008” (“MIPPA”), by overriding the President’s veto of the bill. The new law includes further reforms to the Part D program. Among other things, from and after January 1, 2010, the law requires that long-term care pharmacies have between 30 and 90 days to submit claims to a Part D Plan. Commencing January 1, 2009, the law also requires Part D Plan sponsors to update the prescription drug pricing data they use to pay pharmacies no less frequently than every seven days. The law also expands the number of Medicare beneficiaries who will be entitled to premium and cost-sharing subsidies by modifying previous income and asset requirements, eliminates late enrollment penalties for beneficiaries entitled to these subsidies, and limits the sales and marketing activities in which Part D Plan sponsors may engage, among other things. On September 18, 2008, CMS published final regulations implementing the MIPPA Part D provisions.

Moreover, CMS continues to issue guidance on and make other revisions to the Part D program. The Company is continuing to monitor issues relating to implementation of the Part D benefit, and until further agency guidance is known and until all administrative and payment issues associated with the transition to this massive program are fully resolved, there can be no assurance that the impact of the final rule or the outcome of other potential developments relating to its implementation on our business, results of operations, financial position or cash flows will not change based on the outcome of any unforeseen future developments.

The MMA also changed the Medicare payment methodology and conditions for coverage of certain items of durable medical equipment, prosthetics, orthotics, and supplies (“DMEPOS”)

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under Medicare Part B. Approximately 1% of the Company’s revenue is derived from beneficiaries covered under Medicare Part B. The changes include a temporary freeze in annual increases in payments for durable medical equipment from 2004 through 2008, new clinical conditions for payment, quality standards (applied by CMS-approved accrediting organizations), and competitive bidding requirements. On April 10, 2007, CMS issued a final rule establishing the Medicare competitive bidding program. Only suppliers that are winning bidders will be eligible to provide competitively-bid items to Medicare beneficiaries in the selected areas. Enteral nutrients, equipment and supplies and oxygen equipment and supplies were among the 10 categories of DMEPOS included in the first round of the competitive bidding program.

In mid-2007 CMS conducted a first round of bidding for these 10 DMEPOS product categories in 10 competitive bidding areas, and CMS began announcing winning bidders in March 2008. In light of concerns about implementation of the bidding program, including CMS’ disqualification of many bids based upon bidders’ submission of allegedly incomplete financial documentation and the potential adverse impact on beneficiary access to certain types of DMEPOS, Congress has, through the enactment into law on July 15, 2008 of MIPPA, terminated the contracts awarded by CMS in the first round of competitive bidding, required that new bidding be conducted for the first round, and required certain reforms to the bidding process. Among other things, the law requires CMS to rebid those areas in 2009, with bidding for round two delayed until 2011. The delay will be financed by reducing Medicare fee schedule payments for all items covered by round one bidding program by 9.5 percent nationwide beginning January 1, 2009, followed by a 2 percent increase in 2014 (with certain exceptions). The legislation also includes a series of procedural improvements to the bidding process, including requiring CMS to notify bidders about paperwork discrepancies and providing suppliers with an opportunity to submit proper documentation, and it requires contracting suppliers to disclose all subcontracting relationships to CMS. The Company intends to participate in the new bidding process for round one, and is assessing the potential impact of the fee schedule reductions on its business.

CMS requires all existing DMEPOS suppliers to submit proof of accreditation by a deemed accreditation organization by September 30, 2009, although suppliers in the competitive bidding regions and new suppliers have been subject to earlier accreditation deadlines. MIPPA codifies the requirement that all suppliers be accredited by September 30, 2009 and extends the accreditation requirement to companies that subcontract with contract suppliers under the competitive bidding program. The Company intends to comply with all accreditation requirements for DMEPOS suppliers by the applicable deadline.

With respect to Medicaid, the BBA repealed the “Boren Amendment” federal payment standard for Medicaid payments to nursing facilities, giving states greater latitude in setting payment rates for such facilities. The law also granted states greater flexibility to establish Medicaid managed care programs without the need to obtain a federal waiver. Although these waiver programs generally exempt institutional care, including nursing facilities and institutional pharmacy services, some states do use managed care principles in their long-term care programs. Likewise, the DRA includes several changes to the Medicaid program designed to rein in program spending. These include, among others, strengthening the Medicaid asset transfer restrictions for persons seeking to qualify for Medicaid long-term care coverage, which could, due to the timing of the penalty period, increase facilities’ exposure to uncompensated care. This provision is expected to

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reduce Medicaid spending by an estimated $2.4 billion over five years. The law also gives states greater flexibility to expand access to home and community based services by allowing states to provide these services as an optional benefit without undergoing the waiver approval process, and includes a new demonstration to encourage states to provide long-term care services in a community setting to individuals who currently receive Medicaid services in nursing homes. Together, these provisions could increase state funding for home and community-based services, while prompting states to cut funding for nursing facilities. No assurances can be given that state Medicaid programs ultimately will not change the reimbursement system for long-term care or pharmacy services in a way that adversely impacts the Company.

The DRA also changed the so-called federal upper limit payment rules for multiple source prescription drugs covered under Medicaid. Like the current upper limit, it only applies to drug ingredient costs and does not include dispensing fees, which will continue to be determined by the states. First, the DRA redefined a multiple source drug subject to the upper limit rules to be a covered outpatient drug that has at least one other drug product that is therapeutically equivalent. Thus, the federal upper limit is triggered when there are two or more therapeutic equivalents, instead of three or more as was previously the case. Second, effective January 1, 2007, the DRA changed the federal upper payment limit from 150 percent of the lowest published price for a drug (which is usually the average wholesale price) to 250 percent of the lowest average manufacturer price (“AMP”). Congress expected these DRA provisions to reduce federal and state Medicaid spending by $8.4 billion over five years. On July 17, 2007, CMS issued a final rule with comment period to implement changes to the upper limit rules. Among other things, the final rule: established a new federal upper limit calculation for multiple source drugs based on 250 percent of the lowest AMP in a drug class; required CMS to post AMP amounts on its web site; and established a uniform definition for AMP. Additionally, the final rule provided that sales of drugs to long-term care pharmacies for supply to nursing homes and assisted living facilities (as well as associated discounts, rebates or other price concessions) are not to be taken into account in determining AMP where such sales can be identified with adequate documentation, and that any AMPs which are not at least 40% of the next highest AMP will not be taken into account in determining the upper limit amount (the so-called “outlier” test). However, on December 19, 2007, the United States District Court for the District of Columbia issued a preliminary injunction that enjoins CMS from implementing provisions of the July 17, 2007 rule to the extent that it affects Medicaid reimbursement rates for retail pharmacies under the Medicaid program. The order also enjoins CMS from posting AMP data on a public website or disclosing it to states. As a result of this preliminary injunction, CMS did not post AMPs or new upper limit prices in late December 2007 based upon the July 17, 2007 final rule despite its earlier planned timetable, and the schedule for states to implement the new upper limits will be delayed until further notice. Separately, on March 14, 2008, CMS published an interim final rule with comment period revising the Medicaid rebate definition of multiple source drug set forth in the July 17, 2007 final rule. In short, the effect of the rule will be that federal upper limits apply in all states unless the state finds that a particular generic drug is not available within that state. While the rule’s effective date is April 14, 2008, it was subject to public comment. CMS also notes that the regulation is subject to the injunction by the United States District Court for the District of Columbia to the extent that it may affect Medicaid reimbursement rates for pharmacies. On October 7, 2008, CMS published the final version of this rule, responding to public comments received on the March 14, 2008 regulation. The final rule adopts the March 2008 interim final rule with technical changes effective

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November 6, 2008, although it continues to be subject to an injunction to the extent that it affects Medicaid pharmacy reimbursement rates. Moreover, on July 15, 2008, Congress enacted into law, over the President’s veto, MIPPA. The new law delays the adoption of the DRA’s new federal upper limit payment rules for Medicaid based on AMP for multiple source drugs and prevents CMS from publishing AMP data until October 1, 2009; until then, upper limits will continue to be determined under the pre-DRA rules. With the advent of Medicare Part D, the Company’s revenues from state Medicaid programs are substantially lower than has been the case previously. However, some of the Company’s agreements with Part D Plans and other payors have incorporated the Medicaid upper limit rules into the pricing mechanisms for prescription drugs. Until the litigation regarding the final rule is resolved and new upper limit amounts are published by CMS, the Company cannot predict the impact of the final rule on the Company’s business. Further, there can be no assurance, that federal upper limit payments under pre-DRA rules, changes under the DRA or other efforts by payors to limit reimbursement for certain drugs will not adversely impact the Company’s business.

MIPPA also seeks to promote e-prescribing by providing incentive payments for physicians and other practitioners paid under the Medicare physician fee schedule who are "successful electronic prescribers." Specifically, successful electronic prescribers are to receive a 2 percent bonus during 2009 and 2010, a 1 percent bonus for 2011 and 2012 and a 0.5 percent bonus for 2013; practitioners who are not successful electronic prescribers are penalized by a 1 percent reduction from the current fee schedule in 2012, a 1.5 percent reduction in 2013, and thereafter a 2 percent reduction. The requirements for a practitioner to qualify as a successful electronic prescriber are to be specified by CMS, and may relate to either the submission of a minimum number of e-prescriptions under Medicare Part D, or to simply having a qualifying e-prescribing system and reporting whether it was used under an existing program for reporting certain physician quality measures for at least 50 percent of applicable encounters. Numerous details relating to this provision, including the timetable for adoption, will need to be specified by CMS. The Company is closely monitoring developments related to this initiative, and will seek to make available systems under which prescribers may submit prescriptions to the Company's pharmacies electronically so as to enable them to qualify for the incentive payments.

President Bush’s fiscal year 2009 budget proposal includes a series of proposals impacting Medicaid, including legislative and administrative changes that would reduce Medicaid payments by more than $18 billion over five years. Among other things, the proposed budget would further reduce the federal upper limit reimbursement for multiple source drugs to 150 percent of the AMP and replace the “best price” component of the Medicaid drug rebate formula with a budget-neutral flat rebate. Many of the proposed policy changes would require Congressional approval to implement. While the Company has endeavored to adjust to these types of funding pressures in the past, there can be no assurance that these or future changes in Medicaid payments to nursing facilities, pharmacies, or managed care systems, or their potential impact on payments under agreements with Part D Plans, will not have an adverse impact on its business.

Two recent actions at the federal level could impact Medicaid payments to nursing facilities. The Tax Relief and Health Care Act of 2006 modified several Medicaid policies including, among other things, reducing the limit on Medicaid provider taxes from 6 percent to 5.5 percent

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from January 1, 2008 through September 30, 2011. The Bush Administration had been expected to issue regulations calling for deeper cuts in this funding. On February 22, 2008, CMS published a final rule that implements this legislation, and makes other clarifications to the standards for determining the permissibility of provider tax arrangements. On June 30, 2008, President Bush signed into law a supplemental appropriations bill (P.L. 110-252) that imposes a moratorium on implementation of certain provisions of this rule until April 1, 2009. Second, on January 18, 2007, CMS published a proposed rule designed to ensure that Medicaid payments to governmentally-operated nursing facilities and certain other health care providers are based on actual costs and that state financing arrangements are consistent with the Medicaid statute. CMS estimates that the rule, if finalized, would save $120 million during the first year and $3.87 billion over five years. On May 29, 2007, CMS published a final rule to implement this provision, but Congress blocked the rule for one year in an emergency fiscal year 2007 spending bill, H.R. 2206. The supplemental appropriations bill, P.L. 110-252, further extends the moratorium on implementation of the rule through April 1, 2009.

On October 4, 2006, the plaintiffs in New England Carpenters Health Benefits Fund et al. v. First DataBank, Inc. and McKesson Corporation, CA No. 1:05-CV-11148-PBS (United District Court for the District of Massachusetts) and defendant First DataBank, Inc. (“First DataBank”) entered into a settlement agreement relating to First DataBank’s publication of average wholesale price (“AWP”). AWP is a pricing benchmark that is widely used to calculate a portion of the reimbursement payable to pharmacy providers for the drugs and biologicals they provide, including under State Medicaid programs, Medicare Part D Plans and certain of the Company’s contracts with long-term care facilities. The settlement agreement would have required First DataBank to cease publishing AWP two years after the settlement became effective unless a competitor of First DataBank was then publishing AWP, and would have required that First DataBank modify the manner in which it calculates AWP for over 8,000 distinct drugs (“NDCs”) from 125% of the drug’s wholesale acquisition cost (“WAC”) price established by manufacturers to 120% of WAC until First DataBank ceased publishing same. In a related case, District Council 37 Health and Security Plan v. Medi-Span, CA No. 1:07-CV-10988-PBS (United States District Court for the District of Massachusetts), in which Medi-Span is accused of misrepresenting pharmaceutical prices by relying on and publishing First DataBank’s price list, the parties entered into a similar settlement agreement. The Court granted preliminary approval of both agreements, however on January 22, 2008, the court held a hearing on a motion for final approval of the proposed settlements, and after hearing various objections to the proposed settlements indicated that it would not approve the settlements as proposed. The parties filed amendments to the proposed settlements on March 19, 2008, and at a status hearing held that day, the Court asked the parties to further revise the amended settlements. On May 29, 2008, the plaintiffs and First DataBank filed a new settlement that included a reduction in the number of NDCs to which a new mark-up over WAC would apply (20% vs. 25%) from over 8,000 to 1,356, and removed the provision requiring that AWP no longer be published in the future. First DataBank also agreed to contribute $2 million to a settlement fund and for legal fees. First DataBank, independent of the settlement, announced that it would, of its own volition, reduce to 20% the markup on all drugs with a mark-up higher than 20% and stop publishing AWP within two years after the changes in mark-up are implemented. On June 3, 2008, the Court granted preliminary approval to the revised settlement, and on July 23, 2008 the Court

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approved the process for class notification. The matter is still subject to opposition by others, a fairness hearing which has been scheduled for December 17, 2008, and final approval.

The Company is monitoring these cases for further developments and evaluating potential implications and/or actions that may be required, including any adverse effect on the Company’s reimbursement for drugs and biologicals and any actions that may be taken to offset or otherwise mitigate such impact. There can be no assurance, however, that the First DataBank settlement, if approved, or actions, if any, by the government or private health insurance programs relating to AWP would not have an adverse impact on the Company’s reimbursement for drugs and biologicals and have implications for the use of AWP as a benchmark from which pricing in the pharmaceutical industry is negotiated, which could adversely affect the Company.

Longer term, funding for federal and state healthcare programs must consider the aging of the population and the growth in enrollees as eligibility is expanded; the escalation in drug costs owing to higher drug utilization among seniors and the introduction of new, more efficacious but also more expensive medications; the impact of the Medicare Part D program; and the long-term financing of the Medicare and Medicaid programs. Given competing national priorities, it remains difficult to predict the outcome and impact on the Company of any changes in healthcare policy relating to the future funding of the Medicare and Medicaid programs.

Demographic trends indicate that demand for long-term care will increase well into the middle of this century as the elderly population grows significantly. Moreover, those over 65 consume a disproportionately high level of healthcare services, including prescription drugs, when compared with the under-65 population. There is widespread consensus that appropriate pharmaceutical care is generally considered the most cost-effective form of treatment for the chronic ailments afflicting the elderly and also one that is able to improve the quality of life. These trends not only support long-term growth for the geriatric pharmaceutical industry but also containment of healthcare costs and the well-being of the nation’s growing elderly population.

In order to fund this growing demand, the Company believes that the government and the private sector will continue to review, assess and possibly alter healthcare delivery systems and payment methodologies. While it cannot at this time predict the ultimate effect of the Medicare Part D drug benefit or any further initiatives on Omnicare’s business, management believes that the Company’s expertise in geriatric pharmaceutical care and pharmaceutical cost management position Omnicare to help meet the challenges of today’s healthcare environment. Further, while volatility can occur from time to time in the contract research business owing to factors such as the success or failure of its clients’ compounds, the timing or budgetary constraints of its clients, or consolidation within our client base, new drug discovery remains an important priority of drug manufacturers. The Company believes that drug manufacturers, in order to optimize their research and development efforts, will continue to turn to contract research organizations to assist them in drug research development and commercialization.

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CRO Services Segment

		Three months ended
		September 30,
		2008		2007
Revenues	$	51,464	$	48,471
Operating income	$	4,544	$	3,682

Omnicare’s CRO Services segment recorded revenues of $51.5 million for the three months ended September 30, 2008, which increased by $3.0 million, or 6.2% from the $48.5 million recorded in the same prior-year period. In accordance with Emerging Issues Task Force (“EITF”) Issue No. 01-14, “Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred” (“EITF No. 01-14”), the Company included $8.3 million and $7.9 million of reimbursable out-of-pockets in its CRO Services segment reported revenue and direct cost amounts for the three months ended September 30, 2008 and 2007, respectively. Revenues for 2008 were higher than in the same prior-year period primarily due to the commencement and ramp-up of projects that were awarded in 2007 and in the first nine months of 2008, exceeding project completions, terminations and cancellations.

Operating income in the CRO Services segment was $4.5 million in the third quarter of 2008 compared with $3.7 million in 2007, an increase of $0.8 million or 21.6% . As a percentage of the segment’s revenue, operating income was 8.8% in the third quarter of 2008 compared with 7.6% in the same period of 2007. This increase is primarily attributable to the favorable impact of the increase in revenues discussed above, combined with operating expense control. Backlog at September 30, 2008 was $328.0 million, representing an increase of $13.7 million from the December 31, 2007 backlog of $314.3 million, and an increase of $16.5 million from the September 30, 2007 backlog of $311.5 million.

Nine Months Ended September 30, 2008 vs. 2007

Total net sales for the nine months ended September 30, 2008 increased to $4,712.5 million from $4,663.2 million in the comparable prior-year period. Net income for the nine months ended September 30, 2008 was $124.5 million versus $134.8 million earned in the comparable 2007 period. Diluted earnings per share for the nine months ended September 30, 2008 were $1.05 versus $1.11 in the same prior-year period. EBITDA totaled $391.1 million for the nine months ended September 30, 2008 as compared with $423.6 million for the same period of 2007.

The Company continues to be impacted by the unilateral reduction in April 2006 by United in the reimbursement rates paid by United to Omnicare by switching to its PacifiCare pharmacy network contract for services rendered by Omnicare to beneficiaries of United’s drug benefit plans under the Medicare Part D program. The differential in reimbursement rates that resulted from United’s action, as compared with reimbursement rates under the originally negotiated contract, reduced sales and operating profit in the first nine months of 2008 by approximately

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$73 million (approximately $44 million aftertax), and cumulatively since April 2006 by approximately $272 million (approximately $169 million aftertax). This matter is currently the subject of litigation initiated by Omnicare and is before the federal court in the Northern District of Illinois. See further discussion at the “Legal Proceedings” section at Part II, Item 1 of this Filing.

Net sales for the first nine months were favorably impacted by drug price inflation, the increased use of certain higher acuity drugs and biologic agents, acquisitions, and year-over-year growth in CRO Services revenues. Partially offsetting these factors was the unfavorable impact of the increased availability and utilization of generic drugs, a lower number of beds served, combined with a year-over-year shift in mix towards assisted living, reductions in reimbursement and/or utilization for certain drugs as well as competitive pricing issues, and lower revenues reported from copays and rejects under Part D as well as from certain matters currently in litigation. See discussion of sales and operating profit results in more detail at the “Pharmacy Services Segment” and “CRO Services Segment” captions below.

The Company’s consolidated gross profit of $1,176.5 million increased $17.3 million for the nine months ended September 30, 2008, from the same prior-year period amount of $1,159.2 million. Gross profit as a percentage of total net sales of 25.0% in the nine months ended September 30, 2008, was modestly higher than the 24.9% experienced during the comparable 2007 period. Gross profit was favorably impacted in the 2008 period largely as a result of the increased availability and utilization of higher margin generic drugs, the continued integration of prior-period acquisitions, the favorable effect of drug price inflation, purchasing improvements and lower incremental costs associated with the closure of the Company’s Heartland repackaging facility as further described below. Largely offsetting these factors was the gross profit impact of certain of the aforementioned reductions in sales items, primarily the lower net number of beds served and the reductions in reimbursement.

Omnicare’s operating expenses for the nine months ended September 30, 2008 of $711.5 million were higher than the comparable prior-year amount of $683.3 million by $28.2 million. Operating expenses as a percentage of net sales amounted to 15.1% for the first nine months of 2008, representing an increase from the 14.7% experienced in the comparable prior-year period. Operating expenses for the nine months ended September 30, 2008 were unfavorably impacted largely by increases in employee benefit costs and increased operating costs associated with recent acquisitions. Partially offsetting the increased operating expenses were the favorable impact of the Company’s continued integration of prior-year acquisitions, purchasing improvements and productivity enhancements.

The provision for doubtful accounts for the nine months ended September 30, 2008 of $85.1 million was $4.1 million lower than the comparable prior year amount of $89.2 million, primarily due to improved collections and recovery of previously uncollected copays and rejects.

Investment income for the nine months ended September 30, 2008 of $6.0 million was marginally lower than the $6.4 million earned in the comparable prior-year period, primarily due to lower interest rates versus the prior year.

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Interest expense for the nine months ended September 30, 2008 of $109.9 million is lower than the $124.7 million in the comparable prior-year period, primarily due to lower debt outstanding resulting from payments aggregating $200 million on the Term Loans throughout 2007 and the first nine months of 2008, and lower interest rates on variable rate loans.

The effective income tax rate was 37.6% for the nine months ended September 30, 2008, as compared to the rate of 38.8% for the same prior year period. The year-over-year decrease in the effective tax rates is primarily attributable to the impact of adjustments to deferred taxes and a change in filing methodology for a state taxing jurisdiction. The effective tax rates in 2008 and 2007 are higher than the federal statutory rate largely as a result of the impact of state and local income taxes and various nondeductible expenses.

Special Items:

The nine months ended September 30, 2008 included the following charges totaling $80.8 million pretax, which primarily impacted the Pharmacy Services segment. Management believes that these special items are either infrequent occurrences or otherwise not related to Omnicare’s ordinary course of business:

(i)       Operating income included restructuring and other related charges of approximately $24.9 million pretax ($15.2 million aftertax), relating to the implementation of the “Omnicare Full Potential” Plan, a major initiative primarily designed to re-engineer the pharmacy operating model to increase efficiency and enhance customer growth. See further discussion at the “Restructuring and Other Related Charges” note of the Notes to Consolidated Financial Statements and the “Restructuring and Other Related Charges” section of this MD&A.

(ii)      During the nine months ended September 30, 2008, special charges relating to the aforementioned Heartland Matters of $4.8 million pretax (approximately $4.2 million and $0.6 million was recorded in the cost of sales and operating expense sections of the Consolidated Statements of Income, respectively) ($2.9 million aftertax) were recorded associated with these increased costs. As previously disclosed, the Company maintains product recall, property and casualty, and business interruption insurance, and the extent of insurance recovery for these expenses continues to be reviewed by its outside advisors. As of September 30, 2008, the Company has received no material insurance recoveries.

(iii)     Operating income included special litigation and other related professional fees of $51.1 million pretax ($31.3 million aftertax) for litigation-related professional expenses primarily in connection with the Company’s lawsuit against United, certain other large customer disputes, the investigation by the United States Attorney’s Office, District of Massachusetts, the purported class and derivative actions, the investigation by the federal government and certain states relating to drug substitutions, and the Company’s response to subpoenas it received relating to other legal proceedings to which the Company is not a party. With respect to these proceedings to which the Company is a party, see further discussion at the “Commitments and Contingencies” note of the Notes to Consolidated Financial Statements, and the “Legal Proceedings” section at Part II, Item 1 of this Filing.

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The nine months ended September 30, 2007 included the following charges totaling $59.8 million pretax, which primarily impacted the Pharmacy Services segment. Management believes that these special items are either infrequent occurrences or otherwise not related to Omnicare’s ordinary course of business:

(i)      Operating income included restructuring and other related charges of approximately $20.4 million pretax ($12.5 million aftertax), $22.0 million of which related to the implementation of the “Omnicare Full Potential” Plan, a major initiative primarily designed to re-engineer the pharmacy operating model to increase efficiency and enhance customer growth, partially offset by a ($1.6) million credit adjustment to the previously disclosed consolidation and productivity initiatives related, in part, to the integration of the NeighborCare acquisition and other related activities. See further discussion at the “Restructuring and Other Related Charges” note of the Notes to Consolidated Financial Statements and the “Restructuring and Other Related Charges” section of this MD&A.

(ii)      During the nine months ended September 30, 2007, special charges relating to the aforementioned Heartland Matters of $14.4 million pretax (approximately $11.6 million and $2.7 million was recorded in the cost of sales and operating expense sections of the Consolidated Statements of Income, respectively) ($8.8 million aftertax) were recorded associated with these increased costs. As previously disclosed, the Company maintains product recall, property and casualty, and business interruption insurance, and the extent of insurance recovery for these expenses continues to be reviewed by its outside advisors.

(iii)     Operating income included a special litigation charge of $25.1 million pretax ($15.4 million aftertax) for litigation-related professional expenses in connection with the investigation by the United States Attorney’s Office, District of Massachusetts, the purported class and derivative actions, the Company’s lawsuit against United, the inquiry conducted by the Attorney General’s office in Michigan relating to certain billing issues under the Michigan Medicaid program, the investigation by the federal government and certain states relating to drug substitutions and the previously discussed Company’s response to subpoenas it received relating to other legal proceedings to which the Company is not a party.

Pharmacy Services Segment

	Nine months ended
	September 30,
		2008		2007
Net sales	$	4,558,252	$	4,517,079
Operating income	$	378,583	$	409,519

Omnicare’s Pharmacy Services segment recorded sales of $4,558.3 million for the nine months ended September 30, 2008, up from the 2007 amount of $4,517.1 million by approximately $41.2 million, or 0.9% . At September 30, 2008, Omnicare served long-term care facilities as

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well as chronic care and other settings comprising approximately 1,432,000 beds, including approximately 67,000 patients served by the patient assistance programs of its specialty pharmacy business. The comparable number at December 31, 2007 was approximately 1,449,000 (including approximately 57,000 specialty pharmacy patients) and 1,452,000 (including approximately 56,000 patients served by patient assistance programs) at September 30, 2007. Pharmacy Services sales were favorably impacted by the impact of drug price inflation, the increased use of certain higher acuity drugs and biologic agents and acquisitions. Partially offsetting these factors was the unfavorable impact of the increased availability and utilization of generic drugs, a lower number of beds served, as well as the impact of a bed mix shift toward assisted living, which typically has lower penetration rates than skilled nursing facilities, reductions in reimbursement and/or utilization of certain drugs as well as competitive pricing issues,and lower revenues reported from copays and rejects under Part D as well as from certain matters currently in litigation. While the Company is focused on reducing its costs to mitigate the impact of drug pricing and reimbursement issues, there can be no assurance that such issues or other pricing and reimbursement pressures will not adversely impact the Pharmacy Services segment.

Operating income of the Pharmacy Services segment was $378.6 million in the first nine months of 2008, a $30.9 million decrease as compared with the $409.5 million earned in the comparable period of 2007. As a percentage of the segment’s sales, operating income was 8.3% for the first nine months of 2008, compared with 9.1% in 2007. The nine months ended September 30, 2008 were unfavorably impacted primarily by the operating income effect of certain of the aforementioned reductions in sales items as well as the year-over-year impact of the previously mentioned special items. Operating income in 2008 was favorably impacted largely by the increased availability and utilization of higher margin generic drugs, the Company’s continued integration of prior-period acquisitions and productivity enhancements, drug price inflation, lower bad debt expense, and purchasing improvements.

CRO Services Segment

	Nine months ended
	September 30,
		2008		2007
Revenues	$	154,268	$	146,132
Operating income	$	11,012	$	7,316

Omnicare’s CRO Services segment recorded revenues of $154.3 million for the nine months ended September 30, 2008, which increased by $8.2 million, or 5.6% from the $146.1 million recorded in the same prior-year period. In accordance with EITF No. 01-14, the Company included $24.5 million and $23.3 million of reimbursable out-of-pockets in its CRO Services segment reported revenue and direct cost amounts for the nine months ended September 30, 2008 and 2007, respectively. Revenues for 2008 were higher than in the same prior-year period primarily due to the commencement and ramp-up of projects that were awarded in 2007 and in the first nine months of 2008, exceeding project completions, terminations and cancellations.

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Operating income in the CRO Services segment was $11.0 million in the first nine months of 2008 compared with $7.3 million in 2007, an increase of $3.7 million. As a percentage of the segment’s revenue, operating income was 7.1% in the first nine months of 2008 compared with 5.0% in the same period of 2007. This increase is primarily attributable to the favorable impact of the increase in revenues discussed above and the favorable year-over-year impact of special items.

Restructuring and Other Related Charges

Omnicare Full Potential Program

In 2006, the Company commenced the implementation of the “Omnicare Full Potential” Plan, a major initiative primarily designed to re-engineer the Company’s pharmacy operating model to increase efficiency and enhance customer growth. The Omnicare Full Potential Plan is expected to optimize resources across the entire organization by implementing best practices, including the realignment and right-sizing of functions, and a “hub-and-spoke” model whereby certain key administrative and production functions will be transferred to regional support centers (“hubs”) specifically designed and managed to perform these tasks, with local pharmacies (“spokes”) focusing on time-sensitive services and customer-facing processes.

This program is expected to be completed over a multi-year period and is estimated to generate pretax savings in the range of $100 million to $120 million annually upon completion of the initiative. It is anticipated that approximately one-half of these savings will be realized in cost of sales, with the remainder being realized in operating expenses. The program is estimated to result in total pretax restructuring and other related charges of approximately $93 million over this implementation period. The charges primarily include severance pay, employment agreement buy-outs, excess lease costs and professional fees, as well as other related costs. The Company recorded restructuring and other related charges for the Omnicare Full Potential Plan of approximately $8 million and $25 million pretax (approximately $5 million and $15 million aftertax) during the three and nine months ended September 30, 2008, respectively, and approximately $29 million pretax during the year ended December 31, 2007 (approximately $5 million and $22 million pretax in the three and nine months ended September 30, 2007, respectively). The Omnicare Full Potential Plan initiatives required cumulative aggregate restructuring and other related charges of approximately $72 million before taxes through the third quarter of 2008. The remainder of the overall restructuring and other related charges will be recognized and disclosed prospectively, as the project is finalized and implemented. Incremental capital expenditures related to this program are expected to total approximately $50 million to $55 million over the entire implementation period. The Company eliminated approximately 1,200 positions in completing its initial phase of the program. The remainder of the program is currently estimated to result in a net reduction of approximately 1,200 positions (1,900 positions eliminated, net of 700 new positions filled in different geographic locations as well as to perform new functions required by the hub-and-spoke model of operations), of which approximately 100 positions had been eliminated as of September 30, 2008. The foregoing reductions do not include additional savings expected from lower levels of overtime and reduced temporary labor. The Company currently estimates reductions in overtime, excess hours and temporary help, as well as productivity gains, to equal an additional 820 full-time equivalents.

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While the Company is working diligently to achieve the estimated savings as discussed above, there can be no assurances as to the ultimate outcome of the program, including the savings and/or related timing thereof, due to the inherent risks associated with the implementation of a project of this magnitude and the related new technologies. Specifically, the potential inability to successfully mitigate implementation risks, including but not necessarily limited to, dependence on third-party suppliers and consultants for the timely delivery of technology as well as its performance at expected capacities, compliance with federal, state and local regulatory requirements, reliance on information technology and telecommunications support, timely completion of facility lease transactions and/or leasehold improvements, and the ability to obtain adequate staffing levels, individually or in the aggregate, could affect the overall success of the program from a savings and/or timing standpoint.

See further discussion at the “Restructuring and Other Related Charges” note of the Notes to Consolidated Financial Statements.

2005 Program

In connection with the previously disclosed consolidation plans and other productivity initiatives to streamline pharmacy services (related, in part, to the NeighborCare acquisition) and contract research organization operations, including maximizing workforce and operating asset utilization, and producing a more cost-efficient, operating infrastructure (the “2005 Program”), the Company had liabilities of $5.3 million at December 31, 2007, of which $1.4 million was utilized in the nine months ended September 30, 2008. The remaining liabilities of $3.9 million at September 30, 2008 represent amounts not yet paid relating to actions taken in connection with the program (primarily lease payments) and will be settled as these matters are finalized. As previously disclosed, the Company recorded a credit to restructuring and other related charges of approximately ($1.6) million pretax [approximately ($1.0) million aftertax] during the nine months ended September 30, 2007 in connection with the finalization of certain liabilities under the 2005 program.

Financial Condition, Liquidity and Capital Resources

Cash and cash equivalents and restricted cash at September 30, 2008 were $196.5 million compared with $277.6 million at December 31, 2007 (including restricted cash amounts of $15.4 million and $3.2 million, respectively).

Omnicare’s current ratio was approximately 3.7 to 1 at September 30, 2008.

The Company generated positive net cash flows from operating activities of $331.9 million during the nine months ended September 30, 2008, compared with net cash flows from operating activities of $431.2 million during the nine months ended September 30, 2007. Compared to the same prior-year period, cash flow from operating activities was unfavorably impacted largely by the impact of an extra payment to the Company’s drug wholesaler of approximately $65 million (these payments are due weekly, and the nine months ended September 30, 2008 included one

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extra weekly payment), and the related year-over-year movement in accounts payable on operating cash flows.

Net cash used in investing activities was $260.0 million and $149.7 million for the nine months ended September 30, 2008 and 2007, respectively. Acquisitions of businesses, primarily funded by operating cash flows, required outlays of $201.0 million (including amounts payable pursuant to acquisition agreements relating to pre-2008 acquisitions) in the first nine months of 2008. Acquisitions of businesses during the first nine months of 2007 required $106.0 million of cash payments (including amounts payable pursuant to acquisition agreements relating to pre-2007 acquisitions) which were primarily funded by operating cash flows. Omnicare’s capital requirements, in addition to the payment of debt and dividends, are primarily comprised of its acquisition program and capital expenditures, largely relating to investments in the Company’s information technology systems and the implementation of the “Omnicare Full Potential” Plan.

Net cash used in financing activities was $163.2 million for the nine months ended September 30, 2008 as compared to $164.2 million for the comparable prior-year period. During the first nine months of 2008 and 2007, the Company paid down $50 million and $150 million, respectively, on the Company’s senior term A loan facility, maturing on July 28, 2010.

At September 30, 2008, there were no outstanding borrowings under the $800 million revolving credit facility, and $400 million in borrowings were outstanding under the senior term A loan facility due 2010. As of September 30, 2008, the Company had approximately $27 million outstanding relating to standby letters of credit, substantially all of which are subject to automatic annual renewals.

Of the Company’s $800 million undrawn revolving credit facility, a subsidiary of Lehman Brothers Holdings, Inc., is committed to fund $22 million. It is unknown whether this subsidiary will participate in funding any future draws thereunder.

On August 11, 2008, the Company’s Board of Directors declared a quarterly cash dividend of 2.25 cents per common share for an indicated annual rate of 9 cents per common share for 2008, which is consistent with the annual dividends per share actually paid in 2007. Aggregate dividends paid of $8.1 million during the nine month period ended September 30, 2008 were relatively consistent with those paid in the comparable prior-period.

On March 27, 2008, the Company announced that its Board of Directors authorized a program to repurchase, from time to time, shares of Omnicare's outstanding common stock having an aggregate value of up to $100 million, depending on market conditions and other factors. In the three months ended June 30, 2008, the Company repurchased approximately 4.1 million shares at a cost of approximately $100 million. Accordingly, the Company has utilized the full amount of share repurchase authority and successfully completed the program. These repurchases were made in open market or privately negotiated transactions in compliance with Securities and Exchange Commission Rule 10b-18 and other applicable legal requirements. On September 30, 2008, Omnicare had approximately 118.4 million shares of common stock outstanding.

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There were no known material commitments and contingencies outstanding at September 30, 2008, other than the contractual obligations summarized in the “Disclosures About Aggregate Contractual Obligations and Off-Balance Sheet Arrangements” section below; certain acquisition-related payments potentially due in the future, including deferred payments, indemnification payments and payments originating from earnout and other provisions that may become payable; as well as the matters discussed in the “Commitments and Contingencies” note of the Notes to Consolidated Financial Statements, and the “Legal Proceedings” section at Part II, Item 1 of this Filing.

The Company believes that net cash flows from operating activities, credit facilities and other short- and long-term debt financings will be sufficient to satisfy its future working capital needs, acquisition contingency commitments, debt servicing, capital expenditures and other financing requirements for the foreseeable future. Additionally, the Company believes that external sources of financing are available, although no assurances can be given regarding the Company’s ability to obtain additional financing in the future.

Disclosures About Aggregate Contractual Obligations and Off-Balance Sheet Arrangements

Aggregate Contractual Obligations:

The following summarizes the Company’s aggregate contractual obligations as of September 30, 2008, and the effect such obligations are expected to have on the Company’s liquidity and cash flows in future periods (in thousands):

			Less Than 1
	Total		Year		1-3 Years		4-5 Years		After 5 Years
Debt obligations(a)	$	2,770,660	$	-	$	448,160	$	250,000	$	2,072,500
Capital lease obligations(a)		5,934		2,434		2,679		455		366
Operating lease obligations		160,378		42,412		57,714		29,704		30,548
Purchase obligations(b)		79,264		56,901		17,220		5,143		-
Other current obligations (c)		355,616		355,616		-		-		-
Other long-term obligations (d)		362,373		-		326,733		25,743		9,897
Subtotal		3,734,225		457,363		852,506		311,045		2,113,311
Future interest costs relating to debt
and capital lease obligations(e)		1,660,482		137,191		243,587		219,312		1,060,392
Total contractual cash obligations	$	5,394,707	$	594,554	$	1,096,093	$	530,357	$	3,173,703

(a)      The noted obligation amounts represent the principal portion of the associated debt obligations. Details of the Company’s outstanding debt instruments can be found in the “Debt” note of the Notes to Consolidated Financial Statements.

(b)      Purchase obligations primarily consist of open inventory purchase orders, as well as obligations for other goods and services, at period end.

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(c)      Other current obligations primarily consist of accounts payable at period end.

(d)      Other long-term obligations are largely comprised of pension and excess benefit plan obligations, acquisition-related liabilities, as well as accruals relating to uncertain tax positions.

(e)      Represents estimated future pretax interest costs based on the stated fixed interest rate of the debt, or the variable interest rate in effect at period end for variable interest rate debt. The estimated future interest costs presented in this table do not include any amounts potentially payable associated with the contingent interest and interest reset provisions of the Company’s convertible debentures. To the extent that any debt would be paid off by Omnicare prior to the stated due date or refinanced, the estimated future interest costs would change accordingly. Further, these analyses do not consider the effects of potential changes in the Company’s credit rating on future interest costs.

As of September 30, 2008, the Company had approximately $27 million outstanding relating to standby letters of credit, substantially all of which are subject to automatic annual renewals.

Off-Balance Sheet Arrangements:

As of September 30, 2008, the Company had two unconsolidated entities, Omnicare Capital Trust I, a statutory trust formed by the Company (the “Old Trust”) and Omnicare Capital Trust II (the “New Trust”), which were established for the purpose of facilitating the offerings of the 4.00% Trust Preferred Income Equity Redeemable Securities due 2033 (the “Old Trust PIERS”) and the Series B 4.00% Trust Preferred Income Equity Redeemable Securities (the “New Trust PIERS”), respectively. For financial reporting purposes, the Old Trust and New Trust are treated as equity method investments of the Company. The Old Trust and New Trust are 100%-owned finance subsidiaries of the Company. The Company has fully and unconditionally guaranteed the securities of the Old Trust and New Trust. The Old 4.00% Debentures issued by the Company to the Old Trust and the New 4.00% Debentures issued by the Company to the New Trust in connection with the issuance of the Old Trust PIERS and the New Trust PIERS, respectively, are presented as a single line item in Omnicare’s Consolidated Balance Sheets and debt footnote disclosures. Additionally, the related disclosures concerning the Old Trust PIERS and the New Trust PIERS, the guarantees, and the Old 4.00% Debentures and New 4.00% Debentures are included in the “Debt” note of the Notes to Consolidated Financial Statements in Omnicare’s 2007 Annual Report. Omnicare records interest payable to the Old Trust and New Trust as interest expense in its Consolidated Statements of Income.

As of September 30, 2008, the Company had no other unconsolidated entities, or any financial partnerships, such as entities often referred to as structured finance or special purpose entities, which might have been established for the purpose of facilitating off-balance sheet arrangements.

Critical Accounting Policies

Allowance for Doubtful Accounts

Collection of accounts receivable from customers is the Company’s primary source of operating cash flow and is critical to Omnicare’s operating performance, cash flows and financial condition. Omnicare’s primary collection risk relates to facility, private pay and Part D customers. The Company provides a reserve for accounts receivable considered to be at

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increased risk of becoming uncollectible by establishing an allowance to reduce the carrying value of such receivables to their estimated net realizable value. Omnicare establishes this allowance for doubtful accounts using the specific identification approach, and considering such factors as historical collection experience (i.e., payment history and credit losses) and creditworthiness, specifically identified credit risks, aging of accounts receivable by payor category, current and expected economic conditions and other relevant factors. Management reviews this allowance for doubtful accounts on an ongoing basis for appropriateness. Judgment is used to assess the collectability of account balances and the economic ability of customers to pay.

The Company computes and monitors its accounts receivable days sales outstanding (“DSO”), a non-GAAP measure, in order to evaluate the liquidity and collection patterns of its accounts receivable. DSO is calculated by averaging the beginning and end of quarter accounts receivable, less contractual allowances and the allowance for doubtful accounts, to derive "average accounts receivable" and dividing average accounts receivable by the sales amount (excluding reimbursable out-of-pockets) for the related quarter. The resultant percentage is multiplied by 92 days to derive the DSO amount. Omnicare’s DSO approximated 79 daysat September 30, 2008, which was lower than the June 30, 2008 amount of 81 days by two days, and five days lower than the December 31, 2007 DSO of approximately 84 days partly attributable to the corresponding impact of the Company’s late 2007 increase in its provision for doubtful accounts and the related impact on the aforementioned average accounts receivable balance used in the DSO calculation. As previously disclosed, the Company has experienced ongoing administrative and payment issues associated with the Medicare Part D implementation, resulting in outstanding gross accounts receivable (net of allowances for contractual adjustments, and prior to any allowance for doubtful accounts), particularly for copays. As of September 30, 2008, copays outstanding from Part D Plans were approximately $22 million relating to 2006 and 2007. The Company is pursuing solutions, including legal actions against certain Part D payors, to collect outstanding copays, as well as certain rejected claims. Unfavorably impacting the overall DSO, as well as the 181 days and over past due accounts receivable balance, is the aging in accounts receivable relating to several of the Company’s larger nursing home chain customers, and the continued aging of copays and rejected claims. On July 11, 2007, the Company commenced legal action against a group of its customers for, among other things, the collection of past-due receivables that are owed to the Company. Specifically, approximately $97 million (excluding interest and prior to any allowance for doubtful accounts) is owed to the Company by this group of customers as of September 30, 2008, of which approximately $91 million is past due based on applicable payment terms (a significant portion of which is not reserved based on the relevant facts and circumstances). The $97 million represents approximately 5 days of the overall DSO at September 30, 2008. Until all administrative and payment issues relating to the Part D Drug Benefit as well as the aforementioned legal action against a group of Omnicare’s customers are fully resolved, there can be no assurance that the impact of these matters on the Company’s results of operations, financial position or cash flows will not change based on the outcome of any unforeseen future developments.

The allowance for doubtful accounts as of September 30, 2008 was $339.4 million, compared with $334.1 million at December 31, 2007. The allowance for doubtful accounts represented 19.8% and 19.5% of gross receivables (net of contractual allowances) as of September 30, 2008 and December 31, 2007, respectively. Unforeseen future developments could lead to changes in

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the Company’s provision for doubtful accounts levels and future allowance for doubtful accounts percentages, which could materially impact the overall financial results, financial position or cash flows of the Company. For example, a one percentage point increase in the allowance for doubtful accounts as a percentage of gross receivables (net of allowances for contractual adjustments, and prior to allowances for doubtful accounts) as of September 30, 2008 would result in an increase to the provision for doubtful accounts and related allowance for doubtful accounts on the balance sheet of approximately $17.1 million pretax.

The following table is an aging of the Company’s September 30, 2008 and December 31, 2007 gross accounts receivable (net of allowances for contractual adjustments, and prior to allowances for doubtful accounts), aged based on payment terms and categorized based on the four primary overall types of accounts receivable characteristics (in thousands):

	September 30, 2008
	Current and		181 Days and
	0-180 Days		Over
	Past Due		Past Due		Total
Medicare (Part D and Part B), Medicaid
and Third-Party payors	$	398,652	$	186,627	$	585,279
Facility payors		495,443		359,079		854,522
Private Pay payors		120,331		130,576		250,907
CRO		23,434		-		23,434
Total gross accounts receivable
(net of contractual allowance adjustments)	$	1,037,860	$	676,282	$	1,714,142
	December 31, 2007
	Current and		181 Days and
	0-180 Days		Over
	Past Due		Past Due		Total
Medicare (Part D and Part B), Medicaid
and Third-Party payors	$	390,663	$	167,116	$	557,779
Facility payors		527,879		347,551		875,430
Private Pay payors		126,480		124,958		251,438
CRO		25,702		-		25,702
Total gross accounts receivable
(net of contractual allowance adjustments)	$	1,070,724	$	639,625	$	1,710,349

Fair Value

On January 1, 2008, the Company partially adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines a hierarchy which prioritizes the inputs in fair value measurements. “Level 1” measurements are measurements using quoted prices in active markets for identical assets or

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liabilities. “Level 2” measurements use significant other observable inputs. “Level 3” measurements are measurements using significant unobservable inputs which require a company to develop its own assumptions. In recording the fair value of assets and liabilities, companies must use the most reliable measurement available. The impact to the Company’s consolidated results of operations, financial position and cash flows upon partial adoption of SFAS 157 was not material. The Company elected to partially defer adoption of SFAS 157 related to goodwill and indefinite-lived intangible assets in accordance with Financial Accounting Standards Board (“FASB”) Staff Position 157-2.

See further discussion at the “Fair Value” note of the Notes to Consolidated Financial Statements.

Legal Contingencies

The status of certain legal proceedings has been updated at the “Commitments and Contingencies” note of the Notes to Consolidated Financial Statements, and the “Legal Proceedings” section at Part II, Item 1 of this Filing.

Recently Issued Accounting Standards

Information pertaining to recently issued accounting standards is further discussed at the “Recently Issued Accounting Standards” section of the “Interim Financial Data, Description of Business and Summary of Significant Accounting Policies” note of the Notes to Consolidated Financial Statements of this Filing.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Regarding Forward-Looking Information

In addition to historical information, this report contains certain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, all statements regarding the intent, belief or current expectations regarding the matters discussed or incorporated by reference in this document (including statements as to “beliefs,” “expectations,” “anticipations,” “intentions” or similar words) and all statements which are not statements of historical fact. Such forward-looking statements, together with other statements that are not historical, are based on management’s current expectations and involve known and unknown risks, uncertainties, contingencies and other factors that could cause results, performance or achievements to differ materially from those stated. The most significant of these risks and uncertainties are described in the Company’s Form 10-K, Form 10-Q and Form 8-K reports filed with the Securities and Exchange Commission and include, but are not limited to: overall economic, financial, political and business conditions; trends in the long-term healthcare, pharmaceutical and contract research industries; the ability to attract new clients and service contracts and retain existing clients and service contracts; the ability to consummate pending acquisitions; trends for the continued growth of the Company’s businesses; trends in drug pricing; delays and reductions in reimbursement by the government and other payors to customers and to the Company; the overall financial condition of the Company’s customers and

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the ability of the Company to assess and react to such financial condition of its customers; the ability of vendors and business partners to continue to provide products and services to the Company; the continued successful integration of acquired companies; the continued availability of suitable acquisition candidates; the ability to attract and retain needed management; competition for qualified staff in the healthcare industry; the demand for the Company’s products and services; variations in costs or expenses; the ability to implement productivity, consolidation and cost reduction efforts and to realize anticipated benefits; the ability of clinical research projects to produce revenues in future periods; the potential impact of legislation, government regulations, and other government action and/or executive orders, including those relating to Medicare Part D, including its implementing regulations and any subregulatory guidance, reimbursement and drug pricing policies and changes in the interpretation and application of such policies; government budgetary pressures and shifting priorities; federal and state budget shortfalls; efforts by payors to control costs; changes to or termination of the Company’s contracts with Medicare Part D plan sponsors or to the proportion of the Company’s Part D business covered by specific contracts; the outcome of litigation; potential liability for losses not covered by, or in excess of, insurance; the impact of differences in actuarial assumptions and estimates as compared to eventual outcomes; events or circumstances which result in an impairment of assets, including but not limited to, goodwill; market conditions; the outcome of audit, compliance, administrative, regulatory, or investigatory reviews; volatility in the market for the Company’s stock and in the financial markets generally; access to adequate capital and financing; changes in international economic and political conditions and currency fluctuations between the U.S. dollar and other currencies; changes in tax laws and regulations; changes in accounting rules and standards; and costs to comply with our Corporate Integrity Agreements. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, the Company’s actual results, performance or achievements could differ materially from those expressed in, or implied by, such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as otherwise required by law, the Company does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Omnicare’s primary market risk exposure relates to variable interest rate risk through its borrowings. Accordingly, market risk loss is primarily defined as the potential loss in earnings due to higher interest rates on variable-rate debt of the Company. The modeling technique used by Omnicare for evaluating interest rate risk exposure involves performing sensitivity analysis on the variable-rate debt, assuming a change in interest rates of 100 basis-points. The Company’s debt obligations at September 30, 2008 include $400.0 million outstanding under the variable-rate Senior term A loan, due 2010, at an interest rate of 5.45% at September 30, 2008 (a 100 basis-point change in the interest rate would increase or decrease pretax interest expense by approximately $4.0 million per year); $48.2 million borrowed on a variable-rate term loan, due 2010, at an interest rate of 5.92% at September 30, 2008 (a 100 basis-point change in the interest rate would increase or decrease pretax interest expense by approximately $0.5 million per year);

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$250.0 million outstanding under its fixed-rate 6.125% Senior Notes, due 2013; $225.0 million outstanding under its fixed-rate 6.75% Senior Notes, due 2013; $525 million outstanding under its fixed-rate 6.875% Senior Notes, due 2015; $345.0 million outstanding under its fixed-rate 4.00% Convertible Debentures, due 2033; and $977.5 million outstanding under its fixed-rate 3.25% Convertible Debentures, due 2035 (with an optional repurchase right of holders on December 15, 2015). In connection with its offering of $250.0 million of 6.125% Senior Notes during 2003, the Company entered into a Swap Agreement on all $250.0 million of its aggregate principal amount of the 6.125% Senior Notes. Under the Swap Agreement, which hedges against exposure to long-term U.S. dollar interest rates, the Company receives a fixed rate of 6.125% and pays a floating rate based on LIBOR with a maturity of six months, plus a spread of 2.27% . The estimated LIBOR-based floating rate (including the 2.27% spread) was 6.4% at September 30, 2008 (a 100 basis-point change in the interest rate would increase or decrease pretax interest expense by approximately $2.5 million per year). The Swap Agreement, which matches the terms of the 6.125% Senior Notes, is designated and accounted for as a fair value hedge. The Company is accounting for the Swap Agreement in accordance with SFAS No. 133, as amended, so changes in the fair value of the Swap Agreement are offset by changes in the recorded carrying value of the related 6.125% Senior Notes. The fair value of the Swap Agreement is recorded as a noncurrent asset or (liability), with an offsetting increase or (decrease), respectively, to the book carrying value of the related 6.125% Senior Notes, and amounted to approximately $(7.4) million at the end of the 2008 third quarter. Additionally, at September 30, 2008, the fair value of Omnicare’s variable rate debt facilities approximated the carrying value, as the effective interest rates fluctuate with changes in market rates.

The fair value of the Company’s fixed-rate debt facilities is based on quoted market prices and is summarized as follows (in thousands):

Fair Value of Financial Instruments
	September 30, 2008				December 31, 2007
Financial Instrument:	Book Value		Market Value		Book Value		Market Value
6.125% senior subordinated notes, due 2013, gross	$	250,000	$	225,000	$	250,000	$	230,000
6.75% senior subordinated notes, due 2013		225,000		209,300		225,000		212,600
6.875% senior subordinated notes, due 2015		525,000		477,800		525,000		486,900
4.00% junior subordinated convertible
debentures, due 2033		345,000		276,100		345,000		246,700
3.25% convertible senior debentures, due 2035		977,500		625,600		977,500		703,800

Embedded in the Old Trust PIERS, the New Trust PIERS and the 3.25% Convertible Debentures are two derivative instruments, specifically, a contingent interest provision and a contingent conversion parity provision. In addition, the 3.25% Convertible Debentures include an interest reset provision. The embedded derivatives are periodically valued, and at period end, the values of the derivatives embedded in the Old Trust PIERS, the New Trust PIERS and the 3.25% Convertible Debentures were not material. However, the values are subject to change, based on market conditions, which could affect the Company’s future consolidated results of operations, financial position or cash flows.

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The Company has operations and revenue that occur outside of the U.S. and transactions that are settled in currencies other than the U.S. dollar, exposing it to market risk related to changes in foreign currency exchange rates. However, the substantial portion of the Company’s operations and revenues and the substantial portion of the Company’s cash settlements are exchanged in U.S. dollars. Therefore, changes in foreign currency exchange rates do not represent a substantial market risk exposure to the Company.

The Company does not have any financial instruments held for trading purposes.

ITEM 4 - CONTROLS AND PROCEDURES

(a)      Under applicable SEC regulations, management of a reporting company, with the participation of the principal executive officer and principal financial officer, must periodically evaluate the Company’s “disclosure controls and procedures,” which are defined generally as controls and other procedures of a reporting company designed to ensure that information required to be disclosed by the reporting company in its periodic reports filed with the SEC (such as this Form 10-Q) is recorded, processed, accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding disclosure. Omnicare is an acquisitive company that continuously acquires and integrates new businesses. Throughout and following an acquisition, Omnicare focuses on analyzing the acquiree’s procedures and controls to determine their effectiveness and, where appropriate, implements changes to conform them to the Company’s disclosure controls and procedures. The Company’s Chief Executive Officer and Chief Financial Officer evaluated the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q and concluded that they are effective.

(b)      There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s quarter ended September 30, 2008 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION:

ITEM 1 - LEGAL PROCEEDINGS

On May 18, 2006, an antitrust and fraud action entitled Omnicare, Inc. v. UnitedHealth Group, Inc., et al., 2:06-cv-00103-WOB, was filed by the Company in the United States District Court for the Eastern District of Kentucky against UnitedHealth Group, Inc., PacifiCare Health Systems, Inc., and RxSolutions, Inc. d/b/a Prescription Solutions, asserting claims of violations of federal and state antitrust laws, civil conspiracy and common law fraud arising out of an alleged conspiracy by defendants to illegally and fraudulently coordinate their negotiations with the Company for Medicare Part D contracts as part of an effort to defraud the Company and fix prices. The complaint seeks, among other things, damages, injunctive relief and reformation of certain contracts. On June 5, 2006, the Company filed a first supplemental and amended complaint in which it asserted the identical claims. In an order dated November 9, 2006, a motion by defendants to transfer venue to the United States District Court for the Northern

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District of Illinois was granted, but a motion to dismiss the antitrust claims was denied without prejudice, with leave to refile in the transferee court. In the United States District Court for the Northern District of Illinois, the defendants renewed their motion to dismiss the Company’s antitrust claims on December 22, 2006, and on September 28, 2007 their motion was denied. On March 7, 2007, the Court entered a Minute Order setting a discovery schedule for the litigation. Fact discovery has been completed, and expert discovery is nearly completed. On June 20, 2008, the defendants filed a motion for summary judgment on all claims and the Company filed a motion for summary judgment on certain affirmative defenses asserted by the defendants. Oral argument was conducted on August 14, 2008. The Court reserved decision on both matters. On September 18, 2008, the Court granted defendants' motion for a continuance of the trial date and at a status conference on October 14, 2008 advised counsel that it anticipated setting a new trial date at a status conference which has been set for December 2, 2008.

As previously disclosed, the United States Attorney’s Office, District of Massachusetts is conducting an investigation relating to the Company’s relationships with certain manufacturers and distributors of pharmaceutical products and certain customers, as well as with respect to contracts with certain companies acquired by the Company. Any actions resulting from this investigation could result in civil or criminal proceedings against the Company. The Company believes that it has complied with all applicable laws and regulations with respect to these matters.

On October 27, 2008, the U.S. District Court in Boston, Massachusetts (the “Court”) unsealed a qui tam complaint against the Company that was originally filed under seal with the Court on July 16, 2002. This action was brought by Deborah Maguire as a private party “qui tam relator” on behalf of the federal government and various state governments. On September 16, 2008, the U.S. Government filed a Notice that it is not intervening in the action at this time.

A qui tam action is always filed under seal. Before a qui tam action is unsealed, and typically following an investigation by the government initiated after the filing of the qui tam action, the government is required to notify the court of its decision whether to intervene in the action. The government could seek to intervene in this qui tam action in the future with permission from the Court. Where the government ultimately declines to intervene, the qui tam relators may continue to pursue the litigation at their own expense on behalf of the federal or state government and, if successful, would receive a portion of the government's recovery.

The action brought by Ms. Maguire alleges civil violations of the False Claims Act, 31 U.S.C. 3729 et seq. and various state false claims statutes based on allegations that the Company: submitted claims for name brand drugs when actually providing generic versions of the same drug to nursing homes; provided consultant pharmacist services to its customers at below-market rates to induce the referral of pharmaceutical business in violation of the Anti-Kickback Statute, 42 U.S.C. 1320a-7b; and accepted discounts from drug manufacturers in return for recommending that certain pharmaceuticals be prescribed to nursing home residents in violation of the Anti-Kickback Statute. The unsealed action seeks damages provided for in the Anti-Kickback Statute and applicable state statutes. The Company is also aware of five other qui tam complaints against the Company and other companies that have been filed with the Court and remain under seal.

The Company believes that the allegations are without merit and intends to vigorously defend itself in this action if pursued.

On February 2 and February 13, 2006, respectively, two substantially similar putative class action lawsuits, entitled Indiana State Dist. Council of Laborers & HOD Carriers Pension & Welfare Fund v. Omnicare, Inc., et al., No. 2:06cv26 (“HOD Carriers”), and Chi v. Omnicare, Inc., et al., No. 2:06cv31 (“Chi”), were filed against Omnicare and two of its officers in the United States District Court for the Eastern District of Kentucky purporting to assert claims for violation of §§10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and seeking, among other things, compensatory damages and injunctive relief. The complaints, which purported to be brought on behalf of all open-market purchasers of Omnicare common stock from August 3, 2005 through January 27, 2006, alleged that Omnicare had artificially inflated its earnings by engaging in improper generic drug substitution and that defendants had made false and misleading statements regarding the Company’s business and prospects. On April 3, 2006, plaintiffs in the HOD Carriers case formally moved for consolidation and the appointment of lead plaintiff and lead counsel pursuant to the Private Securities Litigation Reform Act of 1995. On May 22, 2006, that motion was granted, the cases were consolidated, and a lead plaintiff and lead counsel were appointed. On July 20, 2006, plaintiffs filed a consolidated amended complaint, adding a third officer as a defendant and new factual allegations primarily relating to revenue recognition, the valuation of receivables and the valuation of inventories. On October 31, 2006, plaintiffs moved for leave to file a second amended complaint, which was granted on January 26, 2007, on the condition that no further amendments would be permitted absent extraordinary circumstances. Plaintiffs thereafter filed their second amended complaint on January 29, 2007. The second amended complaint (i) expands the putative class to include all purchasers of Omnicare common stock from August 3, 2005 through July 27, 2006, (ii) names two members of the Company’s board of directors as additional defendants, (iii) adds a new plaintiff and a new claim for violation of Section 11 of the Securities Act of 1933 based on alleged false and misleading statements in the registration

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statement filed in connection with the Company’s December 2005 public offering, (iv) alleges that the Company failed to timely disclose its contractual dispute with UnitedHealth Group (see discussion of the UnitedHealth Group matter above), and (v) alleges that the Company failed to timely record certain special litigation reserves. The defendants filed a motion to dismiss the second amended complaint on March 12, 2007, claiming that plaintiffs had failed adequately to plead loss causation, scienter or any actionable misstatement or omission. That motion was fully briefed as of May 1, 2007. In response to certain arguments relating to the individual claims of the named plaintiffs that were raised in defendants’ pending motion to dismiss, plaintiffs filed a motion to add, or in the alternative, to intervene an additional named plaintiff, Alaska Electrical Pension Fund, on July 27, 2007. On October 12, 2007, the court issued an opinion and order dismissing the case and denying plaintiffs’ motion to add an additional named plaintiff. On November 9, 2007, plaintiffs filed a notice of appeal with the United States Court of Appeals for the Sixth Circuit with respect to the dismissal of their case. Oral argument was held on September 18, 2008.

On February 13, 2006, two substantially similar shareholder derivative actions, entitled Isak v. Gemunder, et al., Case No. 06-CI-390, and Fragnoli v. Hutton, et al., Case No. 06-CI-389, were filed in Kentucky State Circuit Court, Kenton Circuit, against the members of Omnicare’s board of directors, individually, purporting to assert claims for breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment arising out of the Company’s alleged violations of federal and state health care laws based upon the same purportedly improper generic drug substitution that is the subject of the federal purported class action lawsuits. The complaints seek, among other things, damages, restitution and injunctive relief. The Isak and Fragnoli actions were later consolidated by agreement of the parties. On January 12, 2007, the defendants filed a motion to dismiss the consolidated action on the grounds that the dismissal of the substantially identical shareholder derivative action, Irwinv. Gemunder, et al., 2:06cv62, by the United States District Court for the Eastern District of Kentucky on November 20, 2006 should be given preclusive effect and thus bars re-litigation of the issues already decided in Irwin. Instead of opposing that motion, on March 16, 2007, the plaintiffs filed an amended consolidated complaint, which continues to name all of the directors as defendants and asserts the same claims, but attempts to bolster those claims by adding nearly all of the substantive allegations from the most recent complaint in the federal securities class action (see discussion of HOD Carriers above) and an amended complaint in Irwin that added the same factual allegations that were added to the consolidated amended complaint in the HOD Carriers action. On April 16, 2007, defendants filed a supplemental memorandum of law in further support of their pending motion to dismiss contending that the amended complaint should be dismissed on the same grounds previously articulated for dismissal, namely, the preclusive effect of the dismissal of the Irwin action. That motion has been fully briefed, oral argument was held on August 21, 2007, and the court reserved decision.

The Company believes the above-described purported class and derivative actions are without merit and will be vigorously defended.

Although the Company cannot predict the ultimate outcome of the matters described in the preceding paragraphs, there can be no assurance that the resolution of these matters will not have

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a material adverse impact on the Company’s consolidated results of operations, financial position or cash flows.

As part of its ongoing operations, the Company is subject to various inspections, audits, inquiries and similar actions by governmental/regulatory authorities responsible for enforcing laws and regulations to which the Company is subject, including reviews of individual Omnicare pharmacy's reimbursement documentation and administrative practices.

ITEM 1A - RISK FACTORS

The Omnicare 2007 Annual Report on Form 10-K includes a detailed discussion of our risk factors. The information presented below updates and should be read in conjunction with the risk factors and information disclosed in that Form 10-K.

Risks Relating to Our Business

Federal and state healthcare legislation has significantly impacted our business, and future legislation and regulations are likely to affect us.

In recent years, federal legislation has resulted in major changes in the healthcare system, which significantly affected healthcare providers. The Balanced Budget Act of 1997 (the “BBA”) mandated a prospective payment system (“PPS”) for Medicare-eligible residents of skilled nursing facilities (“SNFs”). Under PPS, Medicare pays SNFs a fixed fee per patient per day based upon the acuity level of the resident, covering substantially all items and services furnished during a Medicare-covered stay, including pharmacy services. PPS initially resulted in a significant reduction of reimbursement to SNFs. Congress subsequently sought to restore some of the reductions in reimbursement resulting from PPS. One provision gave SNFs a temporary rate increase for certain specific high-acuity patients beginning April 1, 2000, and ending when the Centers for Medicare & Medicaid Services (“CMS”) implemented a refined patient classification system under PPS. For several years, CMS did not implement such refinements, thus continuing the additional rate increase for certain high-acuity patients through federal fiscal year 2005.

On August 4, 2005, CMS issued its final SNF PPS rule for fiscal year 2006. Under the rule, CMS added nine patient classification categories to the PPS patient classification system, thus triggering the expiration of the high-acuity payments add-ons. However, CMS estimated that the rule would have a slightly positive financial impact on SNFs in fiscal year 2006 because the $1.02 billion reduction from the expiration of the add-on payments would be more than offset by a $510 million increase in the nursing case-mix weight for all of the resource utilization group categories and a $530 million increase associated with various updates to the payment rates (including updates to the wage and market basket indexes), resulting in a $20 million overall increase in payments for fiscal year 2006. The new patient classification refinements became effective on January 1, 2006, and the market basket increase became effective October 1, 2005. On July 31, 2006, CMS issued the update to the SNF PPS rates for fiscal year 2007. Effective October 1, 2006, SNFs received the full 3.1 percent market basket increase to rates, increasing payments to SNFs by approximately $560 million for fiscal year 2007. On August 3, 2007, CMS published its final SNF PPS update for fiscal year 2008. Effective October 1, 2007, SNFs received a 3.3 percent market basket increase, which increases Medicare payments to SNFs by approximately $690 million in fiscal

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year 2008. The final rule also includes several policy and payment provisions, including rebasing the market basket, which currently reflects data from fiscal 1997, to a base year of fiscal year 2004; revisions to the calculation of the SNF market basket (including revising the pharmacy component); changing the threshold for forecast error adjustments from the current 0.25 percentage point to 0.5 percentage point; and continuing a special adjustment made to cover the additional services required by nursing home residents with HIV/AIDS. On August 8, 2008, CMS published the Medicare SNF PPS final rule for fiscal year 2009, which includes a 3.4 percent inflation update that will increase overall payments to SNFs by $780 million. CMS did not adopt a provision included in its May 7, 2008 proposed rule to recalibrate case mix weights to compensate for increased expenditures resulting from refinements made in January 2006, which would have cut overall SNF PPS payments by $770 million in fiscal year 2009. The rule also addresses several SNF policy issues, including, among others, revisions to the Minimum Data Set, development of an integrated post-acute payment system, rehabilitative services in SNFs, and consolidated billing. While recent rulemakings have not decreased payments to SNFs, reimbursement changes could be adopted in the future that could have an adverse effect on the financial condition of the Company’s SNF clients which could, in turn, adversely affect the timing or level of their payments to Omnicare.

Moreover, on February 8, 2006, the President signed into law the Deficit Reduction Act (“DRA”), which will reduce net Medicare and Medicaid spending by approximately $11 billion over five years. Among other things, the legislation reduces Medicare SNF bad debt payments by 30 percent for those individuals who are not dually eligible for Medicare and Medicaid. This provision is expected to reduce payments to SNFs by $100 million over five years (fiscal years 2006-2010). On February 4, 2008, the Bush Administration released its fiscal year 2009 budget proposal, which includes legislative and administrative proposals that would reduce Medicare spending by approximately $12.2 billion in fiscal year 2009 and $178 billion over five years. Among other things, the budget would provide no annual update for SNFs in 2009 through 2011 and a -0.65 percent adjustment to the update annually thereafter. In addition, the budget would apply a “sequester” of -0.4 percent to all Medicare provider payments when general fund contributions exceed 45 percent of program spending. The sequester order would increase each year by -0.4 percent until general revenue funding is brought back to 45 percent. The budget also would move toward site-neutral post-hospital payments to limit perceived inappropriate incentives for five conditions commonly treated in both SNFs and inpatient rehabilitation facilities. The Administration also proposes to achieve savings by issuing regulations to adjust for case mix distribution in the SNF payment system. CMS included this provision in its proposed SNF prospective payment system update for fiscal year 2009, released May 1, 2008, but CMS did not include this change in the August 8, 2008 final rule. In addition, the budget proposal would eliminate all bad debt reimbursements for unpaid beneficiary cost-sharing over four years. Many provisions of the proposed Bush budget would require Congressional action to implement. Separately, on August 1, 2007, the House of Representatives approved H.R. 3162, the Children’s Health and Medicare Protection Act of 2007, that included a number of Medicare policy changes, including a freeze in fiscal year 2008 SNF PPS rates at fiscal year 2007 levels. While the version of the bill that ultimately passed Congress did not include Medicare provisions impacting SNF reimbursement, Congress may yet consider these and other proposals in the future that would further restrict Medicare funding for SNFs.

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In December 2003, Congress enacted the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“MMA”) which included a major expansion of the Medicare prescription drug benefit under a new Medicare Part D.

Under the Medicare Part D prescription drug benefit, Medicare beneficiaries may enroll in prescription drug plans offered by private entities (or in a “fallback” plan offered on behalf of the government through a contractor, to the extent private entities fail to offer a plan in a given area), which provide coverage of outpatient prescription drugs (collectively, “Part D Plans”). Part D Plans include both plans providing the drug benefit on a stand alone basis and Medicare Advantage plans providing drug coverage as a supplement to an existing medical benefit under that Medicare Advantage plan, most commonly a health maintenance organization plan. Medicare beneficiaries generally have to pay a premium to enroll in a Part D Plan, with the premium amount varying from plan to plan, although CMS provides various federal subsidies to Part D Plans to reduce the cost to beneficiaries. Effective January 1, 2006, Medicare beneficiaries who are also entitled to benefits under a state Medicaid program (so-called “dual eligibles”) have their prescription drug costs covered by the new Medicare drug benefit. Many nursing home residents Omnicare serves are dual eligibles, whose drug costs were previously covered by state Medicaid programs. In 2007, approximately 42% of Omnicare’s revenue was derived from beneficiaries covered under the federal Medicare Part D program.

CMS provides premium and cost-sharing subsidies to Part D Plans with respect to dual eligible residents of nursing homes. Such dual eligibles are not required to pay a premium for enrollment in a Part D Plan, so long as the premium for the Part D Plan in which they are enrolled is at or below the premium subsidy, nor are they required to meet deductibles or pay copayment amounts. Further, all dual eligibles who do not affirmatively enroll in a Part D Plan are automatically enrolled into a Prescription Drug Plan (“PDP”) by CMS on a random basis from among those PDPs meeting CMS criteria for low-income premiums in the PDP region. As is the case for any nursing home beneficiary, such dual eligible beneficiaries may select a different Part D Plan at any time through the Part D enrollment process. In sum, dual eligible residents of nursing homes are entitled to have their prescription drug costs covered by a Part D Plan, provided that the prescription drugs which they are taking are either on the Part D Plan’s formulary, or an exception to the plan’s formulary is granted. CMS requires the formularies of Part D Plans to include the types of drugs most commonly needed by Medicare beneficiaries and to offer an exceptions process to provide coverage for medically necessary drugs.

Pursuant to the Part D final rule, effective January 1, 2006, we obtain reimbursement for drugs we provide to enrollees of a given Part D Plan in accordance with the terms of agreements negotiated between us and that Part D Plan. We have entered into such agreements with nearly all Part D Plan sponsors under which we provide drugs and associated services to their enrollees. We continue to have ongoing discussions with Part D Plans in the ordinary course. Moreover, we may, as appropriate, renegotiate agreements. Further, the proportion of our Part D business serviced under specific agreements may change over time based upon beneficiary choice, reassignment of dual eligibles to different Part D Plans or Part D Plan consolidation. Consequently, there can be no assurance that the reimbursement terms which currently apply to our Part D business will not change. In addition, as expected in the transition to a new program of this magnitude, certain administrative and payment issues have arisen, resulting in higher

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operating expenses, as well as outstanding gross accounts receivable (net of allowances for contractual adjustments, and prior to any allowance for doubtful accounts), particularly for copays. As of September 30, 2008, copays outstanding from Part D Plans were approximately $22 million relating to 2006 and 2007. The Company is pursuing solutions, including legal actions against certain Part D payors, to collect outstanding copays, as well as certain rejected claims. Participants in the long-term care pharmacy industry continue to address these issues with CMS and the Part D Plans and attempt to develop solutions. However, until all administrative and payment issues are fully resolved, there can be no assurance that the impact of the Part D Drug benefit on our results of operations, financial position or cash flows will not change based on the outcome of any unforeseen future developments.

The MMA does not change the manner in which Medicare pays for drugs for Medicare beneficiaries covered under a Medicare Part A stay. We continue to receive reimbursement for drugs provided to such residents from the SNFs, in accordance with the terms of the agreements we have negotiated with each SNF. We also continue to receive reimbursement from the state Medicaid programs, albeit to a greatly reduced extent, for those Medicaid beneficiaries not eligible for the Part D program, including those under age 65, and for certain drugs specifically excluded from Medicare Part D.

CMS has issued subregulatory guidance on many aspects of the final Part D rule, including the provision of pharmaceutical services to long-term care residents. CMS has also expressed some concerns about pharmacies’ receipt of discounts, rebates and other price concessions from drug manufacturers. Specifically, in a finalized “Call Letter” for the 2007 calendar year, CMS indicated that beginning in 2007, Part D sponsors must have policies and systems in place, as part of their drug utilization management programs, to protect beneficiaries and reduce costs when long-term care pharmacies are subject to incentives to move market share through access/performance rebates from drug manufacturers. For the purposes of managing and monitoring drug utilization, especially where such rebates exist, CMS instructs Part D Plan sponsors to require pharmacies to disclose to the Part D Plan sponsor any discounts, rebates and other direct or indirect remuneration designed to directly or indirectly influence or impact utilization of Part D drugs. CMS stated that Plan sponsors should provide assurances that such information will remain confidential. CMS has issued subregulatory guidelines specifying the information that CMS is requiring from Plan sponsors with respect to rebates paid to long-term care pharmacies. CMS has also issued reporting requirements for 2008 which, among other things, require disclosure of rebates provided to long-term care pharmacies at a more detailed level. We have agreed with various Plan sponsors and their agents with respect to the format, terms and conditions for providing such information and we intend to continue to work with other sponsors with respect to providing such information.

On July 15, 2008, Congress enacted into law H.R. 6331, the "Medicare Improvements for Patients and Providers Act of 2008” (“MIPPA”), by overriding the President’s veto of the bill. The new law includes further reforms to the Part D program. Among other things, from and after January 1, 2010, the law requires that long-term care pharmacies have between 30 and 90 days to submit claims to a Part D Plan. Commencing January 1, 2009, the law also requires Part D Plan sponsors to update the prescription drug pricing data they use to pay pharmacies no less frequently than every seven days. The law also expands the number of Medicare beneficiaries

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who will be entitled to premium and cost-sharing subsidies by modifying previous income and asset requirements, eliminates late enrollment penalties for beneficiaries entitled to these subsidies, and limits the sales and marketing activities in which Part D Plan sponsors may engage, among other things. On September 18, 2008, CMS published final regulations implementing the MIPPA Part D provisions.

Moreover, CMS continues to issue guidance on and make revisions to the Part D program. We are continuing to monitor issues relating to implementation of the Part D benefit, and until further agency guidance is known and until all administrative and payment issues associated with the transition to this massive program are fully resolved, there can be no assurance that the impact of the final rule or the outcome of other potential developments relating to its implementation on our business, results of operations, financial position or cash flows will not change based on the outcome of any unforeseen future developments.

The MMA also changed the Medicare payment methodology and conditions for coverage of certain items of durable medical equipment, prosthetics, orthotics, and supplies (“DMEPOS”) under Medicare Part B. Approximately 1% of our revenue is derived from beneficiaries covered under Medicare Part B. The changes include a temporary freeze in annual increases in payments for durable medical equipment from 2004 through 2008, new clinical conditions for payment, quality standards (applied by CMS-approved accrediting organizations), and competitive bidding requirements. On April 10, 2007, CMS issued a final rule establishing the Medicare competitive bidding program. Only suppliers that are winning bidders will be eligible to provide competitively-bid items to Medicare beneficiaries in the selected areas. Enteral nutrients, equipment and supplies and oxygen equipment and supplies were among the 10 categories of DMEPOS included in the first round of the competitive bidding program.

In mid-2007 CMS conducted a first round of bidding for these 10 DMEPOS product categories in 10 competitive bidding areas, and CMS began announcing winning bidders in March 2008. In light of concerns about implementation of the bidding program, including CMS’ disqualification of many bids based upon bidders’ submission of allegedly incomplete financial documentation and the potential adverse impact on beneficiary access to certain types of DMEPOS, Congress has, through the enactment into law on July 15, 2008 of MIPPA, terminated the contracts awarded by CMS in the first round of competitive bidding, required that new bidding be conducted for the first round, and required certain reforms to the bidding process. Among other things, the law requires CMS to rebid those areas in 2009, with bidding for round two delayed until 2011. The delay will be financed by reducing Medicare fee schedule payments for all items covered by round one bidding program by 9.5 percent nationwide beginning January 1, 2009, followed by a 2 percent increase in 2014 (with certain exceptions). The legislation also includes a series of procedural improvements to the bidding process, including requiring CMS to notify bidders about paperwork discrepancies and providing suppliers with an opportunity to submit proper documentation, and it requires contracting suppliers to disclose all subcontracting relationships to CMS. We intend to participate in the new bidding process for round one, and are assessing the potential impact of the fee schedule reductions on its business.

CMS requires all existing DMEPOS suppliers to submit proof of accreditation by a deemed accreditation organization by September 30, 2009, although suppliers in the competitive bidding

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regions and new suppliers have been subject to earlier accreditation deadlines. MIPPA codifies the requirement that all suppliers be accredited by September 30, 2009 and extends the accreditation requirement to companies that subcontract with contract suppliers under the competitive bidding program. We intend to comply with all accreditation requirements for DMEPOS suppliers by the applicable deadline.

With respect to Medicaid, the BBA repealed the “Boren Amendment” federal payment standard for Medicaid payments to nursing facilities, giving states greater latitude in setting payment rates for such facilities. The law also granted states greater flexibility to establish Medicaid managed care programs without the need to obtain a federal waiver. Although these waiver programs generally exempt institutional care, including nursing facilities and institutional pharmacy services, some states do use managed care principles in their long-term care programs. Likewise, the DRA includes several changes to the Medicaid program designed to rein in program spending. These include, among others, strengthening the Medicaid asset transfer restrictions for persons seeking to qualify for Medicaid long-term care coverage, which could, due to the timing of the penalty period, increase facilities’ exposure to uncompensated care. This provision is expected to reduce Medicaid spending by an estimated $2.4 billion over five years. The law also gives states greater flexibility to expand access to home and community based services by allowing states to provide these services as an optional benefit without undergoing the waiver approval process, and includes a new demonstration to encourage states to provide long-term care services in a community setting to individuals who currently receive Medicaid services in nursing homes. Together, these provisions could increase state funding for home and community-based services, while prompting states to cut funding for nursing facilities. No assurances can be given that state Medicaid programs ultimately will not change the reimbursement system for long-term care or pharmacy services in a way that adversely impacts the Company.

The DRA also changed the so-called federal upper limit payment rules for multiple source prescription drugs covered under Medicaid. Like the current upper limit, it only applies to drug ingredient costs and does not include dispensing fees, which will continue to be determined by the states. First, the DRA redefined a multiple source drug subject to the upper limit rules to be a covered outpatient drug that has at least one other drug product that is therapeutically equivalent. Thus, the federal upper limit is triggered when there are two or more therapeutic equivalents, instead of three or more as was previously the case. Second, effective January 1, 2007, the DRA changed the federal upper payment limit from 150 percent of the lowest published price for a drug (which is usually the average wholesale price) to 250 percent of the lowest average manufacturer price (“AMP”). Congress expected these DRA provisions to reduce federal and state Medicaid spending by $8.4 billion over five years. On July 17, 2007, CMS issued a final rule with comment period to implement changes to the upper limit rules. Among other things, the final rule: established a new federal upper limit calculation for multiple source drug, based on 250 percent of the lowest AMP in a drug class; required CMS to post AMP amounts on its web site; and established a uniform definition for AMP. Additionally, the final rule provided that sales of drugs to long-term care pharmacies for supply to nursing homes and assisted living facilities (as well as associated discounts, rebates or other price concessions) are not to be taken into account in determining AMP where such sales can be identified with adequate documentation, and that any AMPs which are not at least 40% of the next highest AMP will not be taken into account in determining the upper limit amount (the so-called “outlier” test). However, on December 19,

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2007, the United States District Court for the District of Columbia issued a preliminary injunction that enjoins CMS from implementing provisions of the July 17, 2007 rule to the extent that it affects Medicaid reimbursement rates for retail pharmacies under the Medicaid program. The order also enjoins CMS from posting AMP data on a public website or disclosing it to states. As a result of this preliminary injunction, CMS did not post AMPs or new upper limit prices in late December 2007 based upon the July 17, 2007 final rule despite its earlier planned timetable, and the schedule for states to implement the new upper limits will be delayed until further notice. Separately, on March 14, 2008, CMS published an interim final rule with comment period revising the Medicaid rebate definition of multiple source drug set forth in the July 17, 2007 final rule. In short, the effect of the rule will be that federal upper limits apply in all states unless the state finds that a particular generic drug is not available within that state. While the rule’s effective date is April 14, 2008, it is subject to public comment. CMS also notes that the regulation is subject to the injunction by the United States District Court for the District of Columbia to the extent that it may affect Medicaid reimbursement rates for pharmacies. On October 7, 2008, CMS published the final version of this rule, responding to public comments received on the March 14, 2008 regulation. The final rule adopts the March 2008 interim final rule with technical changes effective November 6, 2008, although it continues to be subject to an injunction to the extent that it affects Medicaid pharmacy reimbursement rates. Moreover, on July 15, 2008, Congress enacted into law, over the President’s veto, MIPPA. The new law delays the adoption of the DRA’s new federal upper limit payment rules for Medicaid based on AMP for multiple source drugs and prevents CMS from publishing AMP data until October 1, 2009; until then, upper limits will continue to be determined under the pre-DRA rules. With the advent of Medicare Part D, our revenues from state Medicaid programs are substantially lower than has been the case previously. However, some of our agreements with Part D Plans and other payors have incorporated the Medicaid upper limit rules into the pricing mechanisms for prescription drugs. Until the litigation regarding the final rule is resolved and new upper limit amounts are published by CMS, we cannot predict the impact of the final rule on our business. Further, there can be no assurance that federal upper limit payments under pre-DRA rules, changes under the DRA or other efforts by payors to limit reimbursement for certain drugs will not adversely impact our business.

MIPPA also seeks to promote e-prescribing by providing incentive payments for physicians and other practitioners paid under the Medicare physician fee schedule who are "successful electronic prescribers." Specifically, successful electronic prescribers are to receive a 2 percent bonus during 2009 and 2010, a 1 percent bonus for 2011 and 2012 and a 0.5 percent bonus for 2013; practitioners who are not successful electronic prescribers are penalized by a 1 percent reduction from the current fee schedule in 2012, a 1.5 percent reduction in 2013, and thereafter a 2 percent reduction. The requirements for a practitioner to qualify as a successful electronic prescriber are to be specified by CMS, and may relate to either the submission of a minimum number of e-prescriptions under Medicare Part D, or to simply having a qualifying e-prescribing system and reporting whether it was used under an existing program for reporting certain physician quality measures for at least 50 percent of applicable encounters. Numerous details relating to this provision, including the timetable for adoption, will need to be specified by CMS. The Company is closely monitoring developments related to this initiative, and will seek to make available systems under which prescribers may submit prescriptions to the Company's pharmacies electronically so as to enable them to qualify for the incentive payments.

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President Bush’s fiscal year 2009 budget proposal includes a series of proposals impacting Medicaid, including legislative and administrative changes that would reduce Medicaid payments by more than $18 billion over five years. Among other things, the proposed budget would further reduce the federal upper limit reimbursement for multiple source drugs to 150 percent of the AMP and replace the “best price” component of the Medicaid drug rebate formula with a budget-neutral flat rebate. Many of the proposed policy changes would require Congressional approval to implement. While we have endeavored to adjust to these types of funding pressures in the past, there can be no assurance that these or future changes in Medicaid payments to nursing facilities, pharmacies, or managed care systems, or their potential impact on payments under agreements with Part D Plans, will not have an adverse impact on our business.

Two recent actions at the federal level could impact Medicaid payments to nursing facilities. The Tax Relief and Health Care Act of 2006 modified several Medicaid policies including, among other things, reducing the limit on Medicaid provider taxes from 6 percent to 5.5 percent from January 1, 2008 through September 30, 2011. The Bush Administration had been expected to issue regulations calling for deeper cuts in this funding. On February 22, 2008, CMS published a final rule that implements this legislation, and makes other clarifications to the standards for determining the permissibility of provider tax arrangements. On June 30, 2008, President Bush signed into law a supplemental appropriations bill (P.L. 110-252) that imposes a moratorium on implementation of certain provisions of this rule until April 1, 2009. Second, on January 18, 2007, CMS published a proposed rule designed to ensure that Medicaid payments to governmentally-operated nursing facilities and certain other health care providers are based on actual costs and that state financing arrangements are consistent with the Medicaid statute. CMS estimates that the rule, if finalized, would save $120 million during the first year and $3.87 billion over five years. On May 29, 2007, CMS published a final rule to implement this provision, but Congress blocked the rule for one year in an emergency fiscal year 2007 spending bill, H.R. 2206. The supplemental appropriations bill, P.L. 110-252, further extends the moratorium on implementation of the rule through April 1, 2009.

Further, in order to rein in healthcare costs, we anticipate that federal and state governments will continue to review and assess alternate healthcare delivery systems, payment methodologies and operational requirements for healthcare providers, including long-term care facilities and pharmacies. Given the continuous debate regarding the cost of healthcare, managed care, universal healthcare coverage, and other healthcare issues, we cannot predict with any degree of certainty what additional healthcare initiatives, if any, will be implemented or the effect any future legislation or regulation will have on our business. Further, we receive discounts, rebates and other price concessions from pharmaceutical manufacturers pursuant to contracts for the purchase of their products. There can be no assurance that any changes in legislation or regulations, or interpretations of current law, that would eliminate or significantly reduce the discounts, rebates and other price concessions that we receive from manufacturers would not have a material adverse impact on our overall consolidated results of operations, financial position or cash flows. Longer term, funding for federal and state healthcare programs must consider the aging of the population; the growth in enrollees as eligibility is potentially expanded; the escalation in drug costs owing to higher drug utilization among seniors; the impact of the Medicare Part D benefit for seniors; the introduction of new, more efficacious but also

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more expensive medications; and the long-term financing of the entire Medicare program. Given competing national priorities, it remains difficult to predict the outcome and impact on us of any changes in healthcare policy relating to the future funding of the Medicare and Medicaid programs. Further, Medicare, Medicaid and/or private payor rates for pharmaceutical supplies and services may not continue to be based on current methodologies or remain comparable to present levels. Any future healthcare legislation or regulation may adversely affect our business.

Changes in the use of the average wholesale price as a benchmark from which pricing in the pharmaceutical industry is negotiated could adversely affect the Company.

On October 4, 2006, the plaintiffs in New England Carpenters Health Benefits Fund et al. v. First DataBank, Inc. and McKesson Corporation, CA No. 1:05-CV-11148-PBS (United District Court for the District of Massachusetts) and defendant First DataBank, Inc. (“First DataBank”) entered into a settlement agreement relating to First DataBank’s publication of average wholesale price (“AWP”). AWP is a pricing benchmark that is widely used to calculate a portion of the reimbursement payable to pharmacy providers for the drugs and biologicals they provide, including under State Medicaid programs, Medicare Part D Plans and certain of the Company’s contracts with long-term care facilities. The settlement agreement would have required First DataBank to cease publishing AWP two years after the settlement became effective unless a competitor of First DataBank was then publishing AWP, and would have required that First DataBank modify the manner in which it calculates AWP for over 8,000 distinct drugs (“NDCs”) from 125% of the drug’s wholesale acquisition cost (“WAC”) price established by manufacturers to 120% of WAC until First DataBank ceased publishing same. In a related case, District Council 37 Health and Security Plan v. Medi-Span, CA No. 1:07-CV-10988-PBS (United States District Court for the District of Massachusetts), in which Medi-Span is accused of misrepresenting pharmaceutical prices by relying on and publishing First DataBank’s price list, the parties entered into a similar settlement agreement. The Court granted preliminary approval of both agreements, however on January 22, 2008, the court held a hearing on a motion for final approval of the proposed settlements, and after hearing various objections to the proposed settlements indicated that it would not approve the settlements as proposed. The parties filed amendments to the proposed settlements on March 19, 2008, and at a status hearing held that day, the Court asked the parties to further revise the amended settlements. On May 29, 2008, the plaintiffs and First DataBank filed a new settlement that included a reduction in the number of NDCs to which a new mark-up over WAC would apply (20% vs. 25%) from over 8,000 to 1,356, and removed the provision requiring that AWP no longer be published in the future. First DataBank also agreed to contribute $2 million to a settlement fund and for legal fees. First DataBank, independent of the settlement, announced that it would, of its own volition, reduce to 20% the mark-up on all drugs with a mark-up higher than 20% and stop publishing AWP within two years after the changes in mark-up are implemented. On June 3, 2008, the Court granted preliminary approval to the revised settlement, and on July 23, 2008 the Court approved the process for class notification. The matter is still subject to opposition by others, a fairness hearing which has been scheduled for December 17, 2008, and final approval.

The Company is monitoring these cases for further developments and evaluating potential implications and/or actions that may be required, including any adverse effect on the Company’s reimbursement for drugs and biologicals and any actions that may be taken to offset or otherwise

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mitigate such impact. There can be no assurance, however, that the First DataBank settlement, if approved, or actions, if any, by the government or private health insurance programs relating to AWP would not have an adverse impact on the Company’s reimbursement for drugs and biologicals and have implications for the use of AWP as a benchmark from which pricing in the pharmaceutical industry is negotiated, which could adversely affect the Company.

ITEM 2 - UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

(c)      Purchases of Equity Securities by the Issuer and Affiliated Purchasers

A summary of the Company’s repurchases of Omnicare, Inc. common stock during the quarter ended September 30, 2008 is as follows (in thousands, except per share data):

				Total Number
				of Shares
				Purchased as	Maximum Number (or
				Part of	Approximate Dollar
				Publicly	Value) of Shares that
	Total Number	Average		Announced	May Yet Be Purchased
	of Shares	Price Paid		Plans or	Under the Plans or
Period	Purchased(a)	per Share		Programs	Programs
July 1 - 31, 2008	-	$	-	-	$	-
August 1 - 31, 2008	1		30.48	-		-
September 1 - 30, 2008	1		30.89	-		-
Total	2	$	30.71	-	$	-

(a)  During the third quarter of 2008, the Company purchased 2 shares of Omnicare common stock in connection with its employee benefit plans, including any purchases associated with the vesting of restricted stock awards. These purchases were not made pursuant to a publicly announced repurchase plan or program.

ITEM 6 - EXHIBITS

See Index of Exhibits.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Omnicare, Inc.
	Registrant
Date: October 30, 2008	By:	/s/ David W. Froesel, Jr.
		David W. Froesel, Jr.
		Senior Vice President and
		Chief Financial Officer
		(Principal Financial and
		Accounting Officer)

INDEX OF EXHIBITS

		Document Incorporated by Reference
		from a Previous Filing, Filed
Number and Description of Exhibit		Herewith or Furnished Herewith, as
(Numbers Coincide with Item 601 of Regulation S-K)		Indicated Below
(3.1)	Restated Certificate of Incorporation of	Form 10-K
	Omnicare, Inc. (as amended)	March 27, 2003
(3.3)	Second Amended and Restated By-Laws of	Form 10-Q
	Omnicare, Inc.	November 14, 2003
(12)	Statement of Computation of Ratio of	Filed Herewith
	Earnings to Fixed Charges
(31.1)	Rule 13a-14(a) Certification of Chief	Filed Herewith
	Executive Officer of Omnicare, Inc. in
	accordance with Section 302 of the
	Sarbanes-Oxley Act of 2002
(31.2)	Rule 13a-14(a) Certification of Chief	Filed Herewith
	Financial Officer of Omnicare, Inc. in
	accordance with Section 302 of the
	Sarbanes-Oxley Act of 2002
(32.1)	Section 1350 Certification of Chief	Furnished Herewith
	Executive Officer of Omnicare, Inc. in
	accordance with Section 906 of the
	Sarbanes-Oxley Act of 2002**
(32.2)	Section 1350 Certification of Chief	Furnished Herewith
	Financial Officer of Omnicare, Inc. in
	accordance with Section 906 of the
	Sarbanes-Oxley Act of 2002**

** A signed original of this written statement required by Section 906 has been provided to Omnicare, Inc. and will be retained by Omnicare, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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