Rite Aid 2016 Annual Report Download - page 146

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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 27, 2016, February 28, 2015 and March 1, 2014
(In thousands, except per share amounts)
21. Commitments, Contingencies and Guarantees (Continued)
evaluating the government’s allegations and documents produced and have been exchanging position
letters concerning the merits of the government’s claims. At this stage, Rite Aid is unable to predict the
outcome of the investigation.
In addition to the above described matters, the Company is subject from time to time to various
claims and lawsuits and governmental investigations arising in the ordinary course of business. While
the Company’s management cannot predict the outcome of any of the claims, the Company’s
management does not believe that the outcome of any of these legal matters will be material to the
Company’s consolidated financial position. It is possible, however, that the Company’s results of
operations or cash flows could be materially affected by an unfavorable resolution of pending litigation
or contingencies.
Contingencies
The California Department of Health Care Services (‘‘DHCS’’), the agency responsible for
administering the State of California Medicaid program, implemented retroactive reimbursement rate
reductions effective June 1, 2011, impacting the medical provider community in California, including
pharmacies. Numerous medical providers, including representatives of both chain and independent
pharmacies, filed suits against DHCS in Federal District Court in California and obtained preliminary
injunctions against the rate cuts, subject to a trial on the merits. DHCS appealed the preliminary
injunctions to the Ninth Circuit Court of Appeals, which Court vacated the injunctions. Based upon the
actions of DHCS and the decision of the Appeals Court, the Company recorded an appropriate
accrual. In January 2014, the Center for Medicare and Medicaid Services approved a state plan
amendment that excluded certain drugs from the retroactive reimbursement rate reductions effective
March 31, 2012. Accordingly, the Company adjusted its accrual during that fiscal year to take into
account this exclusion. In December 2015, DHCS provided notice that it adjudicated all claims related
to this retroactive reimbursement and the Company has adjusted its accrual to the total amount that
will be recouped by DHCS.
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