Rite Aid 2016 Annual Report Download - page 24

Regulatory or business changes relating to our participation in Medicare Part D, the loss of Medicare Part D
eligible members, or our failure to otherwise execute on our strategies related to Medicare Part D, may
adversely impact our business and our financial results.
One of our subsidiaries, Envision Insurance Company (‘‘EIC’’), is an insurer domiciled in Ohio
(with Ohio as its primary insurance regulator) and licensed in all 50 states, and is approved to function
as a Medicare Part D Prescription Drug Plan (‘‘PDP’’) plan sponsor for purposes of individual
insurance products offered to Medicare-eligible beneficiaries and for purposes of making employer/
union-only group waiver plans available for eligible clients. We also provide other products and services
in support of our clients’ Medicare Part D plans or the Federal Retiree Drug Subsidy program. We
have made, and may be required to make further, substantial investments in the personnel and
technology necessary to administer our Medicare Part D strategy. There are many uncertainties about
the financial and regulatory risks of participating in the Medicare Part D program and we can give no
assurance that these risks will not materially adversely impact our business and financial results in
future periods.
EIC is subject to various contractual and regulatory compliance requirements associated with
participating in Medicare Part D. EIC is subject to certain aspects of state laws regulating the business
of insurance in all jurisdictions in which EIC offers its PDP plans. As a PDP sponsor, EIC is required
to comply with Federal Medicare Part D laws and regulations applicable to PDP sponsors. Additionally,
the receipt of Federal funds made available through the Part D program by us, our affiliates, or clients
is subject to compliance with the Part D regulations and established laws and regulations governing the
Federal government’s payment for healthcare goods and services, including the Anti-Kickback Statute
and the False Claims Act. Similar to our requirements with other clients, our policies and practices
associated with operating our PDP are subject to audit. If material contractual or regulatory
non-compliance was to be identified, monetary penalties and/or applicable sanctions, including
suspension of enrollment and marketing or debarment from participation in Medicare programs, could
be imposed. Further, the adoption or promulgation of new or more complex regulatory requirements
associated with Medicare may require us to incur significant compliance-related costs which could
adversely impact our business and our financial results.
In addition, due to the availability of Medicare Part D, some of our employer clients may decide
to stop providing pharmacy benefit coverage to retirees, instead allowing the retirees to choose their
own Part D plans, which could cause a reduction in demand for our Medicare Part D group insurance
products. Extensive competition among Medicare Part D plans could also result in the loss of Medicare
Part D members by our managed care customers, which would also result in a decline in our
membership base. For example, if we were to lose our current Star rating with the Centers of Medicare
and Medicaid Services, fewer customers may select our plans, which could have an adverse effect on
our financial results. Like many aspects of our business, the administration of the Medicare Part D
program is complex. Any failure to execute the provisions of the Medicare Part D program may have
an adverse effect on our financial position, results of operations or cash flows. As discussed above, in
March 2010, comprehensive healthcare reform was enacted into federal law through the passage of the
Patient Care Act. Additionally, as described above, the Patient Care Act contains various changes to
the Part D program and could have a financial impact on our PDP and our clients’ demand for our
other Part D products and services.
Failure to timely identify or effectively respond to changing consumer preferences and spending patterns, an
inability to expand the products being purchased by our clients and customers, or the failure or inability to
obtain or offer particular categories of products could negatively affect our relationship with our clients and
customers and the demand for our products and services.
The success of our business depends in part on customer loyalty, superior customer service and our
ability to persuade customers to purchase products in additional categories and our private label
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