DOJ Lawsuit Could Hinder Rite Aid’s Turnaround

News the U.S. government is suing Rite Aid — accusing the drugstore chain of “knowingly” filling unlawful prescriptions for controlled substances — only adds to the financial and operational woes of the embattled drugstore chain.

The U.S. Justice Department said Monday that Rite Aid “Dispensed Controlled Substances in Violation of the False Claims Act and the Controlled Substances Act.” The complaint, which was brought to the Justice Department by a whistleblower under the False Claims Act, alleges Rite Aid pharmacists filled hundreds of thousands of prescriptions between May 2014 and June 2019 for controlled substances, including opioids, that “lacked a legitimate medical purpose, were not for a medically accepted indication, or were not issued in the usual course of professional practice.”

“The Justice Department is using every tool at our disposal to confront the opioid epidemic that is killing Americans and shattering communities across the country,” U.S. Attorney General Merrick Garland said. “That includes holding corporations, like Rite Aid, accountable for knowingly filling unlawful prescriptions for controlled substances.”

Rite Aid Tuesday evening declined to comment on the government’s complaint.

Legal costs of such a high profile case could run into the tens of millions of dollars, legal analysts say. And a potential settlement could run into the hundreds of millions of dollars or more given other massive settlements the federal government has netted in other opioid lawsuits.

“We allege that Rite Aid filled hundreds of thousands of prescriptions that did not meet legal requirements,” said Associate Attorney General Vanita Gupta. “According to our complaint, Rite Aid’s pharmacists repeatedly filled prescriptions for controlled substances with obvious red flags, and Rite Aid intentionally deleted internal notes about suspicious prescribers. These practices opened the floodgates for millions of opioid pills and other controlled substances to flow illegally out of Rite Aid’s stores.”

The potentially costly probe comes at a bad time for Rite Aid, which continues to lose money and has been shuttering stores amid rising costs and increasing competition from rival drugstore chains led by CVS Health, Walgreens and Walmart while online retail giant Amazon pushes deeper into pharmacy and outpatient healthcare.

Meanwhile, Rite Aid has been run by several different chief executives and board members over the last five years. Rite Aid’s board is currently looking for a permanent successor to the latest CEO, Heyward Donigan, who left in January after leading the company since August of 2019.

Rite Aid in January named board member and longtime healthcare executive Elizabeth “Busy” Burr as interim CEO. At that time, Rite Aid management reaffirmed fiscal year 2023 guidance that projected a “net loss between $584 million and $551 million, Adjusted EBITDA between $410 million and $440 million and capital expenditures of approximately $225 million.”

When Donigan left the company Rite Aid had already been closing 145 unprofitable stores over her last year as CEO and wasn’t ruling out closing even more underperforming locations, executives disclosed.

As of Tuesday, Rite Aid had yet to schedule a date to release its next earnings report, which is scheduled to be for its fiscal fourth quarter that ended Feb. 28 of this year.