According to latest news, Rite Aid (NYSE:RAD) has settled a case for $3 million with U.S. Justice Department quite recently. Rite Aid (NYSE:RAD) was alleged for violating the False Claims Act by swaying their customers to fill the prescriptions of Medicaid and Medicare at Rite Aid (NYSE:RAD) stores by providing them gift cards. The pharmacy chain denied these allegations and also agreed on settlement to resolve this issue and to avoid any further litigation. These alleged violations took place a few years ago and ended in 2010. The amount paid was not significant for the Rite Aid. But if the investors see the big picture of this settlement they should be merry and here are the three reasons for doing so.
1. Solid improvement in Medicaid and Medicare
Who was right in that case does not matter anymore, as the case is closed but the real point is how Rite Aid (NYSE:RAD) made efforts to beef up their Medicaid and Medicare business. If you see its percentage market share for year 2009, which occurred at the same time as the DOJ’s case. For that year, these programs had 22% and more of total sales and in few years, this amount doubled. While the market in this business was declining, Rite Aid (NYSE:RAD) was still improving.
2. Medicaid should make recovery
Rite Aid (NYSE:RAD) should stop its gift cards for improvement because District for Columbia and 28 states expended this program due to incentives given by Affordable Care Act. Rite Aid (NYSE:RAD) have started their improvements. Second quarter saw rise of 4.1% sales. All this happened by utilizing highly in Medicaid states. John Standley, the CEO expects Medicaid expansion will bring more growth.
3. Medicare prospects future is bright for Rite Aid (NYSE:RAD).
The growth in Rite Aid’s (NYSE:RAD) Medicare part D will continue to grow due to more citizen becoming eligible for the prescription drug program every day. The Health And Human Services Department of the U.S.A. projects that more than 18% of population will be 65 years of age or more by 2025. This figure was 13% in 2010. The 5% rise means over 38% relative increase.
Reasons for success in future
Let’s think on the negative side of aspects, though. Growth of Rite Aid (NYSE:RAD) Medicare and Medicaid does not signify that the company will continue to do so even if they have expended there Medicaid in many states, as the U.S. population continues to age. The competitors can overwhelm them with their growth and success, but it is not likely. First, there is a lot of potential in Medicaid and Medicare growth for everyone, and Rite Aid (NYSE:RAD) has loyal customers, it is predicted that there wellness strategy will keep them competitive.
The year 2014’s latter half has not been great for the Rite Aid’s (NYSE:RAD), but this is not a permanent shift. The investor should look at the bigger picture and should stand firm on the believe that Rite Aid (NYSE:RAD) will benefit them for years to come.