Written by Dietrich Knuth
NEW YORK (Reuters) – MedImpact’s attempt to recover about $200 million in connection with its purchase of Rite Aid’s (NYSE:) pharmacy benefits unit failed after a judge ruled on Monday that it assumed Elixir’s debt when it bought the company.
U.S. Bankruptcy Judge Michael Kaplan, at a hearing in Trenton, New Jersey, said MedImpact was well aware that Elixir had been operating with a negative cash balance of about $200 million for about two years, due to reimbursements owed to pharmacies including CVS Health ( NYSE 🙂 and Walgreens Boots Alliance (NASDAQ:)
Kaplan had previously approved MedImpact’s $575 million purchase of Elixir, ruling that the sales agreement transfers that debt to the buyer.
Rite Aid, one of the largest drug retailers in the United States, filed for bankruptcy in October, citing high debt, declining revenue, increased competition, and litigation over its role in the U.S. opioid crisis as factors that caused its bankruptcy.
The dispute with MedImpact, a pharmacy benefits manager, threatened to derail Rite Aid’s sweeping restructuring plan, which is scheduled to be approved at a final court hearing Thursday, Kaplan said.
The judge noted that Rite Aid did not have sufficient funds, and said that MedImpact had no reason to believe that Rite Aid was agreeing to cover Elixir’s old debts at a time when it was desperately trying to raise money and eliminate its obligations.
“It’s no secret that money in this case is limited, and there’s not a lot of wiggle room, let alone more than $200 million of wiggle room,” Kaplan said.
Rite Aid’s bankruptcy plan will reduce $2 billion in debt and provide $47.5 million to small creditors, including individuals and local governments who have sued the company for allegedly ignoring potential red flags and illegally filling prescriptions for addictive opioid pain medications.