Manhattan Institute for Policy Research.
search  
 
Subscribe   Subscribe   MI on Facebook Find us on Twitter Find us on Instagram      
 
 
   
 
     
 

Wall Street Journal Market Watch

 

CVS's Decision Isn't Really About Smoking

February 05, 2014

By Diana Furchtgott-Roth

When CVS Caremark Corp. Chief Executive and President Larry Merlo announced that his drugstore chain would stop selling tobacco products , one of the first to respond was the president of the United States.

The speed of the president’s statement indicates that CVS’s decision was likely coordinated with the White House. Every day, countless business decisions are made without any comment from the White House. Something unusual was going on.

This is troubling. It gives the appearance of preference for those who curry favor with the powerful, and it squeezes out smaller entrants who can supply innovative products and services to consumers. What do you think about CVS’s decision? Take our poll.

The president said: “I applaud this morning’s news that CVS Caremark has decided to stop selling cigarettes and other tobacco products in its stores, and begin a national campaign to help millions of Americans quit smoking instead.”

The president congratulated Merlo by name, as well as “all who helped make a choice that will have a profoundly positive impact on the health of our country.”

As long as businesses are acting within the law, they should not be trying to please the federal government. Nor should they refrain from acting because they expect government’s praise. There is no upside to such behavior, and much downside.

As everyone knows by now, CVS CVS +0.20%, the No. 2 drug store chain, will give up $2 billion in revenues by halting sales of tobacco products. CVS’s stock declined in response to the announcement, but it is not clear that shareholders’ long-term interests will be undermined.

Steven Russolillo and Mike Esterl discuss CVS’s move to end cigarette sales, andDan Gallagher looks at Microsoft’s new CEO.

The management of CVS might not be able to tell shareholders about the pressures the chain may face to win favor with the government, especially in the context of the newly implemented Affordable Care Act. Of course, health groups have been trying for years to limit tobacco sales and advertising.

With the federal government taking over a large share of the health-care business through the new exchanges, I imagine it helps providers such as CVS to be in regulators’ good books.

CVS’s walk-in MinuteClinics, staffed by nurse practitioners, want to offer services that will be reimbursed by insurance companies listed in the exchanges. In its 10-K for 2012, the company stated that “visits paid for by employers, health insurers or other third parties accounted for approximately 85% of MinuteClinic’s total revenues in 2012.”

Over the past six years, CVS’s clinic business has grown at a compound annual rate of 39%, according to the company.

With the Affordable Care Act, CVS’s drug business could be at the mercy of regulators from the Food and Drug Administration, the Center for Medicare and Medicaid Services, and possibly numerous other agencies within the Department of Health and Human Services and elsewhere. Last year, CVS spent $13 million on lobbying, according to the Center for Responsive Politics.

In the past, CVS has tangled with the Federal Trade Commission, the Office of the Inspector General of the Department of Health and Human Services, and the Department of Justice. These regulatory battles are likely much easier if the president is on CVS’s side.

There are reasons for drugstores not to cave to government pressure on tobacco sales. The purchase of cigarettes is legal and regulated. Cigarettes are generally kept behind counters, and stores ask for ID before purchase.

We do not want to turn the tobacco market into the drug trade, with sales occurring in the black market and in unsafe locations. We do not need a repeat of Prohibition. Tobacco use has declined as the price has risen and as young people have become increasingly aware of the dangers of smoking.

Federal and state governments collect about $36 billion in tobacco taxes every year. If the market were driven underground, tax revenue would decline. The government per-pack profit from cigarettes in 2012 was $3.78, or 66% of the cost of a pack.

Many products are unhealthy, especially in large quantities. The government should not be in the business of haphazardly regulating some products, as former New York Mayor Michael Bloomberg wanted to do with supersized sugary sodas.

Regarding legalization of marijuana, Obama said in an interview published Jan. 27 in the New Yorker, “it’s important for it to go forward because it’s important for society not to have a situation in which a large portion of people have at one time or another broken the law and only a select few get punished.” He described pot as less dangerous than alcohol.

What’s next? Will wine, beer, and alcohol companies face pressure to reduce their sales?

It is surely difficult to turn down the president of the United States. Business executives who work with the president are publicly congratulated and thanked, and invited to White House parties. Those who fall on the wrong side of the White House are shamed, like “fat cat bankers” in 2009.

This type of climate helps companies who do the government’s bidding and who are well-connected, rather than those who produce what consumers want to buy. This harms rather than helps America’s economy.

Original Source: http://www.marketwatch.com/story/cvss-decision-isnt-really-about-smoking-2014-02-05

 

 
PRINTER FRIENDLY
 
LATEST FROM OUR SCHOLARS

The Real Challenge When Police Use Lethal Force
Stephen Eide, 12-15-14

Why Cops Need To Sweat The ‘Small Stuff’
Nicole Gelinas, 12-08-14

A Bill To Loosen Police Discipline
E. J. McMahon, 12-08-14

More Subsidies For Big Wind
Robert Bryce, 12-08-14

Bill Slanders His Cops
Heather Mac Donald, 12-07-14

What The Numbers Say On Police Use Of Force
Steven Malanga, 12-04-14

Detroit's Bankruptcy and Its Painful Reforms
Stephen Eide, 12-04-14

The EPA Pours On The Pain With New Ozone Regulations
Diana Furchtgott-Roth, 12-03-14

 
 
 

The Manhattan Institute, a 501(c)(3), is a think tank whose mission is to develop and disseminate new ideas
that foster greater economic choice and individual responsibility.

Copyright © 2014 Manhattan Institute for Policy Research, Inc. All rights reserved.

52 Vanderbilt Avenue, New York, N.Y. 10017
phone (212) 599-7000 / fax (212) 599-3494