Monday, July 13, 2015

Of Tobacco, Sin Taxes and CVS

Yesterday's New York Times  carried a story about CVS stores deciding to not carry tobacco products in a significant number of their stores and, in fact, charging a surcharge to customers who opted to stop in CVS stores which do continue to carry tobacco.  This is because CVS is evolving from a drug store to a provider of health care (via it's nurse practioners, Doc-in-a-Box) stop in clinics for sore throats, blood pressure monitoring etc. CVS is now a big player in mail order pharmaceuticals, through which insurance plans reduce costs by contracting with a big player who can negotiate with pharmaceutical companies. 

So this company, which had humble beginnings in Lowell, Mass and then acquired a group of drug stores in suburban Washington, DC, has continued to merge and grow and gobble up health related corporations and is now a conglomerate of health related companies. No doubt it will soon be offering health insurance. 

The interesting thing is how it's corporate strategy, as a health care provider drove it to do something which could actually lose it money in the short run--refuse to sell tobacco products. But even that was a financial calculation. In the 1960's or even 1980's around 40% of Americans smoked; now it's down to 18%, so throwing aside a dwindling market in hopes of looking good to a bigger demographic makes dollar sense. 

In "West Wing" something similar in a political calculus was portrayed: Josh, the President's assistant, lets loose a torrent of invective against some balky Congressmen who are refusing to vote out of committee  funds for a lawsuit against tobacco companies. He gives a very Aaron Sorkin speech about all the kids who will start smoking and all the people who will die from smoking, trying to shame the Congressmen, some of whom are Democrats, into funding the Justice Department's suit.  Some of them object, on principle:  How can you sue the tobacco companies for trying to deceive the public about the dangers of smoking when you'd have to be deaf, dumb and blind not to know about the dangers and every package carries a warning from the Surgeon General? 

It is curious watching this, knowing how that actually played out: The tobacco companies wound up having to fund lots of programs, had to pay for some of the healthcare problems attributed to smoking, so, in the end, the companies had to accept a share of the responsibility for making a product which injures people.  Not that the companies were alone in the blame, but they were part of it and they had to pay a share. So Josh was wrong but he was also right, as judged by the outcomes.

Later, Josh realizes that politically, he made a mistake by getting the Congressmen to vote out the money--it wound up giving them cover for their upcoming elections. Some of the Republicans proved to be vulnerable because their constituencies had changed to an anti smoking sentiment and their resistance to suing the tobacco companies might have cost them the election as "nicotine pushers."  In the end, Josh had saved Republicans in key swing states by making them do the "right" thing.

Which reminded me of that visit Fred Rice made to the Hampton Democrats where he defended lowering the tax on cigarettes in New Hampshire. "We'll make less per package, but people from Massachusetts will come across the border for cheaper cigarettes, so we'll wind up making a lot more. Fewer cents per package, but a lot more packages. Lower profit margin but way higher volume."

"So, what you are proposing," someone asked him. "Is to export lung cancer to Massachusetts?"

"Well," Fred Rice said with palms held upward. "Cigarettes are legal."

That made sense to Fred. If they are legal then profiting from taxing a legal product is nothing to be ashamed of.

"The thing is," his interlocutor persisted, "We tax some things to drive behavior, to reduce their use, to motivate people to avoid expensive, destructive habits."

"They are legal," Fred repeated. 

And that is all that matters, where money is concerned, as far as Fred Rice could see.

Of course profiting from something legal may not be enough of a cover in politics.
The question is: is that still all that matters in commerce?


  1. Mad Dog,
    Yes, it would appear making a profit is all that has ever mattered to commerce...CVS gets out of selling cigarettes, something it's had no problem doing for years, because selling something that kills people seems morally reprehensible or because it's a wise business strategy...oh I'm going with they suddenly wanted to do the right thing-yes, that's the ticket...Well OK continuing to expand into the health care arena is like hitting the mother lode and it would be difficult to look serious about promoting health and wellness when you're dispensing cigarettes along with the shingles shot-but I still say the decision was based on conscience not commerce..wouldn't you?

    The Fred Rices and Donald Trumps of the world will always be embracing revenue no matter the source-they've never met a dollar bill they didn't like and the old adage " a penny wise and a pound foolish" has no meaning to them..who knows, perhaps Representative Rice has a vision of tax paying commerce along the Fred Rice Motorway in Hampton...anything for a dollar...

  2. Maud,

    It's been a while since I read "Major Barbara" but if I recall correctly, Barbara's father, Undershaf, argues there is no such thing as "clean" money in an economy which runs on dirty money. In his case, he sold armaments, and it was bombs and things that killed people that paid for Barbara's support, and which supported the town which made the armaments. So, she could fund all those clinics and soup kitchens, but the money, ultimately came from merchants of death.
    In that sense, capitalism is amoral, and like nature in that there is no right or wrong (only profit).
    My own medical school renamed itself when it got $150 million dollars from a pretty shady Wall Street tycoon. He may have been just one step away from Bernie Madoff, for all I know, but he gave the money to a medical school where they do cancer research and all sorts of good things.
    I'm not disagreeing with you, but I have to admit being confused and ill informed when it comes to the concept of "tainted" money.
    On the other hand, given the choice, I'd rather draw my salary from the hospital for cancer patients than from the tobacco company, even if, ultimately, the tobacco company is the source of the cancer hospital's funds.
    Or, as they used to say: "More people make a living off cancer than die from it."
    Another quip from the same institution: "Memorial Sloan Kettering Hospital for Cancer and Allied Diseases: The Only place where the Mets always win."

    (Mets as in metastases.)

    Mad Dog