Much has been reported about the drugstore wars between Walgreens (WAG) and CVS (CVS). The clash of the pharmacy titans seemingly ended when both companies realized that their game of prescription chicken was doomed to end in disaster if they both didn't put the brakes on their very public dispute. The recent cease-fire agreement between the two companies appears to guarantee that the rivals will peacefully co-exist for several years and consumers have come out as the winners in the deal.
Things are not always as they appear.
This CVS-Walgreens dispute is just one example of how large retail pharmacies chains have the ability to make decisions that can affect consumer's freedom of healthcare choice, and how completely powerless consumers are to stop those decisions. Another current CVS dispute demonstrates this in a way that is even more disturbing than the recently aborted battle with Walgreens.
On July 1, 2010, a law went into effect in Connecticut which would require CVS to offer its lowest drug pricing to Medicaid patients. Those lowest prices would include 400 generic maintenance medications that CVS makes available to uninsured and underinsured customers for $9.99 with its "Health Savings Pass" program. CVS says if they are forced to provide those drugs at that price to Medicaid patients, then they're just going to stop offering that price point in the state of Connecticut altogether.
CVS is playing another game of chicken and much like the Walgreens war, this Connecticut dispute seems to be all about power and control. If the Connecticut government backs down, then CVS will have proved its ability to trump the government in making the rules about who will be granted access to the best healthcare, and how that access will be granted, if it is granted at all. Is that a power that should be in the hands of a corporate entity that is inherently structured to put its own self-interest ahead of the public good?
CVS, of course, would argue that it does, in fact, have the consumer's best interest at heart. The company's published Vision Statement is "We strive to improve the quality of human life." But if that was true, wouldn't the company be sitting in a meeting room with Connecticut government officials trying to find a way to improve the quality of Medicaid patients' lives instead of making threats and using the Connecticut population as leverage in a power play ultimatum?
This is not the first time that CVS has been at odds with the state of Connecticut or the Medicaid system. In March, 2008, CVS agreed to pay $36.7 million to the U.S. government and 23 states to settle a Medicaid fraud lawsuit after it was accused of substituting generic capsules for prescribed tablets in order to increase profits specifically with Medicaid patients.
In November, 2009 the Connecticut Attorney General filed a suit against CVS for selling expired products. This was less than six months after the company wrote an $875,000 check to the California Attorney General for the same thing. And that was six months after the New York Attorney General received $975,000 check from CVS for the same thing. Most recently, CVS was busted in the state of Nevada in June, 2010 for the same thing.
This ongoing issue with CVS expired products either proves that the company has some of the most ineffective operations management imaginable, or else it has an unwritten policy to continue to sell all products regardless of expiration dates until state charges and substantial fines make it economically unfeasible to continue.
But one company's "substantial," is just another company's cost of doing sloppy business. You would think that the $2.25 million that CVS paid in 2009 after it disposed of customers' prescription drug records in a dumpster would have been "substantial" enough to influence the company's behavior with private patient information. But just last month, more patient prescription records were found on the street outside of the back door of a CVS store in New York.
Anyone who follows the CVS company or CVS stock is well aware of the company's long history of legal charges and subsequent settlements. The company is currently under investigation by the FTC and 24 state attorney generals for antitrust violations. It's fair to say that the CVS legal team has job security and the CVS legal checking account has plenty of debit entries.
Consumers and investors really want to like CVS. The company has raised and donated millions of dollars for charities like the Special Olympics, the Red Cross, and the Boys and Girls Club. CVS is sponsoring a "To Your Health" tour in 100 inner cities this summer to conduct free screenings and health assessments to residents there. The company has helped its employees purchase their first homes. We want to give CVS the benefit of the doubt that its positive aspects outweigh, or at least offset, its negative business practices. We want to believe the best about CVS, but it's just too much of a stretch.
The company's own customer loyalty program captures the essence of the company itself. The "CVS Extra Care" program rewards customers with a 2% rebate on all purchases and $1 back on every two prescriptions filled. On the surface, these customer loyalty rewards seem kind and generous, and very much in alignment with the company's vision to "improve the quality of human life."
Beyond appearances though, are the operational realities of the customer rewards program. The rewards are not available immediately, but rather distributed once per quarter, and expire after 60 days. In order to use your Extra Care Extra Bucks, you must carry and present a printed receipt with you. A swipe of the barcode on your membership card won't give you access to your "rewards," but that same swipe gives the CVS corporation plenty of valuable marketing information on 64 million of its Extra Care members.
Just like its loyalty program, CVS superficially gives the impression that it cares about improving the quality of human life, but beyond the surface, the company's daily operations reveal a reality that seems to prove that it really is only concerned with its own best interest first and always. After CVS has proven time and time again that it is willing to cheat, poison, disregard, and abandon its customers, it can only be concluded that profit is really the only value the company has, despite what any written mission statement proclaims.
So, this is the fundamental philosophical challenge that we are all facing up to with health care reform. For-profit health care companies are riddled with conflicts of interest. If sick people contribute to profitability, there is no inherent motivation for a company to create or support wellness. If the government doesn't have the power to intervene (i.e., if the state of Connecticut doesn't hold its ground with CVS), then eventually all the healthy citizens of Bedford Falls will soon find themselves lining up for hospital beds in Pottersville,
If CVS was really interested in improving the quality of human life, wouldn't it be focusing resources on making organic and nutrient-rich foods available to inner city food deserts instead of just diagnosing chronic maladies that will require long-term CVS remedies? If CVS was truly interested in improving the quality of human life, wouldn't it be expanding its product mix to include pedometers and treadmills instead of adding more private label and prepared foods to compete with Wal-Mart?
Ultimately it is the responsibility of every publicly-traded company in the U.S. retail industry to make a profit and increase the value of its stock. The question is, will attention to the best interest of customers create the best returns for shareholders of a health-related companies in the retail industry?
So far this year, CVS's profit-motivated legal tangles and public showdowns have led its stock down 12% from the beginning of 2010, and off 22% from its 2010 high. Perhaps aligning its daily business dealings with its own stated corporate mission, vision, and values might be worth a try?
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