Cvs Pharmacy
1 Introduction
On October 14, 2010, the United States Attorney’s Office for the Central District of California announced that CVS Pharmacy, Inc. was fined $77 million (including $75 million civil penalty and the forfeit of $2.5 million profit) for its unlawful sales of pseudoephedrine, a regulated drug, to criminals between September 2007 and November 2008. During that period, the company failed to comply with laws that limit the quantity of the drug sold to individual customers. The sales, according to the Attorney’s Office, directly caused an increase the production of methamphetamine in California. CVS Pharmacy, Inc (“CVS/pharmacy”) is the retail pharmacy subsidiary of CVS Caremark Corporation (hereinafter collectively referred to as “CVS”). In addition to retail pharmacy, CVS also runs pharmacy services, retail clinics, and mail-order pharmacy businesses. In fiscal year 2010, the company had net revenues of more than $96 billion and a net profit of more than $3 billion. Selected financial data by business segments (pharmacy services, retail pharmacy, and corporate) is shown in Exhibit 1. CVS was the 18th largest company on the Fortune 500 according to its 2010 annual report and CVS/pharmacy is one of the largest retail pharmacy chains in the United States. As of December 31, 2010, it operates more than 7,100 retail pharmacy stores in the United States. Exhibit 2 shows the number of CVS/pharmacy stores in each state (as of December 31, 2009). Today’s CVS (listed on New York Stock Exchange, ticker “CVS”, web site: http://www.cvs.com/) is the results of a series of mergers and acquisitions and expansion into new markets in the past few years. Major mergers and acquisitions during the past six years included Eckerd ($2.15 billion), Albertson's ($4.0 billion), Caremark ($26.9 billion), and Longs Drugs ($2.6 billion). The markets in which CVS has presence also increased from 36 states in 2004 to 44 states in 2010. A summary of CVS financial data and store statistics (2004-2010) is shown in Exhibit 3. Like other companies in the industry, CVS has to efficiently and effectively manage various risks such as completion and economic downturn in order to deliver “strong growth and returns to shareholders”. Exhibit 4 lists some risks identified by the management in the company’s 2010 annual report.
2 Legal Background
Pseudoephedrine is one of the materials that are used to make methamphetamine, which “is a powerfully addictive drug that severely affects users’ minds and bodies, ruins lives, and endangers communities and the environment” (U.S. Department of Justice Drug Enforcement Administration, 2007). To curb the illicit production of methamphetamine, the Combat Methamphetamine Epidemic Act of 2005 (CMEA) was signed into law effective March 9, 2006 to limit the sales of pseudoephedrine and other related materials. The CMEA sets limits of sales of pseudoephedrine by retail drugstores to individuals as follows: The quantity sold to an individual in a day should not exceed 3.6 grams, regardless the number of transactions; and 1
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For individuals, purchases in a 30-day period are limited to 9 grams
In addition, the CMEA mandates that regulated retail drugstores should implement necessary measures to control and monitor the sales of pseudoephedrine. The required measures include: placing product such that customers do not have direct access before the sale is made (“behind the counter” placement) or in a locked cabinet that is located in an area of the facility to which customers do have direct access; delivering the product directly into the custody of the purchaser; maintaining written or electronic list (logbook) of sales, including quantity sold, names and addresses of purchasers, and date and time of the sales; examining acceptable forms of photo identification card; requiring purchasers to sign the logbook and enter...
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