On Monday, Connecticut became the latest state to cite CVS (CVS) drugstores for selling expired products. Richard Blumenthal, the state's attorney general, filed a lawsuit against CVS, revealing that investigations his office conducted over the past year and a half determined that 44% of inspected stores sold expired over-the-counter drugs, infant formula, energy drinks, milk, eggs, and yogurt.

The suit puts Connecticut in a small fraternity of states battling the huge chain. New York settled with CVS last month for $875,000. California and Nevada also took CVS to task, but California doesn't outlaw selling expired drugs, and Nevada imposed a laughable wrist-slap of a fine, for $5,000.
Murky Laws

CVS's sale of expired merchandise isn't a local problem; it seems endemic to the chain. In 2008, Change to Win, a consumer advocacy group, surveyed more than 1,500 CVS outlets in 11 states and found that in 10 states, more than 42% of stores had expired products on their shelves -- more than two years past their expiration dates, in some cases.

So why haven't the CVS stores in the other states cited by Change to Win -- Texas, Michigan, Florida, Arizona, Pennsylvania, Massachusetts, and the District of Columbia -- been rooted out? When a large national retailer consistently sells expired and spoiled food and drugs, the Federal government would seem to want to get involved -- but a Food and Drug Administration representative says, "The FDA defers to state and local authorities for enforcement action."

The trouble lies in the laws surrounding expiration dates. Federal law requires manufacturers to put dates on a few items -- including baby food and infant formula -- but doesn't require stores to pull expired goods. Laws vary by state and are often enforced halfheartedly, giving CVS little impetus to regulate itself.

A Low Priority

An inquiry to CVS resulted in corporate boilerplate stating that the company "has a clear product removal policy in place at all of its stores to help ensure that items are removed from store shelves before they reach their expiration dates," and that "the company is fully committed to maintaining inventory management practices to prevent expired products from being sold to customers."

Yet a CVS employee, speaking about the New York case, acknowledged that while the chain has policies to check for expired products, pulling them off the shelves is a low priority. And workforce cuts can make dates impossible for managers to monitor. The employee theorized that CVS may not be aware of the time and costs involved in policing the expired products, but it seems unlikely that a major coast-to-coast chain wouldn't have an efficiency expert or two around to outline how many man-hours a store needs to police its inventory.

Cost v. Benefit

More likely, CVS weighed the costs of enforcement against the punishment for carrying expired products, and decided -- correctly -- that paying employees to yank old baby formula and Tylenol is not cost-effective. New York's much-touted $875,000 fine comes to an average of $6,162 for each of CVS 142 stores cited by Attorney General Andrew Cuomo. That's about half of what each store would spend to hire a minimum-wage expiration-checking employee for a year.

To put it another way: If CVS had hired one minimum-wage employee for each of the 142 offending stores during the year and a half it took to resolve the New York case, it would have spent about $3.2 million -- making that $875,000 fine a $2.3 million discount off the cost of rectifying the problem. Add in lost revenue from discarded inventory, and it isn't hard to see why CVS chose not to forego a massive profit.

Until the FDA gets the responsibility and resources to police drugstores and pharmacies, CVS and competitors like Rite Aid (RAD) seem likely to keep stocking their shelves with products long past their deadline.