⚠ Healthcare Brings Regulators Retail Does NotModerate threat

Selling groceries attracts consumer protection law. Dispensing medicine attracts an entirely different apparatus, and Costco is inside it.

Two disclosures make the point. In January 2023 the company received a Civil Investigative Demand from the United States Attorney's Office for the Western District of Washington requesting documents, in a False Claims Act investigation "concerning whether the Company presented or caused to be presented to the federal government for payment false claims relating to prescription medications"¹. False Claims Act exposure is measured in treble damages plus per-claim penalties, which is why the statute is used against dispensers rather than negotiated with.

Separately, Costco is a defendant in the national prescription opiate multidistrict litigation consolidated in the Northern District of Ohio since December 2017, with claims from counties and cities in several states, third-party payors, a hospital, and class actions filed on behalf of infants born with opioid-related conditions in 40 states and on behalf of individuals in 43 states. Claims against Costco in several state courts and two federal courts have been dismissed; the company is defending the rest and says no pending matter is expected to be material.

The point is not that either will be financially decisive — Costco's disclosure is that it has recorded "an immaterial accrual" for some matters and its balance sheet could absorb a great deal. The point is that the growth engine most likely to keep raising the ancillary margin is also the one that puts a retailer with an extraordinary reputation in front of federal prosecutors.

Watch for a named settlement figure. A material one would be the first evidence that the healthcare businesses carry a cost of capital the merchandise businesses do not.