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Tobacco to fight U.S. suit
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January 20, 1999: 3:12 p.m. ET
Companies term Clinton plan to reimburse Medicare a 'witch hunt'
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WASHINGTON (CNNfn) - Tobacco companies indicate Wednesday they'll battle any lawsuits brought against them by the federal government to pay medical costs of smokers, as outlined in President Clinton's State of the Union message.
"It may be good politics to conduct a witch hunt against a legal industry. But it remains bad law," say four major companies in a joint statement. "The industry will vigorously defend itself against this entirely political lawsuit."
The companies -- Philip Morris, R.J. Reynolds Tobacco, Brown & Williamson Tobacco and Lorillard Tobacco -- say the suit would fly in the face of a 1997 Justice Department ruling that Medicare and Medicaid statutes don't provide explicit authority for federal government action against tobacco companies.
"The relevant laws have not changed, and not until last (Tuesday) night, during a political speech, did anyone in the administration publicly suggest such authority exists," the statement reads.
One tobacco analyst also hints that the motivation behind Clinton's announcement is political.
"In our opinion, Clinton raised the subject of a federal suit against the tobacco industry because of the relatively safe political outcome from such proposals," writes Salomon Smith Barney's Martin Feldman. "He did not make these comments because the prospects for a federal case against tobacco have improved."
Feldman reiterated a buy, high risk recommendation on Philip Morris (MO). But his comment did little to stem Wednesday's sell-off of the company's stock. In afternoon trading, shares were down 2-5/16 to 48-1/2. Also doing poorly was British American Tobacco (BTI), Brown & Williamson's parent, down 1-3/8 to 20-3/8.
The lawsuit being prepared by the Justice Department against the cigarette companies could seek damages in the hundreds of billions of dollars, senior administration officials say Wednesday.
News of the pending lawsuit comes just two months after the biggest tobacco companies reached a settlement to pay 46 states $206 billion and submit to advertising and marketing restrictions in the largest settlement of civil suits in history.
Clinton announced plans for the lawsuit in his speech, saying smoking had cost taxpayers hundreds of billions of dollars as sick smokers sought treatment under Medicare and other federal programs.
Administration officials, speaking on condition of anonymity, say the Justice Department has formed a task force of lawyers to prepare the lawsuit. They won't say when the suit would be filed.
The objective is to recover the enormous cost of tobacco-related illnesses to a wide variety of federal programs, including Medicare, veterans benefits, and benefits to members of the armed services, among others.
"The potential liability is certainly in the hundreds of billions of dollars," says one senior official, speaking on condition of anonymity.
"The potential liability in this area is unprecedented and this litigation is unprecedented," the official said.
Officials say the Justice Department has been reviewing the matter for months and decided there were "viable grounds for recovery against the industry."
"The litigation is serious and the department will go forward," says one administration official.
The officials say the federal government began considering a suit against tobacco companies after the collapse last June of a $516 billion antismoking bill in the Senate. They describe the move toward a lawsuit as "purely a legal decision," not a political tactic.
Separately, the officials say Clinton again would seek antismoking legislation this year to force the industry to take steps to reduce youth smoking. Legislation failed to pass Congress last year.
"We will continue to pursue tobacco legislation to achieve our public health ends of reducing youth smoking," says one official.
Clinton plans to propose in his budget request for fiscal 2000 a 55-cent-per-pack increase in the federal cigarette tax to raise $8 billion over five years to offset the health care costs of smoking.
The Treasury Department has estimated that smoking costs the economy about $130 billion a year, including $60 billion in medical bills. Some $20 billion in health costs are borne by the federal Medicare program and the state-federal Medicaid program, the department estimates.
-- from staff and wire reports
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