After quitting tobacco, CVS makes its next health-care moves

The drugstore chain CVS is pulling tobacco products from its shelves earlier than expected and is changing its corporate name to CVS Health. (Reuters)

When CVS announced about seven months ago that it would end tobacco sales at its 7,600 stores, the move was seen both as a public health victory and a calculated business decision for the nation's second-largest drug store chain as it expands its health-care footprint. And on Wednesday morning, CVS is outlining further steps to emphasize its health care business, which includes 900 walk-in clinics, a pharmacy benefits operation covering 65 million patients, and partnerships with dozens of local health-care systems.

For starters, the company said all tobacco sales are ending Wednesday, about a month earlier than the original Oct. 1 target, and it's launching a cessation program to help smokers quit. The company is also undergoing a corporate name change, from CVS Caremark to CVS Health, to underscore its focus on the massive sector of the economy.

CVS officials have said that banning tobacco from store shelves will cost the company an estimated $2 billion in lost sales annually (out of a total $125 billion overall). But the move is positioning the company for bigger sales from its health-care business. Indeed, CVS reported last month that front-of-store sales dropped .4 percent in the second quarter, an indication of lower tobacco sales as the products have been gradually removed from stores over the past few months. But the company reported second-quarter profits rose 11 percent, particularly on the strength of its pharmacy business.

Ahead of today's announcement, I spoke with company officials Tuesday about their decision to cut off tobacco sales and future plans.

Reaction to the announcement. Company officials said they've received mostly positive reactions to their announcement, pointing out that most smokers want to quit. "The reaction has been extremely positive, including, I would say, from smokers who feel like it represents that we are a health-care company," said Helena Folkes, president of CVS's pharmacy division. "From a business perspective, it is pretty clear that our pharmacy continues to be very strong."

Has the company directly benefited? CVS officials said they decided to ban tobacco because they saw it as an obstacle to growing their health-care business, since potential business partners want their customers to cut down on unhealthy behaviors. Given that, I asked CVS officials whether they could attribute any new business to their tobacco decision in February. They didn't offer a specific example, but chief executive Larry Merlo pointed to $5.4 billion in new pharmacy business during the current selling season. "I don't want to imply that it's because of the tobacco decision, but I think it becomes something more of an intangible that sends a powerful message to prospective clients that we are their best health-care partner."

Health-care expansion. As previously announced, CVS is planning a big expansion of its in-store Minute Clinics from about 900 locations to 1,500 by 2017. The expansion will include current markets, including the 28 states and the District of Columbia, as well as new ones. CVS also plans to expand the scope of services offered at the clinics — better management of chronic diseases, for example. But the company doesn't want to become a full primary care provider as Wal-Mart is now trying to do in some locations. "We think the best possible health-care system is the one that's complemented by health-care clinics," said chief medical officer Troyen Brennan. And just last week, CVS and MedStar announced a deal to share patients' electronic records and coordinate care.

No electronic cigarette sales, either. CVS doesn't sell electronic cigarettes, but after making its tobacco announcement in February, Merlo said the company was monitoring Food and Drug Administration action on the products. Still, it sounds like CVS won't lift its current ban on e-cigarettes. "We don't carry them today, and we don't have plans to carry them," Merlo said on Tuesday.

No followers just yet. Some of CVS's biggest competitors, including Walgreens and Rite Aid, haven't abandoned tobacco sales despite calls from some elected officials and public health groups. What these other companies decide is likely to depend on whether they, like CVS, see a business case for it. "Selling tobacco in a health-care setting was becoming a growing contradiction for us," Merlo said.

Jason Millman covers all things health policy, with a focus on Obamacare implementation. He previously covered health policy for Politico.
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