Yes, CVS is a massive operator of bricks-and-mortar stores that contain pharmacies and sell cosmetics and other items. But that’s not all CVS does. Not by a long shot. In fact, the corporate parent is known as CVS Caremark. Why? In 2007, CVS merged with Caremark RX, a huge pharmacy benefits manager (PBM). PMBs, as their name implies, manage the prescription drug components of Medicare and other public and private insurance programs. And that’s a huge and growing business.
Jonathan Cohn points out that CVS is abandoning one industry in favor of another:
For the past few years, pharmacy chains have been providing the care that more traditional medical practices cannot.
In the next few years, the chains hope to provide a lot more of it. On a conference call Wednesday morning, Troyen Brennan, MD, chief medical officer for CVS, said the company already has 800 clinics in operation and plans to expand to 1500. That seems roughly consistent with the national trend. A recent study from Accenture suggested the number of clinics would double between 2012 and 2015.
This growth is what prompted CVS to stop tobacco sales, according to company officials: “We are retooling ourselves as a company,” Brennan said. “How can you continue to sell tobacco when you are part of the health care system?”
CVS has increasingly moved beyond its traditional role as a pharmacy in recent years, expanding its reach as a health-care provider. Its MinuteClinics services have allowed the company to increasingly enter into contracts with hospitals and health plans, often providing primary care services on the weekends and evenings, when doctors’ offices tend to be closed.
CVS chief medical officer Troyen A. Brennan estimates that the company has between 30 and 40 partnerships with health-care systems across the country and is in talks with a similar number about starting additional arrangements. He said the decision to halt tobacco sales will make it easier to strike such deals, particularly those that include financial rewards for CVS if they can help patients stop smoking and reduce their medical bills.
Olga Khazan looks at how this decision might affect CVS’s competitors:
CVS is far from the only player in the retail-clinic space: Walgreens, Target, and Walmart all have their own versions. And as more and more big-box stores become homes for primary care, they may face identity crises because they sell the vice-oriented products that make consumers feel good alongside the services that make them well. Even as CVS stops offering cigarettes within 20 feet of a physician assistant’s practice, its competitors might continue to do so. And beyond tobacco, Walmart might encounter PR issues over the fact that it sells, say, Jack Daniels and cirrhosis treatments under one roof, or shot guns and wound care. Some states have even considered legislation that would prevent retail clinics from operating in stores that sell tobacco or alcohol.
Yglesias wonders if the pharmacy chain will remove other unhealthy items from its shelves:
[T]he cigarettes issue seems to me to mostly raise the question of how far CVS can really go down this road. After all, I was in CVS just yesterday to buy myself some Diet Coke. The Diet Coke sits next to the sugary sodas. And they’re across the aisle from the potato chips. Up front where you cash out there are lots of M&M’s and Snickers bars.
There is, to be sure, also some medicine for sale in your typical “drugstore.” But junk food is a massive product line. I’m not sure how junk food sales compare to tobacco sales, but much more square footage of the stores is dedicated to chips and sodas than to smokes. To really make the pivot CVS is talking about, it seems to me they’d have to change their business pretty drastically.
Jonathan Weil notes that the company will lose money on the move but clearly believes it’s worth it:
In dollar terms the move is a blip. CVS said the decision would cut annual revenue by about $2 billion, which is less than 2 percent of its $123 billion of 2012 sales. The socially responsible investing crowd will be thrilled. President Barack Obama praised the move. A certain majority owner of Bloomberg LP no doubt will be pleased, too. Walgreen Co.’s directors had better be ready to answer questions about why their company hasn’t decided to stop selling cigarettes, too.
Kilgore considers the broader cultural shift against tobacco:
The relatively mild backlash to the cumulative wave of anti-smoking laws, ordinances and private bans (would anyone light a cigarette in someone else’s home without explicit encouragement?), not to mention sanctioned discrimination by health insurers and employers and heavy legal settlements against the tobacco industry, probably means actual Prohibition will at some point become feasible. And the trouble to which tobacco addicts must increasingly go to indulge their habits—even as cannabis smoking becomes more acceptable—has to be having an impact on anyone wanting to live a normal life.
The CVS ban, particularly if it leads to similar bans by competitors, is another step towards the day when purchasing of tobacco products will happen in the equivalent of “head shops” where it’s available at all. And popular culture will follow, at least after Mad Men’s final season concludes.