I didn’t include the word breaking in the headline, but a lot of news agencies did this morning when the pharmacy chain made its announcement. CVS will turn its back on $2 billion in annual revenue and stop stocking tobacco products, saying that giving access to tobacco conflicts with their core mission of health improvement:
CVS Caremark pharmacies will phase out tobacco in U.S. retail stores by Oct. 1, officials announced Wednesday, saying that selling cigarettes side-by-side with medicine undermines the mission of promoting good health.
The chain will lose about $2 billion in revenues annually from sales of tobacco in its 7,600 stores, but CVS Pharmacy president Helena Foulkes said it just makes sense for a firm now positioning itself as a health care company.
“It was very important to us that, as we’re working with doctors and hospital systems and health plans, that they see us as an extension of their services,” Foulkes said. “It’s virtually impossible to be in the tobacco business when you want to be a health care partner to the health care system.”
The move is also an effort to help curb tobacco-related illness and the 480,000 deaths caused by smoking each year in the U.S. Despite huge reductions over the past 50 years, about 18 percent of Americans — 42 million people — still smoke, health officials say. Smoking costs the nation about $289 billion annually in direct medical costs and lost productivity, according to federal figures.
Health experts and groups like the American Pharmacists Association and the American Medical Association have urged stores that house pharmacies to stop selling tobacco for years. Many small, independent pharmacies and small private chains already ban tobacco, said John Norton, spokesman for the National Community Pharmacists Association.Target stores stopped selling tobacco products in 1996.
The Washington Post notes that the stores have recently added health clinics, which make the dichotomy a little more apparent:
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 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.
That’s a big chunk of revenue to refuse, and shareholders may be less than pleased with the initial hit to the bottom line. In the long run, though, this is probably a smart move. Smoking cessation is a growth business, while tobacco use simply isn’t. The $2 billion in revenue wasn’t going to stay at that level for much longer; I’d be surprised if it wasn’t already dissipating over the last several years. If CVS plans to partner up on low-cost clinics, they would have caught up to that lost revenue in a few years based on the downward trend for cigarette use. Don’t be surprised to see other pharmacy chains follow suit.
Still, one can wander through a CVS and see lots of things that doctors don’t recommend for healthy lifestyles. They sell an impressive array of candy, junk food, and even large bottles of cola to which Michael Bloomberg would probably object. Will CVS pare that down, too? And how many pharmacy chains will follow that play?