A Tobacco-Free Workplace

CVS Caremark, one of the nation's largest pharmacy chains, says as of October 1, it will no longer sell tobacco products.  Sarah Kliff goes over the math and concludes it's a long-term win for the chain.

CVS executives said the decision could cost billions of dollars in revenue because cigarettes draw so many customers to their stores. But by jettisoning tobacco products, CVS can further define its pharmacies as full-fledged health-care providers and strike more profitable deals with hospitals and health insurers. CVS stores already are home to more than 750 MinuteClinics, the country's largest chain of pharmacy-based health clinics, offering flu shots and diagnosis of common ailments like ear infections and strep throat. 

"An important and growing part of our business is the work we do with clients and health insurance plans," CVS Pharmacy President Helena Foulkes said in an interview Tuesday. "As we thought about supporting their goals about improving outcomes and lowering costs, we believe that's the future we're looking towards. As we become more connected to their health-care work, this is an important decision for us to make." 

The company plans to phase out all tobacco sales by Oct. 1 and expects it could lose about $2 billion in annual revenue generated by tobacco sales and other products purchased by the same shoppers. The pharmacy chain generates about $125 billion in revenue annually.

So yes, it's about a 2% drop in revenue, but the chain expects to make that up and then some with more health care offerings and partnerships with clinics.

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.

This is a smart move for both the company and its customers.  Smoking-related illnesses remain the number one cause of preventable deaths in the US, and those illnesses cost billions annually.  Expect to see more health care related chains make moves like this.