This week, the second-largest drugstore chain CVS Caremark Corp. (CVS) announced that it will stop selling tobacco products in its 7,600 pharmacies starting on October 1. The medical and tobacco control advocacy organizations applaud the decision, as it contributes to combatting tobacco consumption in the U.S. and exerts pressure on competitors to do the same. President Obama, a former smoker, has also praised CVS’s move, describing it as a “powerful example” that will help reduce tobacco-related deaths and costs to the health care system.
While daring and unprecedented, in retrospect, the company’s decision should not be a complete surprise given its success in the retail health clinic business. CVS has been reported to be driving retail clinic growth. CVS currently has more than 770 retail clinics, a number that is expected to double in the next four years. In the month of December 2013 alone, retail clinics grew 2%, driving the total number from 1,555 to 1,574—CVS was solely responsible for this increase.
In fact, on the same day that the announcement was made, Troy Brennan, Chief Medical Officer of CVS Caremark, told Marketplace: “As a health care company, you just can’t be selling the number one public health problem.” He explained that the pressure had been coming from inside—conversations with health care organizations and physicians led CVS to question its practice of providing healthcare services on one hand and selling tobacco products on the other. According to Troy, as CVS moves to become a healthcare company, “it becomes more and more paradoxical to be selling cigarettes at the retail outlets.”
Removing tobacco products from its shelves will mean a close to $2 billion loss of revenue per year for the company. Some believe that shareholders will not be happy with the decision. However, the close to $2 billion loss in revenue would only mean a very small fraction (1.6%) of the companies total annual gains ($123 billion in 2012). The change will likely not hurt CVS in the long run, especially considering that its annual gains from tobacco products were already going down. Instead, the change may make it even more profitable. According to Ross Mullin from ISI Group LLC, it is “simple math”: the company is simply replacing revenues from tobacco products with “higher growth, higher return profit that is stickier and fits with the company’s mission.” With the company determined to establish itself as a health care company, CVS is expected to easily make up for the loss in revenue (and more) by continuing to expand its health care services, moving them from the health care sector to the consumer sector. Moreover, the Affordable Care Act (ACA) is expected to drive more patients to CVS’s retail clinics and pharmacies.
American Cancer Society’s CEO, John Seffrin, has called CVS’s decision a “significant” move, reminding us of what we have learned over the years with the implementation of tobacco control policies: “We know that policies that restrict access to tobacco products, reduce exposure to tobacco advertising, and limit the places that people smoke have a direct effect on reduced smoking rates, especially among youth. And that’s what makes this move so significant.” Indeed, with 480,000 annual deaths in the U.S. attributed to tobacco use and with advertisement and sponsorship as driving factors in the tobacco industry’s success, CVS’s decision (especially if competitors follow in its footsteps) stands as a meaningful step toward a healthier population and hopefully a promise for a smoke-free generation—in essence, we have a prominent business actor supporting a fight that has been largely led by civil society and the government.
The views reflected in this expert column are those of the individual authors and do not necessarily represent those of the O’Neill Institute for National and Global Health Law or Georgetown University. This blog is solely informational in nature, and not intended as a substitute for competent legal advice from a licensed and retained attorney in your state or country.