CVS Ends Tobacco Sales, Changes Name to Emphasize Health

Sept. 3 (Bloomberg) -- Bloomberg’s Olivia Stern and Erik Schatzker report on CVS’ plan to stop selling tobacco starting a month early and their overall business strategy. They speak on Bloomberg Television's “In The Loop.” (Source: Bloomberg)

CVS Caremark Corp. (CVS) halted sales of tobacco products almost a month ahead of schedule, started a smoking-cessation campaign, and changed its name to position itself as health-care provider in the growing U.S. market.

CVS Health, as the company now calls itself, will forgo $2 billion in annual revenue as it becomes the first national pharmacy chain to end tobacco sales. None of its rivals has followed suit, with Walgreen Co. (WAG) saying a retail pharmacy ban on sales would have little impact on reducing tobacco use. Shares of CVS reached their highest value today in 34 years.

CVS, the biggest U.S. seller of prescription drugs, is seeking to emphasize its health-care offerings as the Patient Protection and Affordable Care Act added 8 million people to insurance rolls nationwide. The effort to shift its business and position itself as a preferred partner for U.S. companies and insurers should make up for the lost tobacco sales, said David Larsen, an analyst with Leerink Partners in Boston.

“CVS is pushing aggressively ahead in terms of becoming a provider of care and having in-store pharmacists and nurse practitioners offer high-quality care in a low-cost environment,” he said. “They are expanding on the basis of in-store clinics, deeper relationships with health plan customers and integrated health systems around the country.”

CVS operates 7,700 drugstores, 900 walk-in medical clinics, and a pharmacy-benefits manager with almost 65 million members. The Woonsocket, Rhode Island-based company rose less than 1 percent to $80.36 at the close in New York, the highest price since July 1980. The shares have gained 37 percent in the past 12 months.

Prime Position

CVS has put information about its smoking cessation program in the coveted spot behind the checkout counters that used to house cigarettes and chewing tobacco. Company officials have said they don’t plan to cut back on other unhealthy products, such as high-fat snacks and sugar-laden soft drinks that are a staple of the stores.

The company’s tobacco initiative was designed to help reduce the almost half a million deaths attributed to smoking each year in the U.S. Smoking rates peaked in 1954 when 45 percent of Americans reported smoking, according to a Gallup poll. About 18 percent of adults in the U.S. currently smoke, according to the Centers for Disease Control and Prevention.

Healthier Consumers

“By eliminating cigarettes and tobacco products from sale in our stores, we can make a difference in the health of all Americans,” Chief Executive Officer Larry Merlo said today in a statement. “Consumers are increasingly taking control of their own health and, through our 26,000 pharmacists and nurse practitioners, we are helping people on their path to better health.”

The move was welcomed by the White House, which issued a statement calling for others in the industry to follow suit.

“CVS’s actions will not only help Americans across the country who are trying to quit smoking, it will also help ensure that when families go to their neighborhood pharmacy, they can get the information and support they need to live healthy lives, which can contribute to driving down health care costs,” Josh Earnest, the White House press secretary, said in a statement.

Walgreen, which owns the most drug stores of any U.S. chain, said it plans to reinforce the decline in tobacco use by offering consumers alternatives and solutions to help change behavior and quit smoking. Retail pharmacies make up about 4 percent of tobacco sales in the U.S.

“We believe that if the goal is to truly reduce tobacco use in America, then the most effective thing retail pharmacies can do is address the root causes and help smokers quit,” James Cohn, a spokesman for Deerfield, Illinois-based Walgreen, said in a statement.

Expanding Programs

In the last decade, CVS has expanded in health care by opening 860 in-store clinics in 38 states and the District of Columbia with nurses and physician assistants who can diagnose and write prescriptions for minor illnesses. The company plans to add at least 150 new clinics to its roster this year. It also has alliances with 40 major health systems in the U.S., which streamlines the coordination of care between traditional doctor’s offices, hospitals and the clinics.

In an essay published in February in the Journal of the American Medical Association with Steven Schroeder, director of the Smoking Cessation Leadership Center, CVS’s Chief Medical Officer Troyen Brennan said reducing cigarette availability is another step toward taking tobacco use out of the mainstream and making it less socially acceptable.

Conflicting Messages

“The sale of tobacco in a retail pharmacy conflicts with the purpose of the health-care services delivered there,” Brennan said in today’s statement. “Even more important, there is evidence developing that indicates that removing tobacco products from retailers with pharmacies will lead to substantially lower rates of smoking with implications for reducing tobacco-related deaths.”

In December, CVS said it would become a partner this year with Dublin, Ohio-based drug distributor Cardinal Health Inc. (CAH) to be the biggest source of generic medicines in the U.S. CVS acquired Caremark in 2007, creating the biggest mail-order and retail medicine provider in the U.S., after a three-month bidding war with Express Scripts Inc. Caremark at the time was the second-biggest manager of employee prescription-drug benefits.

To contact the reporters on this story: Michelle Fay Cortez in Minneapolis at mcortez@bloomberg.net; Kristen Hallam in London at khallam@bloomberg.net

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net Andrew Pollack, Angela Zimm

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