As of midnight on Tuesday, all 7,700 CVS locations
nationwide will no longer sell tobacco products, fulfilling a pledge the
company made in February, as it seeks to reposition itself as a health care
destination. The rebranding even comes with a new name: CVS Health.
The decision to stop selling cigarettes is a strategic move
as pharmacies across the country jockey for a piece of the growing health care
industry. Rebranding itself as a company focused on health could prove
lucrative for the drugstore as it seeks to appeal to medical partners that can
help it bridge the gap between customers and their doctors.
CVS already operates 900 walk-in medical clinics, or “minute
clinics,” where customers can get relatively simple services like blood
pressure tests and flu vaccines. By dedicating space for these
services, CVS and other major retailers like Walmart are diving into the pool
of competitive health care dollars available for helping manage customers’
illnesses.
As the medical industry braces for the flood of new patients
with insurance through the Affordable Care Act, drugstores see an opportunity
to provide basic care to consumers who may not want to wait to see a doctor, if
one is available in their area at all. And major chains like Walmart, the
country’s largest retailer, can offer such services for prices that may appeal
to patients on the fringes of the health care system.
CVS has entered partnerships with more than 40 health
systems, including local hospitals, to help run its clinics. The company opened
32 clinics last quarter and revenues at the clinics are up 24 percent in the
second quarter, and the company plans to operate 1,500 clinics by 2017, CVS
said.
As CVS seeks new health partners, its decision to end
cigarette sales may make it more appealing than its tobacco-selling rivals. In
February, CVS Health, formerly known as CVS Caremark, announced that it
would stop selling cigarettes and other tobacco products by October. At
the time, the company estimated that the decision would cut its overall sales
by $2 billion.
Robert C. Garrett, the chief executive officer of Hackensack
University Health Network, which operates seven minute clinics with CVS in New
Jersey agreed that the move made CVS a more attractive health partner.
Of course, other retail chains that operate health clinics,
like Walmart and Walgreens, have attracted health care partners even though
they seem to have no plans to stop selling cigarettes. But some of CVS’s
competitors have made bolder moves in other ways. CVS has not dedicated the
floor space to its clinics the way that Walmart has, for example, and is still
experimenting with how to streamline the clinic with the rest of the store.
A big opportunity for CVS as it pushes into health care,
however, has nothing to do with what happens in the pharmacy itself. The
company also wants to become a larger pharmacy benefit manager, which manages
prescription drug plans for employers and insurers.
CVS expects its pharmacy benefit management business,
CVS/Caremark, to grow to nearly $90 billion this year, up $30 billion over the
last three years. The company’s push into other areas of health care could help
CVS expand that business further.
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