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The decision, announced earlier this year, to stop selling tobacco products is even now reaping unimagined benefits for CVS Health, advantages that easily transcend the disappearance of some $2 billion in revenue and 10% of that amount in profits.
The decision, announced earlier this year, to stop selling tobacco products is even now reaping unimagined benefits for CVS Health, advantages that easily transcend the disappearance of some $2 billion in revenue and 10% of that amount in profits.
The decision is being applauded throughout the health care community, both for the way it positions CVS in the health care continuum and the boldness with which the drug chain is willing to subordinate its business interests to its broader role as a health care provider. This stance will prove beneficial both to the CVS drug chain and its PBM, CVS/caremark, both for clarifying the company’s priorities and clearing the confusion that naturally surrounds an enterprise that jointly turns on selling health care and cigarettes in the same space.
The most recent example of the benefits accruing to the CVS position could be seen at a health care forum sponsored by The Economist magazine that unfolded on a Wednesday in Boston in mid-September. The forum attracted some 300 health care professionals who came to hear the latest round of debates surrounding the business of health care in America and, to some extent, globally. The meeting’s two primary sponsors were Eli Lilly and CVS.
For the most part, the daylong program was dominated by the usual back-and-forth among the various factions of the health care community, each making a case for the status quo while arguing that change is in the wind. Speakers, some 30 in number, included high-ranking representatives of hospitals, physicians groups, educational institutions, research organizations and pharmaceutical companies, among other constituencies. The one retailer on the program was CVS/pharmacy, represented by its president, Helena Foulkes.
Foulkes was one of the very last speakers, appearing at the end of a day of seemingly interminable monologues and dialogues that professionals listened to and tolerated while the laymen in the audience quickly found indecipherable. The CVS/pharmacy president appeared as a member of a panel convened to discuss hospitals and health care of the future. She spoke plainly and knowledgeably about a subject she clearly knew intimately: CVS Health. Her 10-minute talk used as a centerpiece the CVS decision, reached after “years” of debate, to remove cigarettes and other tobacco products from the shelves of some 7,700 CVS drug stores.
When she retraced her company’s decision to pull cigarettes from its stores, Foulkes was momentarily silenced by the audience’s reaction. For the only time during a day that began at 8:30 and lasted until 5:30, the audience broke into spontaneous applause. The applause was not for Foulkes; it was in support of the CVS position in banning cigarettes.
The significance of the audience’s response lay in the reality that health care in America, in the year 2014, is a business. That fact was clear throughout the day as speaker after speaker, insisting that health care is becoming more customer-focused, nonetheless maintained that the business component remains its most valuable asset. Amidst that centerpiece, Foulkes’ pronouncement, though hardly news to most attendees, nonetheless provoked an outburst of appreciation.
What’s become most remarkable about the CVS decision to drop cigarettes is the way the drug chain has handled the issue. Announcing its decision last winter, CVS said that, come October, cigarettes would no longer be part of the drug chain’s merchandise assortment. Well, October is almost here — and tobacco products are already gone.
More startling and impressive is the fact that they have not disappeared in a vacuum. Even now, CVS is busily advertising its decision, lauding it actually, as a blow for health care. Clearly, CVS has no doubt that the fallout from this anticipated loss in sales will be easily offset by the sales gains that will accrue to the organization by its newfound luster as a health care provider. Additionally, the rosy halo of good intentions is even now building around this health care organization.
In retrospect, the CVS decision was not a difficult one. Two billion dollars for a company of CVS’ size will not unduly hurt the organization. Nether will the loss of annual profits, estimated at some $200 million. Reaching the decision to ban cigarettes, however, was far from easy, given the drug chain’s various constituencies and the role that finance plays in the U.S. business community.
So we again state what has now become obvious: The decision announced by CVS last winter was a bold, dramatic and brilliant resolution to an age-old problem, a decision that brought CVS to the very top of the health care community.
And this is just the beginning.
