Kelly Kennedy

USA TODAY

Company sells %242 billion in tobacco and tobacco-related products a year

Decision is part of a larger shift in company priorities

CVS counseling customers on health choices

WASHINGTON — Changes in the pharmacy industry spurred by the Affordable Care Act helped push drug store giant CVS Caremark to announce Wednesday it will stop selling tobacco products at its 7,600 stores, and industry experts say they expect other businesses to follow.

CVS said it will stop tobacco sales by Oct. 1, a move that will cost the company about $2 billion a year or about 3% of overall sales. Being in the wellness business, however, no longer goes with tobacco, said Helena Foulkes, CVS' pharmacy president.

"We really thought about this decision as it relates to the future as a health company — it's good for customers and our company, in the long run," Foulkes told USA TODAY.

CVS, Foulkes said, sees its future as an alternative to the doctor's office. There are 26,000 pharmacists and nurse practitioners counseling customers about how to control their high cholesterol, diabetes and high blood pressure.

Other pharmacies are expected to eventually follow suit, and some cities in California and Massachusetts have banned tobacco sales at all pharmacies. The American Pharmacists Association asked for a ban on sales in 2010 at pharmacies, including at grocery stores that have pharmacies, according to an article published in the Journal of the American Medical Association(JAMA) on Wednesday

As the Affordable Care Act is implemented, it's important to help people stay healthy, said Troy Brennan, the company's chief medical officer.

"It's expensive to provide health care for all the people through the ACA," Brennan said. The company will announce a "very large" smoking cessation program in the spring.

It makes sense for the company to shed a business with low growth prospects in favor of the high-growth health area, said Rita McGrath, a Columbia Business School professor who specializes in business growth and strategy.

One potential focus, McGrath said, could be performing procedures that once had to be done in a doctor's office or a hospital in a "distributed setting," such as a CVS mini-clinic. That, she said, could potentially erase the $2 billion lost from tobacco sales.

"I think they're betting on massive growth," she said. "That makes a lot of sense to me."

The mini clinics are key because of the shift to high-deductible plans by employers, as well as some of the new plans offered on the health exchanges through the Affordable Care Act. Pharmacies offering clinic services know that consumers must pay out of their own pockets until they reach that deductible, so the pharmacies offer a menu, complete with price, of lower-cost options.

The 2010 health care law also encourages people to quit smoking by allowing insurers to charge up to 50% more for individual policies sold to tobacco users, but it also allows employers to offer discounts of up to 50% of a monthly insurance premium for employees who go through smoking-cessation programs – making those programs more attractive to the employers working with CVS and other pharmacies.

"[Doctors] point out that quitting smoking is incredibly difficult, and it can take several times," said Ceci Connolly, managing director of PwC's Health Research Institute. "But the ACA has some incentives as well, so this is part of the conversation right now."

President Obama — a former smoker — hailed the announcement, saying in a statement Wednesday: "As one of the largest retailers and pharmacies in America, CVS Caremark sets a powerful example, and today's decision will help advance my administration's efforts to reduce tobacco-related deaths, cancer and heart disease, as well as bring down health care costs — ultimately saving lives and protecting untold numbers of families from pain and heartbreak for years to come."

Foulkes said seven out of 10 smokers would like to stop, and half have tried to in the past year.

CVS officials met with tobacco company executives Tuesday to explain the decision, understanding that eliminating tobacco products from the pharmacies would likely affect the tobacco industry's bottom line, as well.

"Obviously, you would think they would be disappointed about the decision," said Larry Merlo, CEO of CVS Caremark, of the meeting with the officials. But he said they understood the rationale behind the decision. And it probably won't be a huge loss for them: Morgan Stanley issued an analysis Wednesday stating that CVS probably accounts for about 2% of industry sales.

"We do not believe that CVS' exit — or the potential exit of other pharmacy chains in the future — will reduce total sales," the statement reads.

"We value the long-term relationship we had with CVS and respect their commercial decision," said David Howard, spokesman for the R.J. Reynolds Tobacco Co. "We will work with them as they transition out of the tobacco category in the coming months."

The Affordable Care Act requires that insurers provide pharmaceutical benefits, as well as providing millions of new consumers, which can also be a boost to pharmarcies' bottom line. CVS has moved toward pharmacy benefit management, with 60 million members, as well as mail-order pharmacy benefits, including for Medicare Part D. And, it operates 800 mini-clinics meant to help people avoid doctor's offices by providing quick diagnoses and treatments for things like sprained ankles, bladder infections and diabetes, as well as smoking-cessation programs. As a pharmacy-benefit management service for both private companies and Medicare, CVS tries to keep costs down for the employers who hire them.

That gives it a financial stake in its customers' health that other retailers don't share, said financial and legal analyst Jerome Reisman, a senior partner at Reisman Perez, a law firm in Garden City, N.Y.

"The move by CVS will have a small financial impact on retail sales but may, in the long term, help the Caremark division as a health care provider reduce illness caused by tobacco and increase the profitability of the Caremark division," Reisman said. "In the long run, you make more money if your customers are healthy because you are going to pay out less."

Other chains react

Walgreens has moved in a similar direction with on-site health services, as well as offering fresh, healthy foods in some city stores that might be far from grocery stores.

"The company has been evaluating its tobacco line for some time and will continue to evaluate the choice of products our customers want, while also helping to educate them and providing smoking-cessation products and alternatives that help reduce the demand for tobacco products," said Walgreens spokesman Michael Polzin.

The company also recently launched an Internet-based smoking cessation program, Polzin said.

"The Affordable Care Act that has some provisions in it that really promote more wellness programs," said Chris Byrd, editorial advisory board member for the Healthcare Trends Institute. "The whole strategy moving forward is prevention."

He said CVS officials will likely tell health plans and employers that they want to put together their wellness plans.

Smoking causes both long-term health problems, such as cancer, but also inflicts immediate damage, causing ear infections and exacerbating asthma and other respiratory problems, research shows.

Quitting smoking has immediate health benefits, reducing the risk of heart attack in just a day, says Stanton Glantz, a professor at the University of California, San Francisco. A middle-age smoker who quits smoking cuts his risk of a heart attack by 50% in just one year.

CVS also made a smart public relations move, Reisman says. First, the company has received publicity that no money can buy, including kudos from Obama, and has helped to "ingratiate itself with the federal government," he says. Second, the company has gotten out in front of a trend.

"This may be a change that is going to come anyhow," Reisman said.

Ezekiel Emanuel, a University of Pennsylvania bio-ethicist and one of the architects of the health care law, said he sees smoking as one of the top health issues facing the United States. He agrees that reducing smoking-related costs is important as more people become insured so others don't have to take on the burden of those costs and called working to reduce smoking "kind of a no-brainer."

And while CVS intends to look at other ways to push a health-oriented focus, Merlo said the company had no plans to eliminate alcohol or candy from the pharmacies, saying that "occasional use does not cause the problems that tobacco does." Instead, the company intends to focus on keeping tobacco out of the hands of young people so they don't begin lifelong addictions, he said.

The Rhode Island-headquartered company maintained that its exit from the tobacco category will not affect its 2014 operating profit guidance. Its shares are down about 1% in pre-market trading.

Contributing: Liz Szabo

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