CVS Health’s strategy could make other pharmacies sick

As much as many admired the decision by CVS to stop selling cigarettes, there were also plenty who wondered how the company would manage to make up the roughly $1.5 billion in annual tobacco sales lost as a result. It appears as though CVS has a plan and that the strategy goes beyond the company’s drugstores.

According to reports, CVS Health’s Caremark pharmacy benefits manager (PBM) division plans to charge up to an additional $15 in co-pays to consumers who purchase their prescription medicines at pharmacies that sell tobacco products.

A CVS Health spokesperson told The Wall Street Journal that some of Caremark’s PBM customers have asked the company about creating a network of pharmacies that do not sell tobacco. Moving customers from other pharmacies to CVS could prove a boon to the company’s retail pharmacies, which already fill about one-third of the prescriptions covered by Caremark.

CVS Health’s heavy-handed approach with Caremark stands in contrast to its "We Wish" ad campaign that makes an emotional connection between the company’s mission and the welfare of its customers. The voice-over for a commercial, which has gotten over one million views in less than two months, says, "The wish we wish above all for ourselves and those we love is health… Introducing CVS Health, a new approach, a new purpose, a new promise to do everything we can to help all those wishes come true."

The American Pharmacists Association asked drugstores to stop selling tobacco in 2010. While a number of small independents had taken the step, CVS was the first major chain to end tobacco sales in its stores.

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Discussion Questions

Will the extra co-pays Caremark charges at pharmacies that sell tobacco work in CVS Health’s favor or against it? What would be your response if you were a pharmacy that sold tobacco and were part of the Caremark PBM?

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Joel Rubinson
Joel Rubinson
9 years ago

I am a non-smoker but I find this an offensive bullying tactic. All it does is remove choice from me or cost me extra due to something I can’t manage—the tobacco sale policy of the pharmacy I have used for 30 years! Now ME, the NON-SMOKER, is paying a tobacco tax?!

Dr. Stephen Needel
Dr. Stephen Needel
9 years ago

I’m not a lawyer, but I’d question the legality of charging me more because I choose to sell tobacco products. What’s next, I can’t sell Coke or candy if CVS decides it’s not healthy?

Dan Raftery
Dan Raftery
9 years ago

It’s one thing for an association to take a stand and make a request of membership. This is a lot different. It’s like an open invitation for lawsuits. CVS must have a lot of idle lawyers.

Steve Montgomery
Steve Montgomery
9 years ago

I question the motivation behind Caremark’s extra co-pay program. Is it for the health of their members or is it an attempt to make up for the lost sales and profits that resulted in CVS Health’s decision not to sell tobacco related products?

If Caremark PBM wanted to alert its customers about pharmacies that didn’t carry tobacco products it could have done so without adding up to $15 to their co-pays. Of course if you want to avoid the extra co-pay you can also go to a CVS Health location. Perhaps what CVS Health found is that dropping tobacco products resulted not in a net gain of new customers but a loss.

Ed Stevens
Ed Stevens
9 years ago

CVS Health’s decision to stop selling tobacco was a master stroke. It took a lot of courage to do it, yet it aligned their brand in a powerful way with something every person wants—to be healthy.

Extra co-pays at competitors can only help CVS. There is no public relations or other kind of advertising that can be wielded against this move. I can’t see this coming anytime soon: “Rite Aid: Come shop with us because you can buy smokes when you pickup your high blood pressure medicine.”

Even smokers themselves generally say they want help quitting.

When I go into a CVS, I actually feel like the things they sell are just possibly more healthy than at other pharmacies. I give it five years before most pharmacies will be done selling tobacco.

W. Frank Dell II, CMC
W. Frank Dell II, CMC
9 years ago

Another bad idea from zealots. What are consumer to do if there is only one pharmacy in town? How far must consumers drive to save $15? Is the fee different between emergency and maintenance drugs? The role of retail is to serve the customer not dictate their personal lives. If a retailer does not want to sell it is there decision. Just like dropping over $2 billion in sales, they are now telling other pharmacy they must take a sales reduction as well. The only thing this new policy will do is upset many customers and pharmacies.

J. Peter Deeb
J. Peter Deeb
9 years ago

CVS should be looking for other ways to generate revenue lost to a mission-oriented tactic (no tobacco products). Antagonizing their pharmacy customers COULD result in several negative reactions by consumers. $15 additional co-pays is a large amount to the fixed-income consumer, the family with a large amount of prescriptions to be filled and those who may have a relationship with a local pharmacy that they want to support.

Why not turn the health position into a positive and give incentives to Caremark customers to move their business to their local CVS or to a Caremark mail away program? This is a better way to recoup dollars and potentially get people to come to CVS and Caremark for their prescription needs. A 10% increase in prescription dollars along with other in-store sales gained from competitors should easily offset the loss of tobacco revenue.

Ian Percy
Ian Percy
9 years ago

Do I understand this right? Caremark has decided to punish consumers (who are already paying Caremark for their pharmacy benefits) if they get their scripts filled at pharmacies that sell tobacco, whether or not that consumer uses tobacco. Is that even legal?

I’m all for ridding the world of tobacco but what an odd approach. Why doesn’t Caremark lead a charge asking how chemically-laced tobacco got to the retail market in the first place? Everyone knows tobacco costs this country $289 billion a year and kills 400,000 people annually in the U.S. alone. What intelligent, developed society condones such a thing? Have we all been “radicalized” to think this is normal and right?

Whatever tobacco companies have paid to our government legislators is nothing more than blood money. Yup, the answer is to charge consumers an extra ten bucks for getting their prescriptions filled.

Mark Burr
Mark Burr
9 years ago

It is one thing to give up $1.5 billion in annual sales for “feeling good.” It is another to punish someone for differing in where they shop. In turn, they have taken what may have been a good and exploitable marketing decision on their part to the extreme.

Consumers never like being blindsided.

What’s next? Will they make consumers prove they buy gasoline at stations that don’t sell cigarettes?

Maybe that $1.5 billion is hurting, and hurting more than they imagined.

Ed Rosenbaum
Ed Rosenbaum
9 years ago

I agree with the comments posted. How can CVS do this and not think the general public will see it as a bullying, negative step? I buy very few things at CVS. That number just decreased.

Pete Abell
Pete Abell
9 years ago

This is definitely a good plan for them and it will likely push other chains to adopt a similar policy. Cigarettes have shrink issues and are obviously not good for anyone’s health. There will still be lots of retail outlets that sell cigarettes and other tobacco products.

David Livingston
David Livingston
9 years ago

One loophole around this is to change the SIC code of the pharmacy inside a store. The pharmacy would be one store and the rest of the store would be classified differently. Supermarkets with leased pharmacies would not have to worry since the businesses are mutually exclusive. This is just a “feel good” threat but one thing I know about smart retailers—create a silly rule and we will find a way around it.

Ben Ball
Ben Ball
9 years ago

Can’t help but chime in—though the community seems to have spoken as clearly, and with one voice, as I can remember. This is such an obvious power play, if not outright collusion or restraint of trade, as to be offensive to us on its face.

What I do wonder is if the “PBM customers asking about a tobacco free network … ” aren’t corporate or insurance company members who might either a.) have a closet desire to direct plan participants away from tobacco products any way they can, and/or b.) may be offered discounts, rebates or other incentives to keep their plans with Caremark, even when participants howl “foul” over this affront.

richard freund
richard freund
9 years ago

I will only go to CVS in an extreme emergency. I shop at a local pharmacy which has better pricing on day-to-day items than CVS (go figure). I admire CVS for their initiative, but there is more to health than not selling cigarettes. I’m quite sure in the long run, money will talk long and loud to them.

Graeme McVie
Graeme McVie
9 years ago

On some levels the rationale behind this decision makes sense. Some of the people who shop at pharmacies that sell tobacco are going to purchase tobacco which is oftentimes associated with more health problems and in turn increases costs and insurance premiums. From a commercial perspective for CVS this also could make sense as it would encourage people to shop at CVS: Customers would pay a lower co-pay and CVS would acquire more customers.

However, it could also backfire. In general, customers don’t like to be coerced or bullied and some customers could view this move as just that. A large portion of customers that shop at pharmacies that sell tobacco do not smoke—there are lots of viable reasons for why non-smoking customers would shop at these stores (e.g. it may be the only store they can get to).

I applauded the stand that CVS took when it positioned itself as a health brand and removed tobacco products from their stores. Usually I’m a fan of “nudging” people to be healthier as the reported benefits of being healthier are increasing with each new survey or report that is published, but only time will tell if CVS has over-stepped the line with this approach and will face a consumer backlash for this decision.

Mike B
Mike B
9 years ago

This is a company that is trying to use Caremark to elbow customers away from competing pharmacies and this is quite an interesting trick. Come on, what other pharmacies don’t sell tobacco? Target? Some independent ones? Some hospital ones?

I question the legality of this. But there are other PBMs and after contracts end, this could backfire on Caremark.

Out in the west, CVS operates many large size stores that do very little business. Once high volume Longs and medium volume Sav-ons are largely ghost towns and the stores look horrible. Rite-Aid and Walgreens are much busier, with far better staffed and looking stores. Rite-Aid Wellness remodels look excellent and they’ve been doing them aggressively in CA. More pressure on the large, poor CVS chain. Bullying customers into using CVS is not a sustainable long-term strategy.

Lee Kent
Lee Kent
9 years ago

What CVS did was honorable. What Caremark is doing should be between them and their pharmacy customers.

If Caremark wants to influence their pharmacies to stop selling tobacco products and wants to charge a higher fee to do business with them, so be it. But don’t pass that fee on to the customer who chooses to shop at their preferred, most convenient, whatever, pharmacy.

For my 2 cents!

James Tenser
James Tenser
9 years ago

Extra co-pays hurt consumers first and competing pharmacies second. I understand CVS flexing its market power, but I cannot support a policy that is so selectively unfriendly to consumers. As others here suggest, I wonder about its legality too.

Like many other Americans I am not a smoker, and I see no legitimate basis to have my choice of pharmacy punished—even if it’s a Walgreens or supermarket pharmacy that also happens to carry tobacco products. What’s next—a surcharge at drug stores that also carry candy or sugary soft drinks?

Let CVS/Caremark focus on the positive and progressive aspects of its own tobacco merchandising policy. It’s an admirable story on its own. Trying to engineer the behavior of consumers through punitive means seems likely to undermine good will at best, or even create an active backlash.

Jeff Hall
Jeff Hall
9 years ago

CVS has made very visible, bold moves this year, in abandoning tobacco sales and rebranding as CVS Health. Both decisions illustrate a longer-term position and philosophy which will likely serve the brand well.

If the objective behind this $15 additional co-pay is to encourage a shift in consumer behavior (i.e. smoking cessation, or pursuing a more healthy lifestyle), the approach and messaging should perhaps have been refined and positioned accordingly. As it is playing out, it will likely offend and alienate those who have been viewing CVS Health favorably, if they sense CVS Health is being too heavy handed.

Ed Dennis
Ed Dennis
9 years ago

Nothing that restricts consumer choice will ever be favorable UNLESS it delivers more value to the consumer. With regard to responses, I would suspect that “restriction of trade” lawsuits are already being drawn. Each business has an obligation to treat each customer equally without regard to preexisting conditions or subsequent actions. I don’t really think CVS can legally apply a larger co-pay to any customer based on where that customer chooses to do business.

Actually, this would seem to be some sort of PR trial balloon. It will never happen! CVS will, however, gain much recognition from the media as they look for any reason to pound big tobacco. Free publicity as corporate America again outwits the media into granting them millions in publicity.

Li McClelland
Li McClelland
9 years ago

Social engineering is always dangerous. Social engineering never looks as good or as benign to outsiders as it does to the zealots. As several others here have pointed out, I don’t think they’ve thought through all the potential legal aspects and unintended consequences of this tactic.