CVS Stokes a New Fire - From Tobacco to Patient Care in Post-ACA America

CVS Stokes a New Fire - From Tobacco to Patient Care in Post-ACA America

The recent announcement by U.S. drugstore giant CVS that its locations will phase out sales of tobacco products is, at first blush, jarring - both in terms of the drugstore public image and the company’s own bottom line. Behind the decision, however, is CVS’s recognition of the greater business opportunities opening in the U.S. healthcare system. CVS is already a U.S. retail clinic leader, operating around one out of every two retail clinics in the country. Positioning will be key for CVS and other retail clinics seeking inclusion in emerging patient care models, which figure to capture market growth from the ACA-newly insured and aged population.

Angling for greater markets, CVS’s tobacco phase-out is not without sacrifice:

CVS Caremark Corp., which has 7,600 stores nationwide, said it will lose about $2 billion in annual revenue by phasing out tobacco, but the move will not affect its 2014 earnings forecast. CVS notches about $1.5 billion annually in tobacco sales, but it expects a bigger hit because smokers often buy other products when they visit their stores.”

The decision by CVS to absorb such a loss was not without merit. Some posited and publicized motives included enhanced brand loyalty and dollars from U.S. consumers concerned with smoking as a social problem. The more likely strategy by CVS relates to its 7-year old MinuteClinic business. Drugstores are the prime venue for retail clinics due to pre-existent healthcare-oriented business models, including an onsite pharmacy. The relationship between pharmacies and retail clinics is natural within the consumer’s mind, and explains the relative success of drugstore clinics compared to grocery store clinics that have recently been subject to closures and contraction. Greater consumer awareness of retail clinic services, however, will likely hinge on their acceptance within the health community.

As CVS has been working to team up with hospital groups and doctor practices to help deliver and monitor patient care, Chief Medical Officer Dr. Troyen A. Brennan said the presence of tobacco in its stores has made for some awkward conversations.

“One of the first questions they ask us is, ‘Well, if you’re going to be part of the health care system, how can you continue to sell tobacco products?’” he said. “There’s really no good answer to that at all.”

Continuity and coordination of patient care is a chief concern of physician groups regarding retail clinics, and every step taken to legitimize such businesses will win the clinics’ inclusion in retooled care organizations. Partnerships can be favorable to both retail clinics and traditional healthcare providers. For chronic, non-acute conditions and minor episodic care, retail clinics can deliver care at a lower cost and can help organizations such as physician groups and hospitals capture bonuses, incentives and higher net revenue from the CMS as part of Affordable Care Act (ACA) initiatives. Accessibility to care is a chief feature and advantage for retail clinics located closer to patients, already a destination for prescription pick-ups, and open for longer hours than physicians.

Retail clinics are also poised to add business from areas of patient demographic growth in the United States. Working with traditional healthcare providers, retail clinics can more frequently monitor patient care and conveniently provide preventative care services to aged patients. The value of such services and the expediency at which retail clinics can provide them are increasingly recognized in the United States, where coordinated care (CCOs) and accountable care organizations (ACOs) are able to be reimbursed for patient outcomes rather than services rendered. The expansion of the U.S. insured population as a result of the ACA will also include many new patients between the ages of 18 and 44, already a core customer demographic for retail clinics.