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CVS has a plan to strong-arm other pharmacies out of selling cigarettes

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Early last month, CVS became the first major pharmacy chain to halt the sales of tobacco products. At its 7,700 pharmacies across the country, cigarette sales are now a thing of the past.

You can think of that as phase one of the CVS war on tobacco. Today, the pharmacy chain announced phase two: making it unprofitable for competitors to sell tobacco either.

To understand how CVS can wield this kind of influence over other pharmacy chains, you have to understand how its business works. Most of us know CVS as the pharmacy chain with brick and mortar stores all across the country. And that is a big part of CVS' business. But another big part of CVS' business is Caremark, a pharmacy benefits manager.

Caremark is a company that insurance plans contract with to run the drug side of health coverage, doing things like setting up a pharmacy network and determining co-payments. Most health insurers use pharmacy benefit managers and, in that world, Caremark is one of the biggest players. And CVS announced today that it's bringing Caremark into the fight against tobacco, too.

Caremark-managed health plans will now charge an additional $15 co-pay for any drugs picked up in a pharmacy that sells tobacco products, the Wall Street Journal's Pharmalot blog reports Monday morning.  More from Ed Silverman there:

A CVS Health spokeswoman tells us that "numerous" Caremark clients have asked about developing a "tobacco-free" network of pharmacies. And so, CVS "is in the process of identifying pharmacies that do not sell tobacco products," she writes us. She did not provide a specific start date.

CVS is using its force as a pharmacy benefit manager to create a huge disadvantage for competitors who sell tobacco. And if consumers in Caremark-managed plans want to avoid that extra $15 co-pay, they can go fill their drugs at the one national chain that doesn't sell cigarettes: CVS.

This new decision helps explain why CVS was okay with giving up an estimated $2 billion in profits when they decided to end cigarette sales. This change to Caremark policies will likely have the effect of driving more prescriptions into CVS stores, as consumers seek to avoid the $15 surcharge. After all, who wants to pay more for antibiotics just because the store happens to be selling cigarettes in a totally separate aisle?

CVS told Pharmalot this isn't about profits and that they've had insurers who use Caremark ask about setting up tobacco-free networks. And even if that is the sole motivation, the move will almost certainly help CVS financially — and get their competitors to think twice about their cigarette sales.