The story generated plenty of other press coverage, much of it favorable for CVS Health. Below, I consider the move’s impact, including the payer’s perspective, the future of preferred networks, likely adoption rates, potential competitive effects on other drugstores, and whether CVS will replace $2 billion of lost tobacco revenue.
As a bonus, I tell you about Thank You For Smoking, one of my favorite movies.
The media jumped on the CVS story, as you can see in articles from the Chicago Tribune, Associated Press, and the Pittsburgh Business Times.
The program’s appeal stems from tobacco’s well-known impact on health care costs and retail chains’ role as a tobacco outlet. Consider the bad (and sad) news from a new CVS Health study, just published in JAMA Internal Medicine.
”Of the 38,939 patients taking medication for asthma or COPD, high blood pressure or using OC, 6 percent of asthma or COPD medication users, 5.1 percent of antihypertensive medication users and 4.8 percent of OC medication users had at least one cigarette co-purchase.”Yikes!
In the April Drug Channel guest post Health Groups Fail to Exert Influence for Tobacco-Free Pharmacies, leaders from TobaccoFreeRx chastised payers for not acting:
“Third-party payers, including private insurance companies and Medicare, have also been not-so-innocent bystanders. Though insurers could have adopted a payment structure that differentially reimburses tobacco-selling pharmacies and tobacco-free pharmacies, none has taken this step.”A no-tobacco network is an untested concept that may not have any impact on smoking rates. At worst, the no-tobacco network is a worthwhile experiment.
NEW PREFERRED NETWORK RULES
A pharmacy’s participation in a payer’s narrow network has typically been based primarily on the pharmacy’s willingness to accept reduced reimbursements. The “no tobacco” rule is no more than a new twist on narrow network design.
As these networks have become common, payers are now adding new selection criteria linked to a pharmacy’s compliance with a payer’s benefit management plan. Expect additional criteria to emerge in both commercial and Part D plans.
For example, the Center for Medicare & Medicaid Services (CMS) annually rates prescription drug plans on a five-point scale. Pharmacies influence such metrics as the Proportion of Days Covered, which measures adherence for oral diabetes, statins, and hypertension medications. Now that preferred networks dominate the Medicare Part D program, pharmacy performance is becoming a key criterion for inclusion as a preferred pharmacy in a plan’s network.
Even so, no one is forcing an employer to set up a plan that eliminates pharmacies that sell tobacco. It's just an option. The payer ultimately chooses the prescription drug benefit it will offer to members or employees.
A follow-up Wall Street Journal article revealed that one plan sponsor—the city of Philadelphia—has already signed up for the new program. About 5,400 nonunion employees will have to make an additional $15 copayment if they fill their prescriptions at pharmacies that aren’t part of what is called a preferred health network.” Here’s the payer’s perspective:
“I look at it as a win-win,” says James Startare, the city’s deputy human-resources director, who says his department approached Caremark about the idea. “I think it has long-term positive health impacts, because we want to promote a tobacco-free workforce.”I’ll be very surprised if a majority of payers chose this preferred network design, which could be very disruptive. CVS will face a marketing controversy when people who don’t smoke are forced to pay the higher co-pay simply because their pharmacy sells tobacco to someone else. Check out the comments on the original WSJ article.
Here are my comments in The Wall Street Journal:
”The ‘CVS retail drugstore business will certainly benefit, because prescription volume will shift into CVS retail pharmacies from other drugstore chains,’ says Adam Fein of Pembroke Consulting, who tracks pharmacy distribution matters.There is precedence for this model. Caremark’s Maintenance Choice program, the most prominent limited network model for commercial plan sponsors, shifts prescription volume into CVS retail pharmacies from Caremark’s mail pharmacy and from other non-CVS retail pharmacies. Plan sponsors have been quickly adopting the program, because it saves payers about 4% on pharmacy benefit spending (according to a 2012 CVS Caremark presentation).
‘Today, Caremark’s PBM pays for almost one-third of the prescriptions filled at CVS’s retail pharmacies,’ he continues. ‘This program will further increase the volume staying within CVS Health’s integrated payer and [prescription drug] dispensing system.’
Check out my February 2010 article Maintenance Choice Update: CVS Gain, Caremark Same, which describes how Maintenance Choice added 2% to 3% to CVS retail pharmacies' 2009 same-store sales growth. While I don't expect a no-tobacco network to have the same effect, I estimate that the new program could add $500 million in incremental retail store revenues. That's about one-quarter of the $2 billion that CVS gave up when it abandoned tobacco sales. If payers adopt no-tobacco networks very quickly, then the revenue gain will be larger.
Independent pharmacies, which generally don’t sell tobacco products, should also benefit. The city of Philadelphia’s network will include 150 to 200 CVS stores and about 100 independent pharmacies.
The network will exclude large chains that sell tobacco, including Rite Aid, Walgreens, and Walmart. (Target doesn't sell cigarettes.) Given the likely low adoption rates, I don't expect a non-tobacco network to be a materially significant competitive headwind to other large chains, but it certainly doesn't help.
ON THE OTHER HAND
Thank You For Smoking is a hilarious satirical movie (and an even funnier book) about lobbying, trade associations, and political correctness. Two thumbs up from Drug Channels!
Here’s “Smoke Smoke Smoke (That Cigarette),” Tex Williams’ toe-tapping ditty that serves as the movie’s theme song. Click here if you can’t see the video.
"More doctors smoke Camels than any other cigarette." Yabba dabba doo!