CVS Caremark (NYSE:CVS), the second-largest U.S. pharmacy chain, has a lot on its plate. Not only is the company tossing tobacco from its stores, it's also changing its corporate name to CVS Health.
The move reflects a shift throughout the pharmacy industry that de-emphasizes general merchandise and focuses instead on health services such as counseling patients with chronic diseases and treating patients with the flu.
CVS Health has been at the forefront of this changing business model, arguably outpacing rivals Walgreen (NASDAQ:WBA) and Rite Aid (NYSE:RAD). So let's learn more about CVS' decision and what it may mean for the industry.
CVS launched its first in-store healthcare clinic in 2000, and that pilot program has turned into a massive network that totals more than 850 MinuteClinic locations that have served more than 21 million patients.
Those in-store clinics are increasingly offering more services, expanding far beyond immunizations in a bid to supplement primary care.
Demand for these clinics, which stay open longer each day than a typical physician's office, continues to increase as insurers and other healthcare payers recognize clinics' ability to lower medical costs via fixed prices that significantly undercut emergency room care. As a result, CVS Health reported that MinuteClinic sales jumped 24% year-over-year in the second quarter.
However, CVS' previous front-of-store reliance on tobacco product sales marked a big disconnect from its expansion into improving the health of its customers. According to the U.S. surgeon general, more than 20 million Americans have died prematurely from smoking-related illness since 1965.
Knowing where you're going
It's tough to get where you're going if you don't have a destination, and that's likely a big reason CVS has decided to ditch "Caremark" from its name and replace it with "Health."
The CVS Caremark name served the company well following its acquisition of Caremark, a pharmacy benefit manager, or PBM, that manages prescription programs for insurers and other healthcare payers.
Acquiring Caremark significantly expanded CVS' reach, turning it into a national business less reliant on local stores. Today, sales at CVS Health's PBM operation eclipse $76 billion, and its business mission has similarly shifted to a more holistic approach to patient health.
Some PBMs are increasingly positioning themselves as patient health counselors rather than cost-crunching negotiators. That's an important shift given that counseling patients to improve adherence to medicine reduces the likelihood of debilitating (and expensive) hospitalizations.
Fool-worthy final thoughts
CVS Health isn't just eliminating tobacco products from its stores; it's also launching a massive marketing push to help its customers quit.
The company's "Let's Quit Together" program encourages tobacco users to visit MinuteClinics for personalized smoking cessation recommendations, or to discuss tips on ending tobacco use with CVS pharmacists. CVS has even created a Web survey that allows visitors to measure their nicotine dependence.
Those services may resonate and encourage patient interactions that would dovetail nicely with CVS Health's increasingly care-focused mission. Offering this and additional patient-focused healthcare may help insulate its business from rivals such as Walgreen, Rite-Aid, and even Wal-Mart, which are also increasingly embracing primary care-oriented services.
Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd owns Gundalow Advisors, LLC. Gundalow's clients do not have positions in the companies mentioned. The Motley Fool recommends CVS Caremark. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.