Selling Tobacco Can Get You Penalized By Insurance Panels

Lance Leider headshotBy Lance O. Leider, J.D., The Health Law Firm

Beware: selling cigarettes could burn a hole in your pocket.

The CVS Health Corporation (CVS), the nation’s second-largest drug store, is currently in the midst of launching a tobacco-free prescription-drug network. The company announced in October 2014, that it will begin offering a tobacco-free pharmacy plan to employers, unions, and insurance companies for which its Caremark arm manages prescription benefits. CVS is slapping patients with an extra co-payment “penalty” if they purchase their medications from pharmacies that sell tobacco products, regardless of whether the patient is a tobacco user.

According to US News, by adding a variable co-payment of up to $15, CVS hopes that this new strategy, comparable to a narrow network insurance design, will perpetuate the company’s health-and-wellness based initiatives.

The new network will start in 2015. Customers will receive a list of participating pharmacies before any network change will take place.

Click here to read more from US News.

The Tobacco-Free Retail Trend.

Target and CVS have become the poster children for tobacco-free retailers. In 1996, Target spearheaded the fight against tobacco by eliminating all sales of the toxic substance. In September 2014, the CVS Corporation followed suit and completed its tobacco-free overhaul by removing all tobacco products from store shelves across the nation.

The tobacco-free pharmacy networks would include CVS and Target nationally, as well as local or regional pharmacies such as independent pharmacies that abstain from tobacco sales. Walgreens and Walmart pharmacies, two large-scale rival drug chains that sell tobacco, as well as any other grocery or community pharmacy, should expect patient penalties and negative impacts on prescription-drug revenue.

Those Participating in the Tobacco-Free Network.

According to Yahoo! Finance, CVS representatives said the network was created in a response to pharmacy benefit management (PBM) clients that indicated interest in tobacco-free pharmacies. The tobacco-free network will only be used by the PBM customers that voluntarily participate.

The first employer to sign on is the city of Philadelphia, as it promotes a tobacco-free workforce. Philadelphia officials estimate that between 150 and 200 CVS pharmacies will participate in the Philadelphia network.

To read more on this topic from Yahoo! Finance, click here.

Sincere Motives or a Monopoly in the Making?

There are a myriad of arguments regarding CVS’ genuine motive behind the tobacco-free network. Health benefit analysts argue that the network is a disguised anti-competition scheme. With the announcement of the new network plan, CVS opens itself up to criticism for appearing to steer patients to CVS pharmacies, or strong arm the competition into giving up lucrative tobacco revenue. Although the corporation denies these claims of ulterior motives, Dave Balto, a former policy director at the U.S. Federal Trade Commission argued that “…It’s really another effort to limit the ability of their rivals to effectively compete.”

Independent pharmacies are also questioning the industry benefits of such a plan. Small, local pharmacies that have not carried tobacco products for years may be overlooked by the consumers knowingly aware of CVS as a tobacco-free drug store. These mom-and-pop pharmacies will be forced to spend a pretty penny on increased marketing to stand on their own two feet against these mass retail chains.

The Narrow Network Comparison.

Many critics argue that the new CVS plan could be considered a narrow network strategy. A narrow network applies to any health insurance plan that places constraints on doctors and hospitals that are available to their beneficiaries. Typically plans will not cover medical services received out-of-network or they will increase co-payments.

These designs are becoming more common for insurance companies and pharmacy benefit managers. By limiting the choices, insurers say they can better focus on the quality of medical care that is delivered to plan customers.


What is your opinion of the new CVS tobacco-free network plan? Do you think it will be beneficial for overall community health or more detrimental to the livelihood of small pharmacies? Please leave any thoughtful comments below.

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Silverman, Ed and Ziobro, Paul. “CVS Plays Hardball with Rival Drug Chains.” (October 20, 2014). From:

Murphy, Tom. “CVS Health Stretches Anti-tobacco Push to New Prescription Drug Network.” (October 21, 2014). From:

About the Author: Lance O. Leider is an attorney with The Health Law Firm, which has a national practice. Its main office is in the Orlando, Florida area. The Health Law Firm, 1101 Douglas Ave., Altamonte Springs, Florida 32714, Phone: (407) 331-6620.

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