They say being on the cover of Sports Illustrated jinxes you. I wouldn’t know. There is no chance of that for me, unless they run a feature story about 60-year-olds playing Ultimate Frisbee on Christmas night, when they should be playing canasta with their aunts.
That jinx may be an urban legend, but here’s a real jinx: winning a C. Everett Koop Award. The 2016 vendor got humiliated in STATNews, of course — we’ve already covered that. The 2012 awardee was embarrassed in the media as well. The vendor ended up losing their gig.
Neither of their customers (Boise or Nebraska) are public companies, though, and that’s what this article is about, because it’s the customer’s performance we are most interested in, not the vendor’s. The latter do quite well for themselves, snookering unsuspecting employers.
The most recent public company to win an award was the 2015 winner, McKesson. McKesson got clobbered in the stock market in 2016, the 14th worst performance among the S&P 500, as investors learned that only the dumbest bunch of managers would pay a cabal of vendors (that themselves are among the industry’s most clueless, like Vitality) to harass their employees. Employee Benefit News took notice of the McKesson wellness program, and pilloried them, thus triggering the sell-off.
You might say: “Wait a minute. Yes, that was a failed, hilariously mismeasured, program whose award was due to the cronyism of having 5 of their vendors and consultants connected with the Awards Committee, but how could something as trivial as a wellness program be responsible for their stock price collapse?”
The answer, of course, is that it doesn’t. Based on the amount of money these programs lose, McKesson’s wellness program was probably only responsible for 1% or so of the 27% stock price decline. And that’s precisely the point. Ron Goetzel claimed that winning a Koop Award caused a dramatic increase in stock prices. I noted that, like most of Ron’s defenses of wellness, that analysis didn’t hold water, and any observer with a calculator and access to stock price histories could see that wellness causes a dramatic decrease in stock prices.
While I won that face-off (a year later, you would have been way ahead of the game shorting Koop Award stocks and hedging with index and sector funds), neither conclusion is really valid. Both analyses have a ridiculously low signal-to-noise ratio. Many things happen in the market that overwhelm wellness. For instance, I don’t think any of the analyses of Citibank’s 2008 crash would blame their Koop Award-winning wellness program.
Instead, the negative impact on stock valuations can be shown to be pretty trivial. Let’s start out with some favorable assumptions. Assume the typical program is more successful both than the allegedly successful one most recently measured in Health Affairs and also than the award-winning so-called best-in-the-country Wellsteps program for Boise, in that it neither loses money nor harms employees. Instead, it is only worthless. So even though Ron Goetzel and Michael O’Donnell say most programs fail, let’s assume yours neither causes health spending to increase or employees to get worse.
If you pay vendors to “manage” 10,000 employees @$150, that’s $1.5 million lost. With a typical pretax P/E of 10, you reduce your market value by $15,000,000. A company with 10,000 employees might have (for example) a market value of $1.5-billion. That makes the negative impact of wellness on stock price only 1%, hardly enough to cost a CEO his job.
So the good news is that McKesson’s collapse is the exception. Screening the stuffing out of employees, lying about outcomes, winning a Koop Award, and hiring a cabal of clueless vendors will not cause your stock price to plunge. In a year in which the media gave the wellness industry little reason to cheer, costing your shareholders only 1% of their investment in your company is great news. Worthy of a celebration. Or at least a couple rounds of canasta.