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Study: PepsiCo's Wellness Program Falls Flat

A new study of the soft-drink giant's wellness program finds it costs more money than it saves in reduced healthcare costs, but experts say such programs can still provide value apart from financial considerations.

Tuesday, January 21, 2014
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For years, companies have been trying to determine the return on investment of their wellness programs with one particular question in mind: Are they worth the money and effort?

According to results from a 2013 PepsiCo study conducted by the Santa Monica, Calif.-based RAND Corp. and involving more than 67,000 employees enrolled in the company's "Healthy Living" program -- specifically initiatives that encourage workers to adopt healthier lifestyles -- actually cost more money than they save the company.

But that's still no reason for PepsiCo or other employers to abandon their wellness programs because they're beneficial in other ways and valued by employees, says Soeren Mattke, the study's senior author at RAND.

"You have to figure out what it is that you want," he says. "Workplace wellness is a good thing if you design and implement a program that matches your objectives."

Companies have been launching wellness programs for decades, partly based on vendor promises of huge healthcare savings. However, survey after survey fails to support their claims.

Critics say prevention can't be measured: How can you determine how many heart attacks were avoided due to a wellness program? You can't. However, there is good evidence that such programs help employees lose weight and stop smoking. Not to mention better manage their chronic diseases or conditions, which is proven to impact the bottom line, and the study's authors encourage employers to re-evaluate their own program -- why it's being offered and how they can deliver similar wellness services at cheaper costs.

Mattke says RAND analyzed PepsiCo's wellness program three times after it was launched in 2003: first in 2004, then three years later, and again in early 2013. The same picture emerged.  When evaluating healthcare costs, he says the lifestyle-management portion of the program returned roughly 25 cents on the dollar. But if you add absenteeism into the equation, that figure jumps to 50 cents.

However, the disease-management portion of the program is another story. Helping workers better manage their chronic conditions saved $3.78 in health care costs for every $1 invested. More good news: researchers found that healthcare costs dropped by $136 per member, per month, due to a 29-percent reduction in hospital admissions. That saving increases to $160 per month with a 66-percent drop in hospital admissions for employees who participated in both the disease-management and lifestyle-management programs.

"The study shows that it is going to be extremely hard to save healthcare costs with the lifestyle portion of these wellness programs," says Mattke. "That mirrors results that we produced last year in a big report for the Department of Labor."

When dealing with health risks, he explains, there are too many variables to consider, like the long trajectory it takes from changing health-related behaviors to changing the course of chronic disease. He says it could take more than a decade for people to develop diabetes or a heart condition, for example, from the moment they start engaging in unhealthy behaviors. Besides, not many employees stay with the same company for that length of time or may retire, so results can be skewed.

The lesson here, he says, is if you're frugal and prudent with spending, you're more likely to break even and achieve greater health among your workforce at no additional cost.

Consider free programs or materials offered by your health plan, community groups or national organizations, he says, and avoid high-cost products to reduce program expenses.

"It's not a bad thing to help your employees to become healthier but watch the costs . . . so you don't overspend, and then actually lose money in the process," says Mattke.

Many wellness studies don't measure valued benefits like increased productivity, goodwill or industry reputation, says Helen Darling, CEO of the National Business Group on Health in Washington.

"This study doesn't show me at all that the [PepsiCo] program failed," she says. "I can promise you that [making] preventive care broadly available will not save money. It will cost money."

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A good example, she says, is breast-cancer prevention. Offering a mammography to an entire employee population will consume a big chunk of a wellness program's budget, she says. However, providing the same test to a targeted population -- those at risk for breast cancer -- can save money and perhaps improve quality of life.

She says the advantage of wellness programs is the intangible dividends, like branding employers as a great place to work.

"It's part of a tapestry . . . a culture of caring for employees," says Darling. "That's good HR management."

Michael Thompson, principal of HR services practice at PricewaterhouseCoopers in New York, questions whether employers have "medicalized" wellness too much.

"If you're doing this just for healthcare costs, it's not a slam dunk," he says. "When you do take a closer look at why you offer wellness programs and how they fit in the context of your employee strategy, human capital strategy, I think you're going to reach the conclusion that it's the right thing to do, not just for your employees, but for you."

While every company wants its programs to achieve measurable ROI, he says, wellness programs are an exception because they're rife with complexities.

Progressive companies, he says, have framed their wellness programs in the context of employment relationships. He believes the true value of workplace wellness is how employees react to an organization that cares about them and invests in their well being.

Creating a healthy workforce can also lead to a happy workforce. Besides physical well being, other drivers of employee happiness include social and financial health, career satisfaction and sense of community. Thompson says there's very strong evidence linking happy employees with positive business outcomes such as low turnover, and higher productivity, sales, engagement and innovation.

He believes this study is a wake-up call for employers to show them that measuring the ROI of wellness programs isn't an exact science.

"Any study that limits the value of wellness programs to just medical costs is understating the true value of these programs," says Thompson. "In the end, I don't think it is going to cause people to stop offering wellness programs. Instead, I think it will cause [employers] to rethink why and how they offer wellness programs."

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