Link Between Health-Care Quality and Stock Price?

A new study suggests there may be such a relationship. Also: exclusive interviews on the financial impact of good health care with Johnson & Johnson’s CFO and the ex-CEO of Pitney Bowes.

Large companies with aggressive programs designed to improve employees’ health like to talk about such efforts primarily being “the right thing to do” for workers. Some are also not shy about ballyhooing the positive cost impact that’s thought to flow from a healthier work force.

Now comes new research that is among the first attempts at establishing a link between the quality of a company’s health-care programs and movement in its stock price. The study was not designed to prove a cause-and-effect relationship, which would require controlling for a host of other factors known or suspected to influence share prices. But it does show a strong, clear correlation.

The research was led by Raymond Fabius, vice chairman of health-care research firm HealthNext and a longtime corporate medical leader whose career stops have included chief medical officer posts at General Electric and Thomson Reuters, and Dixon Thayer, the CEO of HealthNext. They and other researchers constructed four hypothetical stock portfolios populated with public companies that have won the Corporate Health Achievement Award (CHAA) of the American College of Occupational and Environmental Medicine (ACOEM) since 1997.

CHAA applicants go through a rigorous application and review process in which they are graded on 17 standards of health-care delivery and outcomes.

Portfolio 1, launched retrospectively as of July 1, 1999, was composed of the first five companies that won the CHAA (there are multiple winners some years): Lockheed Martin, Boeing, IBM, Johnson & Johnson and Glaxo Wellcome. An initial investment of $10,000 was divided equally among the five. Dow Chemical and GE Power won awards the next year and were added to the portfolio, and the original investment plus returns through June 30, 2000, were rebalanced such that there were equal investments in seven companies from July 1, 2000, through June 30, 2001. The same process continued for awards presented through 2011; tracking of the portfolio ceased as of June 30, 2012.

The same was done with Portfolio 2, the only difference being that investments in the companies were weighted according to the score each received from the program reviewers. With Portfolio 3, researchers set the start point of the Portfolio 1 investments two years earlier — to July 1, 1997, shortly after the CHAA was first awarded. Portfolio 4 was the same as Portfolio 1 except that the best and worst stock performers were deleted from the group.

Some award winners were excluded from the portfolios or cut along the way­. Those that were privately held were not included, and those that were acquired after winning the award were then eliminated. Also, the CHAA award winners in 2012 and 2013 were not included because there was insufficient share-price performance data. By the end of the study period, there were 16 companies in three of the portfolios and 14 in the other.

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