© Copyright 2000 Rogers Media. The following article first appeared in the July 2001 edition of BENEFITS CANADA magazine.

The Healthy Scorecard

Organizations must look beyond silo accounting and cost containment. Managing health, not healthcare costs, is the key to a productive and profitable workplace.

By Danielle Pratt

Managers have not chosen to ignore the business impact of employee wellbeing on productivity. They simply have not had the tools to measure it. So the vast majority of North American organizations unwittingly, but nonetheless strategically, invest in failure costs such as illness care. Health is viewed as a fixed, if not constantly increasing cost. How can we justify a health investment strategy based on failure costs, and at the same time pursue six-sigma process quality (or quality at the level of approximately one defect in a million)?

Arguments abound on the business case for a healthy workplace. Most of them fit into the category of creeping incrementalism. For example: "If you implement a certain wellness program, you'll get a three-to-one return on investment." This isn't a great way to differentiate the value of health from other competing improvement opportunities, notably, "If you fix this machine, you'll get a four-to-one return on investment." How can we expect to capture the hearts of our leaders unless we wow them with an irresistible business case?

Science fiction buffs will tell you that there is a world of difference between merely going faster in space, and moving up to hyperspace. The film 2001: A Space Odyssey provides a vivid example of this quantum leap. Advocates for employee health must resist the urge to pepper leaders and investors with mind-numbing tales of cost-containment minutiae. Instead, they must come to the plate with tangible evidence of how leaders can supercharge the human performance engine. And thanks to the Balanced Scorecard and Service Profit Chain--cutting-edge and widely acclaimed management processes which help us prove the cause-and-effect linkages between soft (employee) drivers and hard (bottom-line) outcomes--we can.

The first step in this mission is to keep our focus on the big picture: total health costs.

The second step is to capture the elusive opportunity costs of stress, illness and injury. In other words, we need to capture the value of a healthy workplace, not only the cost of poor health. Far too many organizations indulge a knee-jerk reaction against spending more on so-called good costs including prevention and up-front detection, because they don't recognize the impact of their investment on the bad (direct and indirect failure costs) and even ugly failure costs (opportunity costs).

This head-in-the-sand approach guarantees that failure costs will continue to thrive. We put an end to this accounting folly in the quality paradigm. It's time to also snuff out silo accounting for health. The cost of health model (see "The Organizational Health Investment Profile," below) provides a simple rubric that organizations can use to evaluate their investment portfolio in good, bad and ugly employee health costs. It is important for organizations to apply the cost of health analysis in two key areas:

1. The high-quality management of each individual healthcare issue, after the fact.
2. Effective prevention, before illness and injury occur.

THE BIG PICTURE

There is a great deal of evidence to illustrate that high-quality healthcare education and management dramatically reduce the severity and frequency of diseases and that these measures are good for the bottom line. Organizations simply need to see the forest, as well as the trees.

Unfortunately, traditional accounting systems have eroded our ability to effectively manage health, because they focus on the escalation in prevention costs, as opposed to the ability to dramatically reduce failure costs. Let's take a look at a hot medical issue and use the province of Alberta as our petri dish. Asthma is consistently rated as one of the top five health issues by both cost and prevalence for Alberta employers. At the City of Calgary, this is no exception.

It's crucial to understand that asthma severely disrupts workplace productivity. Whether it's an employee with asthma or a dependent who is suffering, an asthma attack in an individual's family can disrupt an organization's work plans for several days. Untreated asthma problems can also significantly affect productivity.

The Calgary Asthma Program has found a link between the moderately to severe asthmatic and sleep deprivation and depression. This makes the turnaround results by the Community Asthma Care Clinics--a 70% to 90% reduction of night terrors among asthmatics--all the more significant.

CUTTING TOTAL COSTS

There are several ways in which employers and employees can work together to slash total asthma costs by 30%. Organizations can:

• Invest substantially in anti-inflammatory medications. There are two types of medications which asthma patients take. One is a preventive type of medication, which reduces the inflammation of the airways. The other is meant for treatment of breakthrough symptoms. The anti-inflammatory medications represent a prevention cost.
• Invest in a 6% increase in planned absenteeism for employees to attend asthma clinics.
• Measure the impact on the organization's failure costs. Effective asthma management reduces days hospitalized by 77%, asthma-related emergency visits by 48% and urgent care visits by 32%. This affects workplace productivity whether an employer's health costs are publicly or privately insured.

The prevention, detection and failure costs add up to a net 30% reduction in total asthma costs. Despite these large savings, this approach actually understates the benefits of asthma care by a significant amount because it omits the opportunity costs of lost productivity, creativity and quality among affected employees and their co-workers.

BUCKING THE TREND

Organizations such as Motorola, Inc. have intuitively taken a step towards proactive care by determining that their core values of quality and people, as opposed to cost containment, should drive their health investment decisions. Massive layoffs notwithstanding, this U.S.-based company has demonstrated that significant cost savings and human benefits both accrue from such an enlightened strategic focus on health. In taking this step, Motorola has moved away from the knee-jerk cost-containment approach to health cost inflation, which inevitably increases total health costs.

The Ontario government serves as another example of the investment approach to employee health. The government provides free flu shots to all residents because it understands that the savings far outweigh the up-front costs. Another example of this preventive approach is the use of corporate health consultants. These professionals achieve an across-the-board 30% reduction in disability rates when they provide mediation between employees and employers in return-to-work initiatives.

Regrettably, it is also in vogue to manage health costs under the guise of managing health, by simply limiting insurance coverage. In a 1998 survey by Applied Management Consultants of Fredericton, more than 20% of Canadian drug plans for major employers had already implemented coverage ceilings, mandatory substitution (generic drugs), restrictive drug formularies and cost-shifting from the employer to the employee. Interestingly, employee wellness programs were being considered by more than 50% of these drug plans, to help control costs.

While cost shifting to the employee admittedly reduces employer coverage to direct health costs, it does nothing to limit employer exposure to indirect and opportunity costs.

Either way, managing health is less costly in the short-term than doing nothing or focusing strictly on cost containment.

The greatest benefit arises for organizations which slash event rates for stress, illness and injury, and costs-per-event. This approach has a multiplier effect, and organizations which chose this route enjoy a stunning buffer from health cost inflation.

PERILS OF SILO ACCOUNTING

When employers account for health, they typically place costs for benefits, medications and worker's compensation premiums as line items in a statement of expense. This type of silo accounting hurts us.

Silo accounting alarms many employers because it presents costs out of context. When plan sponsors assess variances from year to year, they can't help be appalled by the double-digit inflation in their health costs. Two potent drivers for this include population aging (see "How Aging Affects Health Costs," below) and the availability of and appetite for new medical technologies.

The population is going to age whether we like it or not. Information on whether we are winning the war against stress, illness and injury is more meaningful than demographic statistics.

Organizations and public health initiatives need to know: Are we reducing event rates? Are we improving disease, disability and rehabilitation outcomes? Are we reducing opportunity costs? In other words, are we reducing the burden of illness? And is our appetite for medical advancements a bad thing?

The medical research community is continually being exhorted to speed toward cures. The advancement of this research is taken by many in this field as a serious responsibility. So when medical pioneers such as the University of Calgary's Dr. Ji-Won Yoon announce that they have arrived at a cure for diabetes in lab rats, the potential benefits for the health system--much less the personal benefits to people with diabetes--are staggering. No wonder our ears perk up.

Silo accounting creates complacency without cause. When health costs go down, many leaders mistakenly assume that they have won the health war. In fact the reverse could be true. For example, managed care in the U.S. has reduced health cost inflation dramatically. But this has been accomplished primarily through cost shifting from employers to employees. Total costs tell another picture: health outcomes have in fact deteriorated, and real costs have increased.

Similarly, reference-based pricing in British Columbia has decreased direct provincial drug costs, but it has also increased overall health costs. It appears this has just been an exercise in squeezing the balloon.

Silo accounting does not capture cause and effect. Most importantly, traditional accounting for health commits the cardinal sin in strategy management--it, too, does not capture cause and effect. And this eliminates an organization's ability to validate its investments in health and human capital.

THE COST OF OPTING OUT

We are witnessing a significant, but misguided, trend in North America as corporations pull back from their direct investment in employee and family health. Like rats jumping from a sinking ship, workplaces are casting away their financial ties with employee wellbeing, and offering financial inducements for employees and their families to go it alone. It is assumed that it's too messy and expensive for workplaces to be in the health benefits business.

We are also witnessing a cost shift from employers to employees in Canada in extended health benefits with the emergence of more and more flexible benefit plans and health spending accounts. But it's a little academic for plan sponsors to worry about getting their hands dirty when they are waist-deep in mud. If workplaces were to measure their total cost of health, they would receive a rude awakening.

By giving up control over investments in employee health, workplaces have lost the ability to stop the bleeding in their opportunity costs. They have lost a powerful lever for cost-effective health decisions. And like it or not, they continue to invest in the indirect and opportunity costs of health.

For example, organizations that opt out of benefits coverage can no longer support employees to take costly migraine medications. Cash-strapped employees will simply elect to take time off work. The same workplaces can no longer provide the best in asthma care, so employees with dependents with asthma are absent more frequently. These plan sponsors can no longer use drug analysis data to identify the top productivity hits for the organization. Now it's all up to the employee. And if employees don't want--or can't afford--to get optimal care, they won't.

Danielle Pratt is the author of The Healthy Scorecard.

www.HealthyScorecard.com.

The Romanow Commission has released its final report on the future of healthcare in Canada.

For Commissioner Romanow's recommendations, click here.

Click here for Senator Michael Kirby's report, "The Health of Canadians – The Federal Role: Recommendations for Reform."