Health Care Company Payouts Favor Shareholders, New Research Shows

It’s widely recognized that health care is a growing expense for many Americans. However, what health care companies do with their profits—some made through government programs such as Medicare—remains murky.

To investigate this question, researchers at Yale School of Medicine (YSM) analyzed financial reports from 92 large U.S. health care companies. The results were published on Feb. 10 in a research letter in JAMA Internal Medicine.

The research team focused on U.S. health care companies on the Standard & Poor’s 500 (S&P 500), which follows the 500 largest companies traded on stock exchanges, to see how much money was spent on shareholder payouts in the last two decades. The analysis included pharmaceutical and biotechnology companies, insurance companies, medical-supply companies, and large health care facilities such as for-profit hospitals.

Over the past 20 years, health care companies spent 95% of their net income on shareholder payouts, totaling up to $2.6 trillion, according to the research findings. Shareholder payouts also tripled over this period—a trend largely shaped by a few powerful pharmaceutical companies, the research team noted.

These findings reveal that “funds are being distributed back out to shareholders rather than being put back into the health care system,” says Cary Gross, MD, senior author of the study and professor of medicine at YSM. These decisions directly impact the health and health care of regular Americans, he says.

Health care is one of the largest sectors of the U.S. economy. In 2023, health care accounted for 17% of the country’s gross domestic product (GDP)—the total monetary value of all goods and services provided during that year.

Of the $5 trillion spent by the United States on health care in 2023, roughly 70% was funded “in some shape or form” by taxpayer money, says Gross, who is also a professor of chronic disease epidemiology at Yale School of Public Health. This includes tax breaks for employer-based health insurance as well as direct funding via Medicare and Medicaid.

As insurance premiums and drug prices have risen in recent years, pharmaceutical companies often argue that drug prices are high because of the up-front cost of research and development, says lead author Victor Roy, MD, PhD, who completed the research while a fellow at YSM and is now an assistant professor of family medicine and community health at the University of Pennsylvania. However, while researching one health care company, Roy noticed that most of the profits from a new medication went to shareholder payouts rather than reimbursing the cost of development.

During his tenure in the National Clinician Scholars Program at YSM, Roy worked with Gross to collect data on 92 S&P 500 health care companies between 2001 and 2022 to see whether a similar trend could be spotted among other large health care companies in the U.S. economy. The team focused on two types of payouts—dividends, where profits go directly to shareholders, and buybacks, where companies buy their own shares to increase their value.

The team found that, similarly to tech and finance, most of the profits realized by health care companies were redistributed to shareholders. Overall, shareholder payouts increased 315% between 2001 and 2022—a trend driven in part by 19 health care companies on the S&P 500 that accounted for 80% of the total payouts over this period.

The decision to prioritize shareholder payouts over reinvesting in health care by this small group of powerful companies likely influences the cost of health care for many Americans, says Roy.

“When shareholders expect greater payouts year in and year out, that has an impact on affordability,” he says. “One of the ways that [health care companies] make money is to keep prices high—or raise them.”

Because so much money in the health care industry comes from taxpayers, the United States could regulate the industry differently than it does other sectors, says Gross. For example, lawmakers could require some profits to be returned into the health care sector to help pay wages for health workers or finance drug development—similar to the way that companies applying for government grants to produce superconductors have been incentivized to help finance childcare for manufacturing and construction workers.

“Some might say, these are for-profit companies, so their goal is to make a profit,” says Gross. But “health care is a right, not a privilege. You can choose when to buy a car. You can’t choose to have a heart attack. As costs of care keep rising, it’s crucial to ask where our health dollars are going.”