Dive Brief:
Shareholder payouts from large, publicly traded healthcare companies jumped more than three times between 2001 and 2022, suggesting healthcare companies may be prioritizing rewarding shareholders over reinvesting income into improving patient care, according to new research.
Over those two decades, shareholder payouts increased 315% from $54 billion in 2001 to $170.2 billion in 2022, the study published Monday in JAMA Internal Medicine found. In total, shareholder payouts over that timeframe reached $2.6 trillion.
Overall, the healthcare industry allocated 95% of aggregate net income to shareholder payouts, while in three subsectors — healthcare facilities, distributors and pharmaceuticals — shareholder payouts actually exceeded net income.
Dive Insight:
It’s not always clear what companies do with their profits. But the new research suggests that large, publicly traded healthcare companies are funneling the majority of their income back to their investors on Wall Street instead of reinvesting proceeds in drug development, medical care or other areas that could improve the cost of or access to healthcare for U.S. patients.
Publicly held corporations have their ownership distributed among the public in the form of shares on stock exchanges. The companies frequently repay capital to shareholders through direct payments called dividends or through buying back their own shares, which increases the value of the remaining shares.
A research team from Yale University was interested in analyzing those payouts in light of rising costs for patients, and given the fact that the government funds a majority of healthcare services in the U.S.
To do so, they examined data from Refinitiv Workspace, which provides historical information on stock market indexes, on companies in the S&P 500 healthcare index, which represents the largest publicly held healthcare companies in the nation, according to the study’s methodology.
The team found a sharp rise in shareholder payouts over the past two decades, surpassing aggregate net income for a handful of subsectors.
Essentially, the companies are pouring profits back to their shareholders instead of investing them into the healthcare system, a trend that could be contributing to higher prices overall. The findings complicate arguments from drugmakers, for example, that high list prices for medications are necessary to recoup initial spending on research and development.
“Shareholder payouts have critical implications,” said Victor Roy, a lead author of the study, in a statement. Roy is currently an assistant professor of Family Medicine and Community Health at the University of Pennsylvania, but was a National Clinician Scholar at Yale while the study was being completed.
“Increasing capital distributions to shareholders of publicly traded companies may be associated with higher prices and may not be reinvested in improving access, delivery, or research and development,” Roy said.
Researchers suggested that policymakers encourage reinvestment into patient care and limit share buybacks based on the findings.
Healthcare companies already face perennial criticism over allegations they focus on profits over patients, as the largest publicly traded healthcare companies have grown to bring in hundreds of billions of dollars in revenue and billions of dollars in profit each year.
That growth corresponds with snowballing spending on healthcare in the U.S., which experts say is driven by rising prices for goods and services: The country’s health spending grew grew 7.5% to $4.9 trillion in 2023, according to CMS data.
That’s $14,570 per person, at a time when many Americans report struggling to afford prescription drugs, the cost of insurance premiums and other medical care.
Censure has been levered at drugmakers amid the ever-rising list prices for medications, hospitals over steep or unexpected medical charges and health insurers for delaying or denying medical care.
Criticism of health insurers in particular has intensified since the death of Brian Thompson, the CEO of UnitedHealth’s payer business UnitedHealthcare. Thompson was killed in New York City in December in a crime that appears to have been motivated by anger at health insurers. The killing set off a wave of anti-insurer animus online.
A number of major health insurers have pledged reform to their business practices in the wake of Thompson’s death, including investments they say will improve the accessibility and affordability of medical care.
