Where Does All the Profit Go?

An analysis of the financial reports of 92 healthcare companies in the US, including pharma and biotech, insurers, medical-supply companies, and large healthcare facilities, appears to show that 95 percent of profits go to shareholders rather than being reinvested into R&D, or used to improve care and access. As an added shameful note for the pharma industry, it is the pharma companies included in the analysis that skew the results the most, according to the authors.

“Some might say, these are for-profit companies, so their goal is to make a profit,” said Cary Gross, senior author of the study and professor of medicine at Yale School of Medicine, in a statement. “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.”

Gross and his co-authors looked at the reports from 92 companies featured on the Standard & Poor’s 500 (S&P 500). Over the past 20 years, the companies in the analysis spent 95 percent of their net income on shareholder payouts (amounting to $2.6 trillion). During this period, shareholder payouts also tripled, with this trend “largely shaped by a few powerful pharmaceutical companies,” according to a statement about the research.

According to the authors, of the $5 trillion spent on healthcare in the US in 2023, around 70 percent was funded in some way by taxpayers. They suggest that new regulations could help require companies to invest some profit into the healthcare sector.

The study was triggered when lead author Victor Roy noticed during research that most of the profits from a new medication in one company went to shareholder payouts rather than reimbursing the cost of development. From there, Roy worked with Gross to collect a larger date set to see if similar trends were at play in other companies. They found that shareholder payouts increased by 315 percent between 2001 and 2022. The trend was partly driven by just 19 companies out of the 92 studied.  

Roy completed the research while a fellow at Yale School of Medicine and is now an assistant professor of family medicine and community health at the University of Pennsylvania. He believes that the prioritization of shareholder payments could be influencing high healthcare costs in the US.

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