A new Yale study uncovers that health care companies prioritized shareholder payouts over reinvestment, contributing to rising medical costs for Americans.
In a significant revelation, researchers at Yale School of Medicine (YSM) have found that U.S. health care companies on the Standard & Poor’s 500 (S&P 500) index are prioritizing shareholder payouts over reinvesting profits into the health care system.
The study, published in the journal JAMA Internal Medicine, reveals that these companies allocated 95% of their net income to shareholders over the past 20 years, totaling an astonishing $2.6 trillion.
The research team examined financial data from 92 large health care companies, including those in the pharmaceutical, biotechnology, insurance, medical-supply and hospital sectors. The goal was to determine how these companies spent their profits, particularly those derived through government programs like Medicare.
The findings challenge the common argument from pharmaceutical companies that high drug prices are necessary to cover the cost of research and development.
“While researching one health care company, it became apparent that most of the profits from a new medication went to shareholder payouts rather than reimbursing the cost of development,” lead author Victor Roy, who conducted the research as a fellow at YSM and is now an assistant professor at the University of Pennsylvania, said in a news release.
Senior author Cary Gross, a professor of medicine at YSM, highlighted the broader implications of this practice, adding, “Funds are being distributed back out to shareholders rather than being put back into the health care system.”
This trend has a direct impact on the cost of care for Americans, many of whom already struggle with high medical expenses.
The team’s analysis showed that over two decades, shareholder payouts more than tripled, driven significantly by a small group of powerful pharmaceutical companies. These payouts took two main forms: dividends, where profits go directly to shareholders, and buybacks, where companies repurchase their own shares to boost stock value.
As of 2023, health care represents a massive 17% of the U.S. gross domestic product (GDP), amounting to $5 trillion in spending. Of this, approximately 70% is funded by taxpayer money through mechanisms such as Medicare, Medicaid and tax breaks for employer-based health insurance.
Roy pointed out the link between these shareholder payouts and rising health care costs, adding, “When shareholders expect greater payouts year in and year out, that has an impact on affordability. One of the ways that [health care companies] make money is to keep prices high — or raise them.”
Given that a significant portion of health care funding comes from taxpayers, Gross suggested that the industry could be regulated differently than other sectors. He proposed that lawmakers could mandate a portion of profits be reinvested into the health care system, funding wages for health workers or financing new drug development.
“Some might say, these are for-profit companies, so their goal is to make a profit. But health care is a right, not a privilege,” Gross added. “As costs of care keep rising, it’s crucial to ask where our health dollars are going.”
This study opens a critical debate on how health care profits are utilized, raising essential questions about the balance between shareholder interests and the imperative to make health care more accessible and affordable for all Americans.