Dec 17, 2019

Health care profits dip, but stocks soar

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Data: FactSet; Chart: Axios Visuals

Health care industry earnings fell 18% in the third quarter of this year, compared with the same period in 2018, due in part to the costs associated with opioids litigation, according to the Axios tracker of almost 170 health care companies.

Yes, but: The industry still churned out a 6.1% profit margin, and health care stocks are at the highest they've been all year because Wall Street foresees a very profitable election year.

The big picture: Earlier this year, when health care profits were at record highs, Wall Street was bearish because algorithms and traders were triggered at the thought of "Medicare for All" and drug pricing reforms.

  • Now, even as profits slump a bit, Wall Street is buying into an industry that has helped kill legislation that would've tackled egregious billing practices and secretive contracting, scored potential repeals of the Affordable Care Act's taxes, and neutered most drug pricing proposals.

By the numbers: Executives and shareholders of pharmaceutical companies continue to reap enormous rewards.

  • Approximately two-thirds of all third-quarter profits flowed to drug companies, even though they generated less than 20% of global revenue, according to our analysis, which does not include early-stage biotechs.
  • All of our other analyses of industry finances have showed this same theme.

The intrigue: Cardinal Health, a major drug and device distributor, dragged down the industry's profit margin by almost a full percentage point after it booked a $5.6 billion pre-tax charge for any future opioid settlement.

  • The opioid litigation will be very expensive for the companies involved, with settlements likely hitting tens of billions of dollars, but the industry as a whole wouldn't crumble.

Hospitals also recorded lower bottom lines, as their cumulative net margin dropped from about 7% in the third quarter of 2018 to 3% this year, according to the financial results of 48 not-for-profit systems analyzed by Axios.

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As hospital prices rise and much of the sector continues to rake in cash, rural hospitals continue to shutter.

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