THE HEALTHY ECONOMY

What are the biggest companies in the US?

Ask a large enough sample of Americans that question in the past and I bet you'd be able to assemble a full list of the Top 25 or 50 in the Fortune 500 fairly easily. Try the same experiment now and I'm not entirely sure some of them would ever come up. And that's very strange.

What are the first ones that came to mind when you read the opening sentence? Apple? Amazon? Walmart? GM? ExxonMobil? UPS? AT&T? Perusing the Fortune 500 list is an interesting exercise in assumptions vs. reality. Some are a lot lower than you'd think because the list ranks by revenue, not profit or market cap. So McDonald's doesn't crack the top 100. Google ("Alphabet") is 27th. UPS is 48th. Microsoft is 28th. Citibank is 30th. Citibank!

So what IS up at the top? My guesses were: banks, oil companies, and mega-retailers (Amazon, Costco, Walmart, etc). I wasn't way off, but the Top 25 had a few that were very odd to me:

1 Walmart
2 Berkshire Hathaway
3 Apple
4 Exxon Mobil
5 McKesson
6 UnitedHealth Group
7 CVS Health
8 General Motors
9 AT&T
10 Ford Motor
11 AmerisourceBergen
12 Amazon.com
13 General Electric
14 Verizon Communications
15 Cardinal Health
16 Costco
17 Walgreens Boots Alliance
18 Kroger
19 Chevron
20 Fannie Mae
21 J.P. Morgan Chase
22 Express Scripts Holdings
23 Home Depot
24 Boeing
25 Wells Fargo

Guys, I might be projecting my own ignorance here so correct me if I'm wrong, but I'm convinced that we could poll Americans by the tens of thousands before anyone mentioned "Express Scripts Holdings" as one of the 25 biggest companies in America. Not far behind on the list of "Never heard of them" candidates (unless you work in the medical or insurance industries) would be AmerisourceBergen, Cardinal Health, and McKesson.

Express Scripts, for the record, fulfills prescriptions by mail for some big institutional clients like TriSource (the military's health plan) and Blue Cross.

Does anyone think it's a little weird that 1/3 of this list is companies delivering pills from manufacturers to customers? McKesson, Express Scripts, CVS, Walgreens, and AmerisourceBergen do nothing but. Walmart and Kroger both derive a large part of their revenue from pharmacy (see Target's recent alliance with CVS). Two more of the remaining companies (UnitedHealth and Cardinal Health) are big hospital-pharmacy conglomerates.

Compare that to the first Fortune 500 (in 1955) or even more recent examples from the late 20th Century. Now, I understand that the economy is bound to change, and should change, over time. Big steel companies from the 1955 list are no longer the economic titans they once were for reasons we all understand. The economy will change. But it's a little odd to see hard evidence that one of the things it has changed to is…mailing each other pills.

It's an additional layer of weirdness to think that all of the 1955 companies are, for lack of a more precise term, things people have heard of. Things people recognized as Big Business (the holding company Esmark, like Berkshire Hathaway today, being perhaps the exception). Perhaps people who work in the medical / pharma / insurance industry take this as a given, but it just does not strike me as common knowledge what a massive share of our economy is currently made up of companies that pass out prescription drugs.

The argument that America is over-prescribed is common, as is the recognition that medical care and drugs in particular are overpriced. There is compelling evidence to support all of that, and combined with an aging population and the availability of more drugs to treat more conditions than in the past we have created a kind of perfect storm of medical spending.

This is weird. As recently as 1990 or 2000 there were zero companies related to health care in the top 25. It shouldn't be a surprise that companies that barely existed 20 years ago might be economic giants today, but if forced to guess I'm assuming most people would identify internet giants like Google, Amazon, Facebook, and the like as the likely candidates.

It would be remarkably interesting to see some survey research on this – comparing what Americans think makes up the largest shares of our economy versus reality. We recognize as a country that health care is expensive and a lot of money is spent on it, but insurers and drug companies like Pfizer, Merck, etc tend to bear the brunt of that criticism. I think many people would genuinely be surprised to see that the middle men are the biggest economic entities, often in the form of companies that exist largely in anonymity.

I don't know what, if anything, this means. I do wonder, though, about the long term prospects for an economy in which so much economic activity involves mailing and handing people – especially a very large generation of older people at the moment – pills. Express Scripts Holdings seems likely to go the route of Republic Steel in the long run.

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36 Responses to “THE HEALTHY ECONOMY”

  1. Droppy Says:

    As a non-economist (boy is that an understatement) there's a lot about this I don't get, but it seems to me that the whole medical-industrial complex is so intertwined into our corporate structure – we get medical insurance through our jobs (why?) and those insurers are really hard to deal with and there is a huge amount of wasted motion and someone is making money at every turn – so that in the end the inefficient and impossible-to-see complexity of the whole mess is just what our Overlords want – we throw up our hands and pay money for something because otherwise we get nothing and it isn't clear to most of us commoners. Pretty good racket for some folks. So not surprised to see those groups involved in vacuuming up the money high on the list.

  2. Kaleberg Says:

    You should follow the government subsidies. In the 19th century, they went to the railroads, steel, coal and basic industries. In the 20th century, the government was subsidizing automobiles by building roads and suburbia, so you'd expect steel, autos, oil and, later in the cycle, big box chains. The government subsidized computers, the internet and props up telecommunications monopolies, so expect them to be big. Health care is another big government money sink, both directly and through subsidies for health "insurance". I remember when Medicare came in and within five years strip malls were filling up with medical offices. Just remember that the money winds up with the aggregators.

    I wasn't very surprised by the list, but I've been following business for decades now. Middlemen have advantages as aggregators. Ben Thompson at Stratechery talks about this in terms of internet traffic and profits, but it applies in the real world as well. If you can get a good distribution system going, you can develop a customer base like Sears, A&P, B&N, Standard Oil, Amazon, Facebook and so on. You are where customers will look first. Then, you can lean on the actual producers of the products because they have to go through you to get to their customers.

    You'll notice the lack of drug companies up on that list. It's almost all aggregators. Even GM qualifies, though we don't think about it that way. Sloan built it to aggregate at least a dozen other car companies so it could sell cars into any market. Before then, you bought from a manufacturer's dealer based on the kind of car you could afford. After, you bought from GM.

  3. Mo Says:

    Kaleberg – The Platform Economy as a major stop on the Vertical Integration Railway?

  4. Matt Says:

    The dominance of pill-supplying companies might be an artifact of ranking companies by revenue rather than profits or market cap, as you mentioned. Filling prescriptions for drugs seems like it would have huge revenues (because you would be collecting the full drug price from all the patients who buy through you) but razor-thin profit margins (because almost all of that money goes to pay the drug company, and there's lots of competition to be the intermediary who creams a couple of cents off the top of this transaction).

  5. Brian M Says:

    doesn't surprise me. One of the largest "private" employers in my outer suburban town (they are building a second large office building) simply exists to process Medicare and Medical and all the other transfer payments.

  6. Emerson Dameron Says:

    The obvious solution is to execute them.

  7. BruceJ Says:

    Matt, places like ExpressScripts don't collect anywhere near 'full drug price' from their customers, who aren't the individual consumers, it's the healthcare insurance companies contracting with ExpressScripts.

    Healthcare is a gargantuan chunk of the economy, direct healthcare expenditures accounted for almost 18% of GDP in 2016 https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html

  8. BruceJ Says:

    Also, both Walgreens and CVS are 'drug stores' but a significant source of revenue for them is all the rest of the stuff they sell; they're much more generalized retail stores than just pharmacies.

  9. drew Says:

    @Droppy: The "why" of health insurance tied to jobs largely has to do with wage freezes during WWII and companies finding new ways to attract employees.

    Having read the article I wonder why Apple is so high on the list. It seems like the outlier. No companies similar to Apple in the top 25?

  10. Major Kong Says:

    Back in my IT days I did a lot of work for Cardinal Health. Pretty good company as I remember.

  11. mago Says:

    "I do wonder, though, about the long term prospects for an economy in which so much economic activity involves mailing and handing people – especially a very large generation of older people at the moment – pills".

    It's not the process and economy that scares so much as the product delivered and all involved consequences.

  12. Totoro Says:

    I agree with Matt. If you look at the most profitable companies in 2016, according to Fortune Magazine, you get a more of the expected names:
    Apple
    Exxon
    Wells Fargo
    Microsoft
    JPMorganChase
    Berkshire Hathaway
    Chevron
    Walmart
    Johnson&Johnson
    General Electric

    Revenue is kinda bogus as a size metric. Either market cap or profitability is much more interesting (imho). If I'm trading dollar bills for other dollar bills I've got lots of revenue but zero profit. Not a sustainable model.

  13. ronzie Says:

    I do wonder, though, about the long term prospects for an economy in which so much economic activity involves mailing and handing people – especially a very large generation of older people at the moment – pills.

    Especially since this is something that, I presume, can be readily automated, requiring very few actual humans to do the work. I mean, if hardware hacking hobbyists can make "robots" out of off-the-shelf components that can sort Skittles® by color, how hard could it be to make some that can sort, count, and package pills? What jobs will be left for people to work to earn the money to buy the drugs?

  14. Tim H. Says:

    ronzie, everyone wants cheap labor and prosperous customers, rock, meet hard place.

  15. MS Says:

    Yeah, revenue (in a world of cheap venture capital) is a terrible, easily-gamable metric. Uber can sell $2 bills for $1 and make a ton of revenue doing so, but you see there's a slight sustainability problem.

    As for mailing each other pills, it's worthwhile remembering that every day that passes, the population gets older. Never in the future will the United States be as young as it is today. The future is a GIANT HORDE of ancient, white-haired people watching Fox News with a tiny number of young people. And apparently, in the future all those old people will also be in great need of the strongest opiates available because of their, ummm, "pain".

    So… I'm going to go out on the world's shortest limb and predict that no, pill-mailing companies aren't going away. Now that Amazon is moving into the pharmacy business, Amazon may eat them, but somewhere on that list, pill-mailing companies are going to be well-represented.

  16. Schmitt trigger Says:

    Many moons ago, when the US started to de industrialize in earnest, economists predicted that in the future we all would be selling burgers to each other.

    But prescriptions?
    Wow, this is far more bizarre and dystopian.

  17. Schmitt trigger Says:

    Big Pharma may become the new NRA.
    If it isn’t already.

  18. James Hare Says:

    The pills by mail is not the biggest part of those companies' business. They're all pharmacy benefit managers.

  19. Camembert Says:

    mm opiates

  20. A.C. Says:

    This has a lot to do with the medicare part D provision preventing gubment from negotiating over drug prices but still paying for them. If you remember Wilfred Brimley's diabeetUHs ads for Liberty somethingorother, that was one of the more visible instances of the business model: middlemanning gubment old-people-care money to pharma at any price (plus other issues like patent worship and offshoring of manufacturing and how those things affected availability of generics). As with any model that is n% bullshit, profits were high and consolidation wars were a thing; I say this as a former organelle in the company that amoeba'd Liberty and then eventually was borg'd into the belly folds of Express Scripts.

    On the plus side, I totally get it when some embittered slob at the bar is ranting about how Elongumous Muskox is a fucking corporate welfare queen… as much as there is to get out of such a rant.

    I will one day be him… the embittered drunken slob who rants… no, not Elon Musk. But at least the pill-based portion of my self-medication regime will be free-to-me, profitable-to-the-rich, and on the taxpayer's dime.

  21. Monte Davis Says:

    Tim H.: So … you mean… "buy low, sell high" works for *labor*, too? Cool beans! I can't wait to tell the guys at the Business Roundt–

    Whattya mean "they know already"..?

  22. Katydid Says:

    I keep getting increasingly-annoyed mail from my company and also from one of those pills-by-mail companies demanding that I switch over to them instead of going to the pharmacy like some loser. So far I've resisted, mostly because my prescription drug use is very rare, and when it is, I need the drug NOW, not in a few weeks or so.

    Example; last summer I attended a company summer picnic. I was only there three hours, but as I was getting back in the car to leave, I noticed a tick attached to my leg. By the time I got home, I had a fantastic bullseye rash. Off I went to a walk-in doc-inna-box place for a course of antibiotics, which I started that day. If I'd had to wait for a mail-in prescription system to receive, set up an account, and fill the order, I would have had to wait a week or more, depending on the mail (no delivery on Sundays, remember).

  23. democommie Says:

    "What jobs will be left for people to work to earn the money to buy the drugs?"

    "Hi, Welcome to Walmart! I'm afraid all of the extra-jumbo-lazyfatfuck scooters are currently in use. We'll just get you waitlisted and you can have a nice sammie and the 2 liter big gulp, while you're waiting."

    or

    "Do you want fries with that? Would you like to 'Gargantuize your order? Shall I round it up, so YOU can make a donation to the MurKKKan Heart Assn.? Do you need to have your oxyscrip filled?".

  24. democommie Says:

    "onzie, everyone wants cheap labor and prosperous customers, rock, meet hard place."

    Well, yes, of course. But–they also want cheap, non-gay, non-oxyaddicted, christian white labor.Oh, and they want the trains to make a comeback, else otherwise how you gonna have an underclass without you don't got no "wrong side of the tracks"?

  25. Jimcat Says:

    As someone who made a living working for Express Scripts Holdings, we were quite aware that it was one of the largest companies in the US, thank you.

  26. democommie Says:

    @ Katydid:

    Sorry to hear about the tick thing. I am sure if your employer sees this they will take necessary measures to preclude future events of this sort. Perhaps, instead of a picnic outside, where the wee nasties live they can have it in the company caf or, better yet, do away with it entirely as a "reckless hobby*".

    My experience with the VA's pharmapholk is that anything that they WANT me to take will arrive quickly. My Adderall Lyrica (both generic), otoh, take up to 2 weeks to arrive, on occasion.

    * Something akin to skiing, while blindfolded and set alight through a forest glade filled with thermally triggered Claymores.

  27. democommie Says:

    "Big Pharma may become the new NRA.
    If it isn’t already."

    Oh, wow, I can hear their rallying cry, already:

    "You can have my 'spike' when you can pull it from my cold, dead arm!".

    But, you prolly had something else in mind.

  28. Katydid Says:

    Hey, Demo!

    My company won't change their summer picnic location because friends of theirs own the picnic location, but next year I'll know to douse myself in anti-tick spray and keep dousing myself. My greater point was that sometimes you need meds ASAP and waiting around for a mail-order service is not in your best interest, no matter how many kickbacks exist between my health insurance company and the mail-order scripts company.

  29. Katydid Says:

    Laughing so hard about the jumbo scooters! One of my elderly parents uses a walker but still wants to get out and go grocery shopping. When I'm the designated driver, I've wondered about the oversized people riding the scooters. Perhaps if they didn't weigh 800 pounds, they wouldn't need to ride? And yes, I've seen some scooters with drink-and-food holders built right in, no need to stop snacking while shopping!

  30. Courtney Says:

    If you live in WV, you’re not surprised at all, because we’re dying of product dumping:
    http://www.pulitzer.org/winners/eric-eyre

  31. mwing Says:

    Dear Ed, I did that thing on facebook where you can download your "archive" and see what keywords are associated with your profile under "Ads Topics". My list includes the word Gin, and later on, Tacos.
    I search for neither on facebook, but I am facebook friends with your page there and occasionally click on a link.
    So now Facebook thinks I want actual gin and actual tacos. I'm OK with that.

  32. Tim H. Says:

    Monte Davis, I meant if employers succeed in reducing all their labor costs, they may discover there was a lot of overlap between their customers and their employees. Question is, will their losses from broke customers outweigh the gains from cheap labor?

  33. alefdeux Says:

    This seems timely. Before I read this piece I truly had no idea that prescription-by-mail is a thing. Now my FB/IG feed is full of prescription-by-mail services. I’m turning 50 in 18 months, but otherwise healthy. Coincidence?

  34. Eadgyth Says:

    Sorry I am seeing this so far after it was first published. Important causal element: metabolic syndrome has skyrocketed globally. We are seeing a true global pandemic. Diabetes is one of the more commonly seen conditions that are part of metabolic syndrome. In 1910ish, some few per thousand admitted hospital patients had diabetes. Today surveys in China and California found rates of diabetes and pre-diabetes to be over 50% of the population. Additional scary note: Alzheimer's is called diabetes type 3.
    It's a huge deal that will swamp the entire medical system at some point. People really are a lot sicker than they ever were.

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