I want a new drug

By DAVID MOON, Moon Capital Management
September 26, 2004

If you want an education in human behavior and economics, go to Walgreen’s or CVS. Sit in one of those three plastic chairs across from the pharmacy counter. Sit there for an hour and just watch people.

I did this recently, not out of boredom, but out of a pharmacological necessity. As I sat and waited for my drugs, I was shocked at the behavior of customers. For various reasons, customers were regularly denied the drugs they came to purchase. Sometimes the insurance company refused to pay for a certain medication. Other times, the patient was trying to refill a prescription too soon since the most previous prescription. A doctor’s office might refuse to call in a prescription. Once, a husband asked for some of the same painkillers his wife was taking. (Most of the customers were picking up painkillers or medicine for diabetes.) He was incensed that the druggist wouldn’t simply give him some of the pills, since he was already taking some of his wife’s stash.

Patients were angry, sometimes near the point of violence.

No customer ever paid the full cost of the drugs. There was always an insurance company involved, like an invisible drug lord, deciding who gets what and how much they have to pay. In many cases, the customer left dissatisfied, almost always a result of the dynamics of a business transaction where neither the buyer nor seller agree to a fair price, a third party (the physician) decides the product the customer can buy, and all three parties agree to give a fourth party (the almighty insurance company) the right to disrupt any part of the transaction.

Like an infection that slowly consumes its host, our health care financing system has gradually become dependent on insurance companies to “manage” what ought to be a traditional consumer/provider transaction. In its definitional form, insurance is the aggregation of risks, so no single individual has to bear the full cost of an unlikely catastrophic loss. In an ideal world, you would never collect a nickel on your homeowner’s policy. You don’t file a claim when a doorknob breaks. You don’t expect the insurance company to pay for the paint you need to spruce up the garage. The importance of health care and house repairs are obviously unequal. But it is ludicrous when consumers expect someone else to pay for everyday items, even if those everyday items are crucial to that consumer’s good health.

“But drugs are too expensive,” is the argument. Do you think maybe it is because our current financing system encourages people to buy more products than they need? Go to your medicine cabinet. How many old pill bottles are in there? Why do you have that half a bottle of antibiotics? What about those three remaining diuretics, or the decongestant you no longer take? We buy more than we need because our marginal cost is usually negligible.

You may think our healthcare system is broken, but keep this in mind: I was watching a portion of the healthcare system that supposedly isn’t broken

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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