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