Prices and Federal Policies in Opioid Markets
More than a dozen Federal policy changes since the year 2000 have affected incentives to prescribe, manufacture, and purchase both prescription and illicitly-manufactured opioids. To the extent that one of the policies, the 2013 “Holder memo,” had a meaningful effect on the cost structure of suppliers of heroin and illicit fentanyl, standard consumer theory predicts that the trend for opioid-involved fatalities would proceed in distinct phases. Prior to 2013, subsidies to, and conveniences for, prescribers and consumers would increase total opioid consumption by reducing the full price of Rx. More surprising is that, with heroin relatively cheap of late, any Rx opioid policy could – and likely does – have the opposite total-consumption effect after 2013 than it would before, especially when the more expensive Rx opioid products are most affected. Subsidies to benzodiazepines (an opioid complement) increase opioid consumption in both phases. While policy changes at first reduced the full price of Rx, and then later increased it, technological change in illicit markets is also a relevant factor over the longer term.
I appreciate discussions with Kevin Murphy, Bill Evans, and Ethan Lieber, financial support from the Program on Foundational Research on Health Care Markets at the Becker-Friedman Institute, and the research assistance of Rodrigo Estrada and Daniela Vadillo. This work benefits not only from the CEA reports cited in the bibliography, but also interactions with the CEA staff working on the project, especially Kevin Corinth, Kevin Hassett, Don Kenkel, Tom Philipson, Eric Sun, Paula Worthington, and Joel Zinberg. Molly Schnell brought to our attention the untapped potential of market analysis of opioid fatalities. However, none of these can be blamed for errors in this paper. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.