Prices and Federal Policies in Opioid Markets

Abstract

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.