Hiding Behind Complexity: Supply Chain, Oversight, Race, and the Opioid Crisis

The opioid crisis has ravaged the United States, taking 69,000 lives in 2020, with prescription opioids accounting for 98% of opioid abuse. Although this epidemic is often considered a White public health crisis nationally, overdose deaths among people of color doubled from 2017 to 2019. As research has shown that the crisis was fueled by excessive supply from the pharmaceutical industry, several individual firms have received significant public criticism. However, we find evidence that the scope of the blame transcends individual actors to indict the very structure of complex supply chains, which may have exacerbated the crisis by dispensing significantly more opioids. In specific, we posit that supply chain complexity allowed mass quantities of opioids to escape detection by the Drug Enforcement Administration (DEA). Further, we find new evidence showing the greater impact of complexity on opioid dispensing in non-White communities, which underscores their exclusion from the public discourse and governmental response surrounding the crisis and suggests possible racial bias in the DEA’s regulatory policies. Our analysis was made possible by the 2019 release of the DEA’s Automation of Reports and Consolidated Orders System database, which logged every shipment in the US opioid supply chain from 2006 to 2014. Using a fixed effects model, we find that a one-unit increase across three dimensions of supply chain complexity is associated with a 16% increase in opioid dispensing. This effect is intensified in non-White communities, where a 10% increase in the non-White population is associated with a 3.39% (1.33%) increase in opioid dispensing by pharmacies that have supply chains with high (average) complexity. To verify that high-complexity pharmacies’ excess dispensing supplied non-medical/recreational demand, we exploit the reformulation of OxyContin (designed to prevent recreational use) as an exogenous shock to the market. In a novel approach, we leverage the fact that different pharmacies received their first shipment of reformulated OxyContin at different times and use a difference-in-differences model to estimate the heterogeneous effect of the shock on dispensing. As the reformulated OxyContin stifled demand, high-complexity pharmacies experienced a 15.31% greater reduction in dispensing compared to lower-complexity pharmacies, suggesting that their excess dispensing was indeed satisfying non-medical/recreational demand.