Diversion in Prescription Opioid Supply Chains: Evidence from the Drug Supply Chain Security Act

Problem definition: The opioid crisis has been called the worst drug crisis in American history. Although myriad factors influencing this crisis have been examined, the questions of whether and how the diversion of prescription (Rx) opioids from legal supply chain channels to illegal marketplaces contributes to the ongoing crisis remain understudied. Methodology/results: We utilize the enactment of the Drug Supply Chain Security Act (DSCSA) and cross-state variations in initial Rx opioid seizures, measured before the policy intervention, to investigate the impacts of supply chain diversion. The results indicate that states with higher initial Rx opioid seizures have experienced greater decreases in Rx opioid abuse treatment admissions and mortality following the enactment of the DSCSA. Specifically, states with one-standard-deviation-higher initial Rx opioid seizures experienced an average of 9.3% greater decrease in Rx opioid treatment admissions (95% confidence interval (CI): 1.1%–16.9%) and an average of 10.2% greater decrease in Rx opioid mortality (95% CI: 3.5%–16.6%) following the enactment of the DSCSA. Notably, the study identifies an underlying mechanism of supply chain diversion—pharmacy procurement transactions—surrounding three types of prescription opioids: morphine, oxycodone, and hydromorphone. Finally, we conduct falsification tests to evaluate the validity of drug supply chain diversion and the pharmacy procurement channel in contributing to the diversion. Managerial implications: This study informs policymakers, the Food and Drug Administration, and supply chain practitioners about opioid diversion risks in pharmaceutical supply chains and highlights the role of supply chain traceability as a risk mitigation strategy to combat the ongoing crisis. Further, by identifying fraudulent pharmacy transactions as an underlying mechanism for supply chain diversion and specific prescription opioids that are targets of diversion, this study highlights the need for the Drug Enforcement Administration to devise more precise, targeted plans to identify suspicious pharmacy orders of certain types of prescription opioids to counter rampant diversionary efforts. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2023.0140 .