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New research shows power of supply and demand in opioid crisis

New research by SIEPR Senior Fellow Matthew Gentzkow provides evidence that suggests policies restricting supply could be effective.

The realities of the opioid epidemic are painfully clear — overdoses claim more than 100 lives every day in America. What’s less obvious is how it developed a deadly grip across the nation.

Stanford economics professor Matthew Gentzkow and his collaborators — professors Amy Finkelstein and Heidi Williams of MIT — are taking a new approach to understanding the problem by applying the concepts of supply and demand.

Their latest research addresses the relative importance of the underlying drivers of the crisis, giving weight to the ongoing debate over what to blame, or more importantly, what to do.

SIEPR Senior Fellow Matthew Gentzkow and Trione Visiting Associate Professor Heidi Williams show how economics can shape policies to curb the opioid crisis.
SIEPR Senior Fellow Matthew Gentzkow and Trione Visiting Associate Professor Heidi Williams show how economics can shape policies to curb the opioid crisis.

Photo by Holly Hernandez

“Our results support the view that policies restricting the supply may be an effective approach to curbing opioid abuse,” says Gentzkow, a senior fellow at the Stanford Institute of Economic Policy Research (SIEPR).

Their analysis, detailed in a new working paper, "What drives prescription opioid abuse? Evidence from migration" shows that individuals moving to areas with overall higher prescription opioid abuse rates immediately begin abusing at higher rates themselves. Conversely, those moving to lower-abuse areas immediately curb their abuse rates.

In using an innovative empirical strategy, the researchers tease out how much of the change in abuse rates can be attributed to supply-side factors — the environment, for instance, of “pill mill” pain clinics or lenient prescribing patterns. Their calculations find that nearly a third of the behavioral change can be pinned to location-related reasons.

In turn, that means demand-side factors — the personal circumstances intertwined with addiction, including mental health, emotional despair and financial troubles — account for the rest and play a huge role.

“Understanding the relative importance of place-specific and person-specific factors is a key step, but really only a first step, in thinking about policy,” adds Williams, a Trione Visiting Associate Professor in residence this year at SIEPR.

If the study had instead shown that place-based factors had no impact on opioid abuse rates, then it would have suggested supply-related policies would be ineffective, she says.

Too deadly to ignore

The study, titled “What Drives Prescription Opioid Abuse? Evidence from Migration” is the most recent in a flurry of research on the drug epidemic, and it comes as Congress sends a sweeping, bipartisan package of opioid legislation for President Trump’s approval.

Even as politicians hammer out proposals, they have acknowledged the murkiness of the situation. For one, are job losses driving people to take drugs? Or is the drug crisis driving a decrease in labor participation?

Most of the research thus far has affirmed real-life correlations of addiction, including despair, poverty, and unemployment. And two broad narratives are shaping the ongoing debate over the causes, Gentzkow explains.

One zeroes in on the tough economic and personal circumstances people are facing, partly leading them to turn to painkillers and spurring a dramatic upswing in suicides and fatal overdoses — what’s been coined “deaths of despair.”

The other targets the dark side of the medical and drug industries — the increase in bad-behaving doctors, the power of big pharma, and opioid availability.

Now, Gentzkow and his collaborators are introducing a new informative gauge that underscores both narratives.

Their quantitative analysis — based on a research framework that the trio of scholars has used to examine other areas of health economics — follows individuals as they move from one place to another. By isolating location-related changes in abuse rates, the aim is to flesh out a more concrete picture of not just what’s happening, but why it’s happening. The underlying premise is that many personal factors, such as long-term mental health, wouldn’t change upon a move.

“The contribution here is to use this mover strategy to get closer to a real causal estimate of place-specific factors,” Gentzkow says.

Why, for instance, would one West Virginia county have a higher rate of abuse than another? Is it because more of its residents are unemployed or because the county has more unscrupulous doctors?

“The simple answer is that it’s both. It’s supply factors and demand factors,” Gentzkow says. “Our results suggest the supply-side stuff would account for about 30 percent of what’s different and the individual circumstances would account for about 70 percent.”

Analyzing abuse

To gain some clarity on the epidemic, the trio focused their study on the abuse of prescription opioids, such as oxycodone, Vicodin and morphine, which are the culprits in about two-fifths of all opioid deaths.

Their migration analysis is based on the data of a random sample of 1.5 million recipients of the Supplemental Security Disability Insurance enrolled in Medicare Part D, the federal prescription drug benefit program, from 2006 to 2014. Opioid use is especially prevalent among SSDI enrollees: They are estimated to account for about 13 percent of all opioid prescriptions, even though they make up less than 5 percent of the adult population.

The researchers used three common measures of opioid abuse — filling prescriptions from four or more doctors, having prescriptions that equate to more than 120 milligrams of morphine per day, and getting overlapping prescriptions before one runs out. Then they developed an indexing tool to aggregate the different measures into overall abuse rates.

A main finding cited in the study: When individuals move to a county where the rate of opioid abuse is 20 percent higher than from where they moved, a migrant’s rate of abuse increases by 6 percent.

The extent of that jump suggests that 30 percent of the difference in abuse can be tied to place, according to their calculations.

And not surprisingly, those with a history of opioid use are more affected by that change in environment than the newly addicted — four times more.

The study also finds that movement to places with more physicians per capita and without laws regulating pain management clinics tends to have the effect of increasing opioid abuse.

Taken together, the results suggest that new supply-side policies, such as how Medicare, as of last April, will no longer reimburse for high-dose, long-term opioid prescriptions, could be effective in reducing opioid abuse, the study states.

But an important limitation of the study, Gentzkow says, is how it doesn’t capture effects related to the black market and illegal forms of narcotic painkillers. What’s more, the study takes broad strokes, calculating average changes across many different types of people who have moved to many different kinds of places.

“That kind of averaging is interesting — and can be informative, but it’s masking a lot of different kinds of heterogeneity,” Gentzkow says.

How a different setting affects individuals can vary, depending on personal circumstances.

“There’s a lot more research and hopefully subsequent work by us or others, that will unpack that heterogeneity better,” he says.

Williams agrees.

“The magnitude of the opioid crisis is simply staggering, and trying to make progress on understanding the underlying causes of the crisis is — or should be — on the ‘wish list’ of many researchers,” she says.

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