Physician Behavior in the Presence of a Secondary Market: The Case of Prescription Opioids

Abstract

This paper examines how drug diversion influences the prescribing practices of physicians and the equilibrium health impacts of prescription medications. Focusing on the case of prescription opioids, a commonly prescribed and frequently diverted medication at the heart of the worst drug crisis in U.S. history, I design and estimate a model of physician behavior in the presence of a secondary market with patient search. To access prescription opioids for medical purposes or misuse, patients search over physicians on the legal primary market or turn to an illegal secondary market. Physicians, who care both about their impact on population health and their revenue from office visits, take into account the possibility that patients might resell their prescriptions on the secondary market when prescribing. The model demonstrates that the potential for diversion will tend to make strict physicians more hesitant in their prescribing while leading lenient prescribers to loosen their prescription thresholds, thereby exacerbating prescribing differences between more and less lenient physicians. Estimates reveal that the presence of a secondary market induces most physicians to be more careful in their prescribing, which brings prescriptions closer to their optimal level, but also causes harm through the reallocation of prescriptions for abuse.