Working Paper No. 1373

Retail Pharmacies and Drug Diversion during the Opioid Epidemic

Published: Deccember 10, 2020Pages: 62Keywords: Pharmacy; Ownership, Prescription opioids; Drug diversionJEL-codes: I11; I18; L22

Retail Pharmacies and Drug Diversion during the Opioid Epidemic Aljoscha Janssen and Xuan Zhang

This study investigates the role of retail pharmacy ownership in the opioid epidemic in the United States by comparing independently owned pharmacies’ and chain pharmacies’ prescription opioid dispensing practices. Using data of prescription opioid orders at the pharmacy level between 2006 and 2012, we find that compared to chain pharmacies within the same ZIP code area, independent pharmacies on average dispense 40.9% more opioids and 61.7% more OxyContin.

We further confirm that after being acquired by a chain, a previously independent pharmacy reduces dispensing of opioids by 31.7% and OxyContin by 43%. Using the Oxy-Contin reformulation in 2010, which reduced the demand for diversion for illegal recreational use but not the demand for medical use, we show that half of the difference in dispensed Oxy-Contin doses between independent and chain pharmacies can be attributed to drug diversion.

In addition, we find that independent pharmacies’ OxyContin dispensing is higher in areas with greater competition. Furthermore, a larger county-level recreational demand is correlated with a larger difference between independent and chain pharmacies’ prescription opioid dispensing. 

We discuss two reasons that may explain why independent pharmacies are more likely to be linked to drug diversion. First, they have stronger financial incentives due to lower expected costs of misdoing. Second, they may have less information on patients’ prescription drug use history. Prescription drug monitoring programs help to reduce the information gap between independent and chain pharmacies to some extent, but monitoring of small independent pharmacies needs to be strengthened.


Janssen, Aljoscha and Xuan Zhan (2020). "Retail Pharmacies and Drug Diversion during the Opioid Epidemic". IFN Working Paper No. 1373. Stockholm: Research Institute of Industrial Economics (IFN).

Interdisciplinary European Studies

The European Union and the Return of the Nation State


This book explores the complex and ever-changing relationship between the European Union and its member states. The recent surge in tension in this relationship has been prompted by the actions of some member state governments as they question fundamental EU values and principles and refuse to implement common decisions seemingly on the basis of narrowly defined national interests.

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