Regulating quasi-legal markets: Evidence from pain management clinic laws

The opioid crisis has often been fueled by its simultaneous interaction with both medical and illicit markets, including "pill mills" that distribute legal substances in inappropriate and quasi-legal ways. Pain management clinic laws (PMCLs) aim to address this property by enforcing stricter regulatory licensing requirements and regulatory oversight on opioid prescribing establishments. Using a difference-in-differences framework and Medicare claims data, we find that PMCLs reduce problematic opioid prescribing and doctor shopping. Drawing on transaction-level information on opioid shipments, we estimate that PMCLs lead to strikingly large reductions in the volume of opioids dispensed directly by practitioners to patients. Studying mortality data, we estimate reductions in overdose death rates involving prescription opioids, with little evidence of substitution to illicit opioid markets. As PMCLs have not been adopted in most states, our results suggest they warrant greater attention from policymakers, even amid the declining role of prescription opioids in the annual death toll of the opioid crisis.