How Did Local Government Budgets React to the Opioid Crisis?
Hydrocodone was rescheduled in 2014, significantly reducing the supply of prescription opioids. What happened next?
Many researchers have examined the public health impact of opioid rescheduling.
However, a new Public Budgeting & Finance article, published by researchers Felipe Lozano-Rojas and Mikhail Ivonchyk, examined the fiscal impact on local budgets instead.
When the DEA reclassified hydrocodone from Schedule III to Schedule II, conditions were ripe for a natural experiment: prescription rates fell precipitously, nationwide, and all at once.
After analyzing a dataset of ~1,100 county budgets over 16 years — before and after the change — scholars found that:
Communities heavily impacted by the epidemic saw budgets grow by as much as 8% per capita.
Growth was largely driven by increased spending on healthcare services.
Funding was primarily provided by intergovernmental transfers and increased property taxes.
What lessons might local leaders take? And how might their findings inform how we most effectively combat the opioid epidemic?
A Natural Experiment in Public Policy
Hydrocodone has long been one of the most commonly abused prescription opioids. But the 2014 change discouraged physicians from prescribing the drug, leading to an immediate drop in nationwide prescriptions.
Lozano-Rojas and Ivonchyk used that exogenous shock as a natural experiment. Counties varied widely in their dependence on hydrocodone prescriptions; some places relied heavily, while others prescribed relatively rarely. So, researchers next explored their central question by comparing: what happens to local government fiscal decisions when the supply of legal opioids suddenly drops?
Measuring the Fiscal Impact
To determine government responses, researchers first used variations in the proportion of doctor-prescribed opioids to separate highly affected counties from unimpacted communities.
On average, hydrocodone accounted for ~27% of all opioid prescriptions in highly affected areas (the top quartile of the distribution), and ~10% for the remainder.
But it wasn’t immediately obvious how demand for local services, and thus the cost to provide them, would change. Would abusers recover after rescheduling? Or turn to more dangerous options to maintain their habit?
As Lozano-Rojas writes: “Reducing legal opioids may exacerbate the epidemic if users turn to illicit and more potent drugs. Thus, in turn, could require increased law enforcement and healthcare services.”
Counties sit at the operational center of the opioid response, funding everything from public hospitals and detox centers to emergency response and welfare support; if hydrocodone patients turn to dangerous behaviors after rescheduling, it’s reasonable to assume local service demand would rise.
And in practice, a significant number of users do turn to illicit sources
“Drug rescheduling would increase total deaths over five years as some opioid users escalate to heroin,” health policy researcher Isabelle Rao notes, “while overall deaths would decrease over ten years.”
Researchers next segregated county spending into eight categories, and discovered health and hospital spending accounted for 80% of new expenditures. In other words, reducing hydrocodone supply saves lives in the long term, but has immediate short-term consequences that lead to greater demand for local healthcare services.
The Fiscal Double Bind
Absorbing rising public health costs is only the beginning for impacted communities. A variety of downstream consequences can exacerbate conditions as well.
Washington State University economist Patrick Carlin explains:
“An 8% increase in expenditure is quite large. And, the burden could be compounded if the crisis also depresses local labor markets. Lower labor force participation and wages mean governments face rising costs at precisely the moment their tax base is weakening.”
So, the crisis doesn’t just strain public health resources. It can also depress revenue, forcing policymakers to respond to new problems with fewer resources at their disposal.
A Heartening Silver Lining
Amidst the heartbreak and struggle opioids unleash on communities, Lozano-Rojas’ research carries a positive finding; despite the surge in opioid-related spending, police budgets barely changed.
Researchers found no statistically significant increase in police spending in highly affected communities. Such spending may have even slightly declined several years after rescheduling.
Rather than treating opioid addiction as a criminal justice issue, it appears counties are approaching it as the public health crisis that it is.
Research Implications
“Reducing the supply of legal opioids, a primary cause of the epidemic, is only an initial step,” Lozano-Rojas shares. “As some individuals turn to illicit drugs, local policymakers should be prepared to invest additional resources to prevent adverse outcomes and support recovery.”
Combatting a public health crisis is no easy task.
But which additional interventions may have the most impact?
Carlin shares a variety of possible approaches.
“How effective these strategies are is debated in the literature. It’s likely that a combination will be important to address the pandemic, including investing in both inpatient and outpatient treatment facilities, naloxone (Narcan) availability among emergency responders, and Good Samaritan Laws providing legal protection to people who call for help during an overdose.”
Their findings highlight an uncomfortable reality: restricting opioid supply is a step, but one that generates new costs for communities and local government to contend with.
Lozano-Rojas’ and Ivonchyk’s paper, Opioid Epidemic and Local Fiscal Choices, appeared in the December 2024 issue of Public Budgeting & Finance.
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