Supply Base attributes and diversion risk in a supply chain for hazardous pharmaceutical products

Abstract We develop a novel construct, diversion risk, defined as the potential for post‐retail diversion that results from increased sales of hazardous goods. We examine diversion risk in the context of prescription opioid sales in the United States. We ask how supply base attributes and nonprofit ownership influence the creation of opioid diversion risk. We use performance‐outcome expectancy theory to hypothesize that pharmacies organize supply bases to help them avoid negative evaluations and that nonprofit ownership alters expectancy concerning legal but questionable behavior. We develop and test multilevel hypotheses explaining how supply base complexity, chain size, and nonprofit ownership influence diversion risk. Our analysis of DEA data from 2006 to 2019 finds that after accounting for other attributes, supply base complexity is positively related to diversion risk, within and between firms. Retail chain size is negatively related to diversion risk in the within‐firm model, but positively in the between firm model. Testing our nonprofit hypothesis reveals that nonprofit pharmacies also use size and supply base complexity to manage diversion risk. This research sheds light on the dynamics of diversion risk in pharmaceutical supply chains. It has practical implications for the industry, potentially informing future policy and practice addressing this critical issue.