Bound by quota: Drug shortage vulnerability for Schedule II medicines

Drug shortages have been a serious, persistent feature of the U.S. healthcare market for more than two decades, with headline‑grabbing examples including a lack of amoxicillin, attention‑deficit/hyperactivity disorder (ADHD) medicines, cancer therapies, and saline. It is well recognized that underlying economic forces play a major role in many shortages, and that FDA’s oversight of quality and manufacturing can shape how quickly supply chains recover when shocks occur. What is less understood is how other parts of the federal regulatory framework can make shortages more likely and more severe.

This paper examines how the Drug Enforcement Administration’s (DEA’s) quota and inventory controls heighten shortages for a subset of medicines: Schedule II controlled substances under the Controlled Substances Act.

Schedule II medicines are those that have accepted medical uses but also a high potential for misuse and abuse, as determined either in the original Controlled Substances Act or subsequently by DEA under its scheduling authority. For many conditions, they are among the most effective options available. They include oral‑dose painkillers and stimulants for treating ADHD that are used by millions of patients. Intravenous opioids—fentanyl, morphine, and hydromorphone—also fall under Schedule II, despite their addictive qualities, appearing on the FDA Essential Medicines List because of their central role in managing pain and providing sedation during surgery, emergencies, and other hospital care.

Over the past decade, DEA has increasingly used its authority to cap annual production of Schedule II medicines to curb diversion of controlled medicines into illicit channels. This strategy, motivated by skyrocketing addictions and overdose deaths, has produced an exceptionally restrictive system, with little slack for supply chains to absorb shifts in demand or supply. Across all drug classes, Schedule II medicines stand out for how long those shortages persist. Morphine sulphate injection has been listed in in shortage since 2017, for instance, and ADHD stimulants have been in shortage since 2022.

When a shortage occurs, DEA’s tight production limits leave a fixed, centrally capped supply to cover clinical and illicit uses alike, so that patients with legitimate medical need cannot always obtain the medicines their clinicians would prefer to prescribe. For intravenous opioids, those shortfalls play out in operating rooms, emergency departments, and intensive care units, where hospitals report having to provide care by substituting whatever formulations or concentrations are available—often ones not as well suited to patient needs—creating substantial risk of medication errors and, in some cases, leading to suboptimal pain control or sedation.

Complexity comes from regulation, not statute

Since the early 1970s, under the Controlled Substances Act, DEA has used a quota and inventory framework to control the legal supply of Schedule II substances. Congress set out only a relatively brief quota mandate in statute, so, over time, the system has evolved mainly through regulation. Through that regulatory structure, DEA’s role expanded even further in the wake of the opioid crisis, as congressional oversight pushed the agency to lean harder on quotas. The Biden administration extended that approach, adding rules that further complicate the quota system and constrain inventories. These rules have subsequently constrained the supply of all Schedule II substances, not just the retail pharmacy opioids at the heart of the epidemic.

To control the supply of Schedule II medicines, DEA uses three core levers, all ultimately tied to the kilograms of controlled substance allowed in the supply chain. First, it sets an overall national cap on how much of each controlled substance may be produced in a given year. Second, it assigns individual quotas that limit how much each facility can make and procure of each substance. Third, it restricts how much inventory manufacturers can hold at any point by tying those limits to past controlled substance outflows (sales, transfers, and losses).

On paper, only a few dozen substances are subject to DEA production quotas, yet the multi‑tier system of facility‑level quotas and sub‑quotas translates into thousands of individual decisions each year. DEA sets manufacturing quotas (authorized in statute) that tell facilities that make a medicine’s active ingredients how much of a Schedule II controlled substance they may produce in a year. It also sets procurement quotas (created by regulation), which cap how much of a Schedule II substance facilities can obtain as an input, affecting active‑ingredient, finished‑dosage, and repackaging operations. In 2023, DEA further required that both manufacturing and procurement quotas be subdivided into sub‑quotas that cap how much can be made or purchased for specific purposes.

The quota system for individual facilities is not only complex on paper; its implementation magnifies that complexity. The statute envisions a single annual manufacturing quota, but DEA typically issues quota in stages, so manufacturers must sometimes repeatedly reapply to secure the quota they ultimately receive. Some of these additional allocations arrive so late in the year that there is little time to convert them into finished product before quotas expire. In other cases, quotas at one stage of production do not match limits at upstream or downstream stages—including within the same facility, where active‑ingredient manufacturing and procurement quotas for a single drug may not line up—leaving manufacturers with quotas on paper that cannot be used in practice.

Resilience requires flexibility—and this system has almost none

This complicated DEA quota system has a big effect on the resilience of the supply chains for the drugs the agency regulates. In this context, resilience amounts to the flexibility of the system to bend under stress, absorb disruptions in supply or demand, and then bounce back. Built as a tight, multi‑layered control regime, DEA’s framework for Schedule II medicines leaves very little flexibility either to absorb supply‑chain stress or to recover once things go wrong.

If one manufacturing facility runs into trouble—for example, batches failing quality control, a production‑line breakdown, or prolonged delays in availability of key inputs—other facilities cannot simply step up and fill the gap. Those facilities must first secure additional permission from DEA to produce or obtain more of the controlled substance, even when they have idle line time, staff, and technical expertise ready to deploy. Yet DEA is often reluctant to raise those facility‑level caps because quotas at the affected plant are still sitting unused. As a result, substantial capacity sits idle, and, when problems arise, the system struggles to redirect production to where it is needed most.

Inventories can cushion disruptions only to a limited extent. Much of what counts as “inventory” is not finished product ready to ship. Instead, it is work‑in‑process—material sitting at intermediate steps in the production process that cannot move forward when a line is shut down. Other manufacturers with available quotas may be able to move their own production forward using their inventories, but unless the affected plant can restart and work through enough of its quotas before it expires, the system still ends up with a production shortfall.

DEA’s caps depend on demand estimates that reflect supply restrictions, not medical need

Another problem is how DEA estimates demand for Schedule II medicines, a key factor in setting caps on production. The agency sets national production caps for each drug and largely bases those caps on past sales instead of on independent estimates of medical need. When those caps are “binding”—that is, when manufacturers are already producing as much as the quota allows—what shows up in the sales data is simply the quota limit, not the full level of medical need.

This design also handles supply disruptions poorly. When a manufacturer has a disruption and a shortage results, clinicians tend to shift patients to substitute products that generally are also controlled substances. Because DEA has set equally tight caps for those substitutes, assuming stable demand, with no allowance for demand spillovers, the extra demand quickly runs up against those caps as well, and the shortage spreads to drugs that were previously available.

DEA’s heavy reliance on historical sales data further amplifies the mismatch between available supply and medical need. When firms cannot fully use the quotas they are given—because quotas arrive late, plants go offline, or quotas are misaligned across facilities—actual sales fall short of both true demand and the quotas. In effect, the supply that reaches patients is lower than the ceiling on paper, and when DEA then benchmarks future aggregate quotas based on these depressed sales figures, the caps drift further below medical need.

A crude tool for a nuanced problem

DEA’s quota framework for Schedule II drugs is aimed at curbing misuse and diversion, but it is poorly aligned with how and where those risks actually arise. Quotas restrict manufacturing facilities, capping how many kilograms of each drug can be made. However, most problems with misuse and diversion emerge much later—through prescribing patterns, pharmacy dispensing, and patient behavior.

Because the quota system is built around total kilograms for each molecule, it does not distinguish between high‑risk and lower‑risk uses of a drug or between settings. The system treats short‑acting tablets the same as long-acting ones and oral dose versions the same as essential intravenous versions used in hospitals. That blunt approach can miss the main sources of misuse while still creating serious collateral damage for patients who depend on these medicines for appropriate medical care.

For ADHD medicines, where non‑medical use is common, fixed caps effectively force rationing but push the hard choices down to prescribers. This could work if every prescriber saw a cross‑section of all patients and could neatly prioritize among them. In reality, access often ends up depending on who can call or drive to more pharmacies or tolerate treatment gaps, not on who has the greatest clinical need.

For intravenous (IV) opioids, the picture is even more troubling. The supply chains for generic forms of IV drugs are prone to manufacturing delays and stoppages, and DEA’s rigid caps leave them with little ability to absorb or recover from disruption. When a shortage hits, clinicians are no longer choosing between appropriate and inappropriate patients; they face stark bedside trade‑offs on how to allocate scarce IV opioids between, say, a teenager badly injured in a car crash and a patient in severe pain from advanced cancer. Shortages often force hospitals to rely on whatever formulations remain available, substituting different IV opioids, strengths, or formulations, which raises the risk of dosing mistakes and other medication errors and too often leaves patients with poorer pain control or sedation than they need.

This is what makes quotas a crude tool for managing Schedule II drugs: they focus on total kilograms of each substance, not on how, why, or in whom those doses are used. Ensuring an adequate, uninterrupted supply for appropriate patients ends up getting remarkably little weight in the system.

An urgent call for reform

Because DEA’s quota and inventory systems are largely a regulatory construct, there is ample room within current law to improve how those systems handle disruptions and respond to medical need.

Reforms to the quota framework should start with setting aggregate quotas high enough to include reserves that can be released quickly when shortages emerge, explicitly accounting for predictable spillovers in demand across related products. DEA should also allow unused quota to roll over into the next year instead of expiring, so temporary disruptions do not permanently ratchet supply downward. In addition, DEA should simplify the system by eliminating procurement quotas and collapsing unnecessary subcategories within the manufacturing‑quota structure. The agency should also streamline the process for requesting and adjusting quotas and revise allowable inventory levels—especially for drugs on essential medicines lists—so that manufacturers can hold inventories robust enough to cushion disruptions.

Together, these quota reforms would reduce reliance on rigid, front‑end production controls and begin to rebalance DEA’s objectives so legitimate medical need is treated as a central criterion rather than an afterthought. But DEA need not abandon its diversion‑control goals. A more flexible quota framework could be paired with stronger use of the agency’s investigative and enforcement tools—using data to identify suspicious or outlier prescribing, purchasing, and dispensing behavior and intervening directly at those points. This more targeted, risk‑based approach, already recommended in 2019 by the DOJ Office of Inspector General, would allow DEA to pursue diversion more precisely while avoiding the blunt production caps that too often leave appropriate patients without the medications they need.

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