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MAY 1, 2014

Regulating Compounding Pharmacies

A new law aims to fill the gaps in FDA inspection and enforcement of compounding pharmacies.

What's the issue?

Outraged over a 2012 fungal meningitis outbreak traced back to Framingham, Massachusetts-based drug compounder New England Compounding Center (NECC) that left sixty-four people dead and more than 700 sickened, Congress passed the Compounding Quality Act, which was signed into law on November 27, 2013. The law is designed to plug a regulatory gap that existed because drug compounding pharmacies have traditionally been regulated by the states, not the federal government, in many cases even when they grew bigger and crossed the line from "compounding" to "manufacturing." Compounding is the traditional way to make drugs stretching back centuries and is still used to create individualized medicines for patients with specific needs; for example, people who must take their medicine in a liquid form rather than a pill or are allergic to a particular dye or other substance and need a drug made without the allergen.

During the 1990s, however, some compounding drug makers moved into so-called nontraditional compounding, which involved manufacturing much larger batches of drugs that they would sell to hospitals and physicians' offices, including the injectable steroid methylprednisolone acetate that led to the 2012 meningitis outbreak. The new law, which is part of HR 3204, the Drug Quality and Security Act (DQSA) of 2013, clarifies regulatory oversight over traditional compounders and sets up a voluntary category known as "outsourcing facilities" under a newly created section 503B of the Federal Food, Drug, and Cosmetics (FD&C) Act. This new category is aimed at bringing mostly larger compounding manufacturers squarely under the federal regulatory and enforcement fold.

What's the background?

Before the rise of mass-produced pharmaceuticals in the 1940s and 1950s, almost all drugs were compounded, or tailor-made, by pharmacists or physicians for individual use. Compounding continues today--an estimated 1-3 percent of all pharmaceuticals are compounded--and serves an important public health need, in particular producing drugs that are otherwise unavailable because they are not being manufactured or are in short supply. There is another dimension to compounding as well: so-called office-use drugs that are made up in advance without a prescription because physicians need them on hand--cardioplegic solution pumped into the heart during surgery, various salves and creams used by dermatologists, or sterile antimicrobials compounded for injection directly into an infected eye by an ophthalmologist. While some of these drugs are compounded according to standard formulas, many physicians and hospitals require their own tweaks or have particular off-label uses in mind. Compounding provides the answer--done either in-house or through an outside entity.

Compounding is a basic part of the skill set of pharmacists, who, like almost all licensed medical professions, are regulated by the state, in this case the state boards of pharmacy. The Food and Drug Administration (FDA), however, has long maintained that compounded drugs are "new drugs" under the FD&C Act. The Act is still the country's cornerstone food and drug safety statute, which allows compounding pharmacists to remain nominally "under FDA scrutiny." This position is backed up by every court that has looked at the issue, according to a Congressional Research Service report issued last year. But in what it terms a "matter of discretion," the FDA has traditionally declined to take any enforcement action against compounding pharmacies unless those pharmacies cross the line into "manufacturing" while trying to continue the traditional regulatory exemptions provided to compounding pharmacists.

Compounding, although an elemental pharmacist's tool, can be complex, and according to the FDA website, the agency has been aware of certain quality issues with compounded products for more than two decades. Indeed, in 2001 and 2006 the FDA tested a relatively small sample of compounded drugs that were available over the Internet and found that about one-third failed a series of analytical tests, most frequently for potency and dosage uniformity. That compares with a 2 percent failure rate by commercial manufacturers. Between 1990 and 2005, according to the FDA's report on its 2006 survey, the agency said it was aware of at least 240 serious illnesses and deaths associated with improperly compounded medicines. And because pharmacists have not had to report "adverse events" to the FDA, there may have been more, the agency noted.

In 1997 Congress made its first efforts to bring compounding into a federal regulatory framework as part of the Food and Drug Administration Modernization Act, which added section 503A to the FD&C Act. Under section 503A, compounded drugs were exempt from several FDA requirements, including a label with adequate directions for use, production that follows FDA Current Good Manufacturing Practices (CGMPs)--which can include the use of costly ventilation systems, among other things--and the FDA's Approved New Drug Application. In exchange, and to dissuade large-scale compounders from acting like traditional drug manufacturers, section 503A prohibited compounders from "advertising, promoting, or soliciting prescriptions."

Soon after section 503A's passage, seven pharmacies challenged these prohibitions on advertising in court, claiming they were an unconstitutional violation of their First Amendment right to free speech. A federal district court agreed. In 2001 the US Court of Appeals for the Ninth Circuit, which covers the country's seven westernmost states as well as Alaska and Hawaii, upheld that judgment but went a step further and invalidated the entire law, reasoning that Congress would not have enacted any of the compounding statute if it could not include the advertising and soliciting restrictions. In 2002 the Supreme Court in Thompson v. Western States Medical Center also invalidated the free speech provisions but didn't rule on whether those provisions could be removed from section 503A without invalidating the entire law. To make matters more confusing, in a 2006 decision the US Court of Appeals for the Fifth Circuit, which covers Texas, Louisiana, and Mississippi, ruled that the advertising restrictions were invalid but that the rest of section 503A should remain in force.

The FDA, meanwhile, elected not to resolve the questions raised by the 2002 Supreme Court decision. Since the legal landscape was now a patchwork of different standards, the agency decided instead to issue a Compliance Policy Guide that effectively continued the agency's deference to state pharmacy boards for minor violations, while retaining the FDA's focus on the large-scale quality issues it has with any drug manufacturer. Yet the FDA's enforcement authority still faced considerable legal resistance. According to a 2013 Government Accountability Office report, the FDA said that between 2002 and 2012 it had to obtain eleven warrants to gain access to drug compounders that had challenged the agency's inspection authority.

In the fall of 2012, however, the country's worst compounded drug crisis--at NECC--coupled with a tough and impending California drug-tracking law, provided Congress with the impetus to fix the FDA's enforcement authority and try to strengthen communications between federal authorities and state health officials.

As in many public health crises, it took officials a few weeks to realize there was a pattern to the fungal meningitis cases arriving in emergency rooms across the country. News reports credit two Tennessee physicians with making the first connections between the disease and a steroid injection, leading to a September 18, 2012, call from Dr. April Pettit to the Tennessee Department of Health, whose lead investigator then contacted the federal Centers for Disease Control and Prevention (CDC) in Atlanta. By September 25 the FDA had become involved, and the next day three tainted lots of steroid injections--a total of 17,000 vials--were recalled from NECC. Ultimately, 751 cases of meningitis and spinal and other infections were linked to the steroid injections, with the vast majority of cases reported in Michigan, Tennessee, Indiana, Virginia, and New Jersey. An FDA investigation later revealed that one-quarter of the steroid vials in an NECC bin contained a "greenish black foreign matter." Hit with a raft of lawsuits, NECC declared bankruptcy, and in late 2013 the company's owners and its insurers reportedly reached an agreement in principle for a compensation fund of more than $100 million.

The disaster prompted a rash of FDA and state inspections at dozens of sterile compounding pharmacies. The federal agency found objectionable conditions at more than sixty facilities and issued several warning letters, while more than twenty compounders made voluntary recalls. Several rounds of both House and Senate committee hearings ensued as congressional staffers spent nearly a year hammering out the law that took effect last November. "The FDA struggled to pick up the pieces of a statute in tatters," said Rep. Henry Waxman (D-CA) during an April 16, 2013, House Energy and Commerce subcommittee hearing. "It is Congress' job to fix the law when it is inadequate or the courts invalidate it. Which is why we must do more than blame the FDA but give it the clear authority it needs."

What's in the law?

The Drug Quality and Security Act is two-part legislation that became law in November 2013. One part of the law is commonly known as the Compounding Quality Act, an effort to give the FDA more of the unambiguous authority over the compounding drug industry that Representative Waxman had sought, making a distinction between traditional compounders who work at the neighborhood pharmacy and companies producing large quantities of compounded drugs without the need for a prescription. The other part of the law sets up a national prescription drug "track and trace" system designed to ensure a uniform nationwide standard that Congress was eager to pass before a tough new California law went into effect. Although essentially a separate piece of legislation, the DQSA's track-and-trace provisions provided a convenient, related, and quickly moving vehicle for the Compounding Quality Act to be enacted.

The Compounding Quality Act makes two major changes to current law: It re-enacts the compounding provisions from the Food and Drug Administration Modernization Act, with the unconstitutional advertising provisions removed, and sets up a voluntary category known as an "outsourcing facility" under section 503B. This new category allows compounders making sterile products--such as the steroid injections manufactured by NECC--to avoid the complex and time-consuming new drug approval requirements of the FD&C Act and to sell unlimited quantities of drugs on the FDA's drug shortage list without requiring a preexisting prescription anywhere in the country. In exchange for such flexibility, compounders must follow, among other things, formal and often expensive CGMPs, compound under the supervision of a licensed pharmacist or physician, and use only drugs from a bulk ingredients list. Companies registered as outsourcing facilities are also not allowed to compound copies of drugs already on the market unless they are on a drug shortage list and must follow new labeling requirements, report any adverse drug reactions to the FDA, be inspected by the FDA based on a set of risk factors, and pay the FDA an annual $15,000 fee.

The original Senate version of the DQSA would have made registration as an outsourcing facility mandatory, with several clear rules for distinguishing between a pharmacy and the type of manufacturing facility that would have to register with the FDA. These distinctions, however, ultimately proved unworkable. Supporters of making the outsourcing requirement voluntary say that despite the added expense, market forces will ultimately convince most compounding manufacturers that consumers will only want to buy drugs from an FDA-approved and registered outsourcing facility. As of February 28, 2014, according to the FDA website, thirty compounding firms had registered as outsourcing facilities.

As for compounding drug makers that simply choose not to register as an outsourcing facility and do not meet the definition of compounding under 503A, they would be "subject to all of the requirements of the FD&C Act that are applicable to drugs made by conventional manufacturers, including the new drug approval, adequate directions for use, and CGMPs requirements," said an FDA spokesman in an e-mail, adding that the agency would be "encouraging" health care providers and networks to buy their compounded drugs from registered facilities.

Except for the removal of the advertising prohibitions, section 503A is essentially unchanged and still designed for traditional pharmacists who compound drugs based on a particular prescription. In this case, the standards are straightforward: The pharmacist can use only drugs and inactive ingredients that are part of an accepted nationwide standard, have not been withdrawn for safety reasons, are not on a "demonstrably difficult" to compound list, or are copies of commercially available drugs. Pharmacies also must either operate in a state that has signed a memorandum of understanding (MOU) with the FDA that deals with, among other things, the interstate distribution of compounded drugs. Or, without an MOU, no more than 5 percent of a pharmacy's prescription drug orders can be sent to another state.

What's next?

The drug compounding community is now waiting for more detailed guidance later this summer or fall from the FDA on several questions that the law has left unresolved. For example, under section 503A, a "limited quantity" of so-called anticipatory compounding produced before a patient actually needs the drug can be made up ahead of time based on a patient's prescribing history. But it is unclear how much is a "limited" quantity or how long a prescribing history must be.

There are other questions still to be answered. For example, the law is not clear on the precise definition of compounding, which is described as "combining, admixing, mixing, diluting, pooling, reconstituting, or otherwise altering" a drug to make a new drug. But there is no definition of "otherwise altering." In addition, the bill addresses the compounding neither of biologicals nor of drugs for animals.

The law also does not mention so-called office-use medications that physicians keep on hand in case they are needed during an office appointment, and it fails to explain under what regulatory scheme they will be governed. In a position paper released by the International Academy of Compounding Pharmacies after the Drug Quality and Security Act passed the House, the organization asked, How would the new law's failure to address office-use compounding be reconciled "with the current existence of state laws and regulations that both recognize and permit office-use compounding? Which authority takes precedence--state or federal?" The FDA spokesman says office-use medications without the "patient-specific" prescriptions required under section 503A must come from a registered outsourcing facility and that the agency "intends to exercise its authority, as appropriate to protect the public health," against compounded drugs that do not meet these requirements.

The Compounding Quality Act includes its own built-in assessment: Within three years of the law's passage, the Government Accountability Office must publish a report detailing the legislation's "adequacy" in assuring the safety of compounded drugs. The real tests, however, will be how many large compounders voluntarily register under section 503B and whether state regulatory agencies are able to more successfully share information with other states about poor-quality compounders and improve their inspections. The ultimate test of success will be whether another NECC-like catastrophe of any dimension happens again.


Boiani J, Tyrrell-Knott K, "The Compounding Quality Act," Pharmaceutical Law and Industry Report, Bloomberg BNA, Bureau of National Affairs, 2014.

Crosse M, "Drug Compounding: Clear Authority and More Reliable Data Needed to Strengthen FDA Oversight," Government Accountability Office, July 31, 2013. Report No. GAO-13-702.

Drug Quality and Security Act, Public Law 113-54, November 27, 2013.

Glassgold JM, "Compounded Drugs," Congressional Research Service, June 3, 2013. Report No. R43082.

Nolan A, "Federal Authority to Regulate the Compounding of Drugs," Congressional Research Service, April 12, 2013. Report No. R43038.

Outterson K, "The Drug Quality and Security Act--Mind the Gaps," New England Journal of Medicine, 2014;370(2):97-9.

Outterson K, "Regulating Compounding Pharmacies after NECC," New England Journal of Medicine, 2012;367(21):1969-72.

About Health Policy Briefs

Written by
T.R. Goldman
Health Journalist

Editorial review by
Kevin Outterson
Professor of Health Law, Bioethics, and Human Rights
Boston University School of Law

Kim Tyrrell-Knott
Member of the firm
Epstein Becker Green

Rob Lott
Deputy Editor
Health Affairs

Health Policy Briefs are produced under a partnership of Health Affairs and the Robert Wood Johnson Foundation.

Cite as: "Health Policy Brief: Regulating Compounding Pharmacies," Health Affairs, May 1, 2014.

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