On April 15, 2016, the Food and Drug Administration (FDA) released three new draft guidance documents intending to clarify lingering questions surrounding the application and the enforcement of sections 503A and 503B of the Federal Food, Drug, and Cosmetic Act (FD&C Act or Act)that regulate the practice of pharmacy compounding.

Section 503A was enacted in 1997 and revised in 2013 by the Drug Quality and Security Act (DQSA).Generally, section 503A carves out “traditional” pharmacy compounding from FDA oversight, leaving its regulation to the states. To qualify for the 503A exception, the compounding must be performed by a licensed pharmacist or physician and generally must be done pursuant to an individualized patient prescription written by a licensed practitioner who is authorized to prescribe drugs under applicable state law. Section 503A does, however, permit compounding of “limited quantities” of a drug before receiving a prescription if the physician or pharmacist has a history of receiving valid prescription orders for that individual patient.3 Despite this allowance, critics of earlier guidance documents published by the FDA cited the uncertainty about and the absence of a definition for the term “limited quantities” in the context of section 503A compounding.4

The DQSA also created an entirely new type of compounding facility, the “outsourcing facility,” regulated under section 503B of the FD&C Act. Like section 503A, section 503B exempts compounders from having to obtain FDA approval for the drugs it compounds. However, outsourcing facilities regulated under 503B may compound greater quantities of drugs without the receipt of patient specific prescriptions, making them more similar to drug manufacturers. As a result, the FDA has greater oversight of outsourcing facilities, including ensuring that they comply with current good manufacturing practice (CGMP) requirements.

Facility Definition under Section 503B

An outsourcing facility is defined as “a facility at one geographic location or address that… is engaged in the compounding of sterile drugs; has elected to register as an outsourcing facility; and complies with all of the requirements of this section.”5 An outsourcing facility does not have to be a licensed pharmacy and does not have to obtain prescriptions for individual patients in order to compound.6 However, unlike pharmacies that qualify under section 503A, outsourcing facilities regulated under section 503B are not exempt from the more stringent CGMP requirements that are imposed on drug manufacturers by section 501(a)(2)(b) of the FD&C Act.7

The FDA issued a draft guidance document on April 15, 2016 interpreting the meaning of “facility at one geographic location or address.8

First, the guidance broadly defines a “facility at one geographic location or address” as a business or other entity that is under common control, or under one management, whether that management is direct or indirect. Therefore, several suites at the same street address would be considered one compounding facility, not multiple. The FDA reads the desire to divide facilities into separate suites and to segregate operations between 503A compounding and 503B compounding as a way to avoid the restrictions of the CGMP requirements when compounding certain drugs. The FDA reiterates that all of the drugs compounded in an outsourcing facility, even if pursuant to an individualized prescription, must be compounded in accordance with section 503B. Therefore, a facility in which 503B compounding is occurring cannot be divided to provide for compounding under less stringent standards.9

In explaining its reasoning, the FDA cited the potential risks that would be involved in commingling 503A and 503B compounding activities. The FDA was concerned that confusion about which standards apply to which drugs would arise, as well as problems resulting from the sharing of supplies, equipment, processing areas, etc. The result could be the production of substandard drugs, and the FDA found it to be “in the best interest of the public health to be clear about the separation between 503A and 503B facilities to ensure that those obtaining the drugs will know the standards under which they were compounded.”10

However, the FDA did not have the same objections to allowing one facility to house both 503B compounding and the conventional manufacturing of FDA-approved drug products. The FDA reasoned that, unlike drugs compounded under section 503A, all of the drugs being produced at such a facility would be subject to the CGMP requirements. The FDA seems to believe that housing the practices of 503B compounding and FDA-approved drug manufacturing within one facility would not carry the same complications and risks that would result from a facility compounding under both sections 503A and 503B.

The Prescription Requirement under Section 503A

Another draft guidance document published by the FDA on April 15, 2016 clarifies when traditional compounding pharmacies are permitted to compound and distribute drugs, the quantity they are permitted to compound, and compounding for office-use.11

Valid Prescription. The prescription requirement of section 503A generally requires drugs to be compounded after the receipt of a valid prescription order. The draft guidance defines “valid prescription order” as a prescription identifying the patient for whom it is prescribed, written by a licensed physician or other state authorized and licensed practitioner (a prescriber). The draft guidance states that the FDA considers this type of compounding to be “compounding ‘on’ the receipt of a valid prescription order.”12 The FDA acknowledges that some state boards of pharmacy permit prescriptions to be written without the inclusion of patient-specific names; the FDA concludes, however, that these types of prescriptions “do not meet the requirement of a patient-specific prescription in section 503A.”13

Anticipatory Compounding; Limited Quantities. However, under section 503A(a)(2), pharmacists and physicians may also conduct “anticipatory compounding.” Anticipatory compounding allows compounding before the receipt of a valid prescription order, but only if the compounding meets certain requirements. Among other things, anticipatory compounding may only be done in limited quantities and only if the facility has a history of receiving valid prescription orders for the drug product within an established relationship between the compounding pharmacist/physician and the patient or the prescriber.

The new draft guidance is significant in that the FDA has finally defined what it considers to be “limited quantities” under section 503A(a)(2). The guidance provides that a compounder should not hold more than a 30-day supply of a particular compounded drug product prior to receiving a valid prescription order for that drug product. To determine the number of units that make up a 30-day drug supply, the compounder should select a 30-day period from the previous year and determine the valid prescription orders it received for that specific drug during the selected period.14 To illustrate the point, the FDA provided an example of a situation that would be consistent with its anticipatory compounding policy:

A compounder regularly receives valid prescription orders from a particular prescriber or prescribers, or for a particular patient or patients, for compounded drug X. The highest number of units of drug X for which the compounder has received patient-specific prescriptions in a 30-day period in the last year is 500 units. Compounding up to 500 units of drug X in advance of receiving prescriptions for the drug, and holding no more than that amount to fill new patient-specific prescriptions as the compounder receives them, would be consistent with this policy.15

The draft guidance notes that compounders should keep records on the calculations from which they base their 30-day supply amount, and to demonstrate compliance with all of the requirements that permit them to perform anticipatory compounding.

Generally No Third-Party Office-Use Compounding. The draft guidance also clarifies that section 503A compounding cannot be used to compound for the general office-use of third parties; rather, third parties intent on sourcing compounded drugs for office-use need to do so primarily through 503B-regulated outsourcing facilities. Office-use compounding is used to enable various hospitals, clinics, facilities and practitioners to have compounded drugs on hand for the occasions when patients present with an immediate need. The FDA indicated that under 503A, while compounding can occur before receiving a prescription, the compounding pharmacy or physician cannot dispense the product without first receiving the valid prescription or order. As a result, a compounding pharmacy would need to register and be regulated as an outsourcing facility in order to deliver quantities of compounded product to a third-party facility or clinic in order for the product to be immediately available for patients.

On April 19, the House Appropriations Committee (the Committee) released a draft report on its upcoming appropriations bill in which it included criticism of the FDA’s interpretation of the provisions of the DQSA as evidenced by its recently released draft guidance documents.16 The brunt of the criticism fell on the FDA’s interpretation of when facilities are permitted to use compounding to produce drugs for office-use, as expressed in the guidance on section 503A’s prescription requirement. As mentioned above, pharmacists or physicians compounding under section 503A can compound drugs in anticipation of patient-specific prescriptions in limited quantities, but cannot distribute such compounded drugs to other facilities or practitioners until the receipt of patient-specific prescriptions. In its draft report, the Committee opined that “the FDA has interpreted provisions of Section 503A of the [FD&C Act] in a manner inconsistent with its legislative intent,” in that Congress intended office-use compounding (where the compounded drug could be distributed to the prescriber or its agent without a patient-specific prescription) to be allowable under the DQSA. Because of this, the Committee directed the FDA to issue another guidance document within 90 days of the enactment of the pending appropriations bill to address how compounding pharmacists, under section 503A, can continue to engage in “office-use” compounding without the receipt of a patient-specific prescription. As a result, compounders that are not outsourcing facilities are once more left to speculate as to the amount of a drug that they are permitted to compound and provide to third parties without a prescription.17 The confusion is enhanced by the fact that a vast majority of states allow such office-use compounding.18 Compounders will have to wait for the next guidance to see if the FDA will fall in line with Congress and the states by changing its stance on office-use compounding.

Hospital and Health System Compounding

The final draft FDA guidance published19 on April 15, 2016 outlines the FDA’s approach to compounding within hospitals and health systems.20 Despite the criticism on the office-use limitations referenced above, this draft guidance provides a bit more leeway with respect to hospital pharmacies that are compounding for patients within their hospitals and health systems.

The FDA expresses its intention to apply sections 503A and 503B to these compounders because of the important patient protections they provide against the inherent risks of compounding. While 503A-regulated pharmacies are generally required to obtain a patient-specific prescription before compounding a product, the FDA indicated that it would not take enforcement action if 503A-regulated hospital pharmacies were to compound a drug without first receiving a patient-specific prescription, as long as:

  1. the compounding is done in accordance with section 503A and other applicable provisions of the FD&C Act;
  2. the distribution of the drug is only to other healthcare facilities that are under common ownership and control as the hospital pharmacy and are within a one mile radius; and
  3. the drug is only administered to patients within the facilities (this does not include for patient use outside the hospital) after the receipt of a patient-specific prescription.

The FDA stresses that the one mile restriction is intended to distinguish hospital campuses from large health system pharmacies that compound drugs over a broader geographic area. The FDA believes that such a practice could be similar to a large manufacturing operation, and the FDA states its intention to regulate such health system pharmacies under the provisions of section 503B. If a hospital or health system compounding pharmacy intends to compound drugs without first receiving a patient-specific prescription, and to then distribute the drugs to facilities outside of the one mile radius of the pharmacy, it needs to register as an outsourcing facility under section 503B.21


While the draft guidance documents acted to clarify some parts of the pharmacy compounding regulatory scheme, it seems that not everyone is satisfied with the FDA’s conclusions. The draft guidance documents are open for public comment until July 18, 2016.22

1 21 U.S.C. § 351 et. seq.
2 U.S. Food and Drug Admin., Compounding Quality Act, available at http://www.fda.gov/Drugs/GuidanceComplianceRegulatoryInformation/PharmacyCompounding/default.htm.
3 21 U.S.C. § 353a(a) [or FDCA §503A(a)].
4 Many stakeholders and industry participants have raised questions over this provision due to its ambiguous language. See James A. Boiani & Kim Tyrrell-Knott, Major Changes in Drug Compounding and Drug Distribution Requirements (Part 1 of 2), EPSTEIN BECKER GREEN HEALTH CARE & LIFE SCIENCE CLIENT ALERT, October 2013, (asking “Section 503A allows a ‘limited quantity’ of drug[s] to be compounded based on prescribing and compounding ‘history.’ How limited is a ‘limited quantity,’ and how much ‘history’ is needed?”).
5 21 U.S.C. § 353b(d)(4)(A) [or FDCA § 503B(d)(4)(A)].
6 Id. at § 503B(d)(4)(B)-(C).
7 Erika Lietzan & Mingham Ji, Pharmacy Compounding After the Drug Quality and Security Act, 26 HEALTH LAWYER, no. 4 (April 2014), at 4.
8 U.S. Food and Drug Admin., Draft Guidance – Facility Definition Under Section 503B of the Federal Food, Drug, and Cosmetic Act, Guidance for Industry (Apr. 2016), available at http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM496288.pdf.
9 Id.
10 Id.
11 U.S. Food and Drug Admin., Draft Guidance – Prescription Requirement Under Section 503A of the Federal Food, Drug, and Cosmetic Act, Guidance for Industry (Apr. 2016), available at http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM496286.pdf.
12 Id.
13 Id.
14 Id.
15 Id.
17 Id. at 66-7.
18 Id. at 66.
19 U.S. Food and Drug Admin., Draft Guidance – Hospital and Health System Compounding Under the Federal Food, Drug, and Cosmetic Act, Guidance for Industry (Apr. 2016), available at http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM496287.pdf.
20 The FDA defines “health system” as a “collection of hospitals that are owned and operated by the same entity and that share access to databases with drug order information for their patients.”
21 Id.
22 See 81 FR 22611 (Apr. 18, 2016), available at https://federalregister.gov/a/2016-08878; 81 Fed. Reg. 22617 (Apr. 18, 2016), available at https://federalregister.gov/a/2016-08877; 81 FR 22610 (Apr. 18, 2016), available at https://federalregister.gov/a/2016-08879.