New Law on Pharmacy Compounding May Increase Risks for Consumers

Health Letter, February 2014

In November 2013, President Obama signed a new law that included provisions intended to improve the quality and safety of drugs produced by compounding pharmacies.

The new law comes more than a year after the start of a tragic outbreak of fungal meningitis linked to contaminated steroids illegally mass-produced by the New England Compounding Center (NECC), a compounding pharmacy located in Framingham, Mass. The outbreak first made headlines in October 2012 and over the following year resulted in 751 cases of infection and 64 deaths among patients nationwide.[1]

Whether the new law will work to keep patients safe will depend in large part on the Food and Drug Administration (FDA). The main impact of the new law will come through creation of a new category of companies, called “outsourcing facilities” or “outsourcers,” that will be legally permitted to mass-produce drugs without the agency’s approval. This type of unapproved drug manufacturing was technically illegal in the past, but the FDA had done relatively little to stop companies such as the NECC from engaging in the practice.

The FDA aims to prevent another massive public health outbreak by requiring outsourcing facilities to register and comply with federal manufacturing standards intended to ensure drug quality. Yet the agency will have no authority to review the safety, efficacy or quality of outsourced products before marketing, potentially opening the door to a flood of substandard drugs, with unpredictable consequences for patients. Without careful oversight, outsourcers may be able to compete aggressively with generic drug manufacturers, potentially replacing safer FDA-approved drugs in the marketplace.

Evolving industry

Traditionally, physicians and patients relied on compounding pharmacies to create customized medication to meet unique or uncommon clinical needs that could not be met with an FDA-approved drug. For example, if a patient with peanut allergies needed to take an FDA-approved drug that contained peanut oil and no other FDA-approved product was available, his or her doctor might recommend a compounded product that did not include the oil. A patient unable to swallow a pill may need to have their medication ground up by a pharmacist and dissolved in liquid to administer through a feeding tube.

Under federal law, all new drugs, even ones that have been modified from an FDA-approved product, must be approved by the FDA prior to marketing. They also must be assessed for safety and effectiveness. Yet premarket clinical testing for all such customized products would be impractical or impossible. The FDA has long recognized a legitimate health need for individually tailored medication in certain situations, and therefore it has never required compounding pharmacies to seek premarket approval for customized products.[2]

In 1997, Congress wrote the FDA’s longstanding informal policy into law, through a statute exempting traditional compounding from new drug approval as long as certain conditions were met.[3] Unfortunately, some of these conditions imposed restrictions on advertising that were found by the U.S. Supreme Court to be unconstitutional, and those restrictions were struck down in 2002.[4] Later, disagreement among various courts led to a split system in which the FDA’s informal policy applied in some parts of the country, while the 1997 law applied in others.[5]

As these legal changes were taking place, the FDA allowed a number of companies calling themselves compounding pharmacies to abuse the traditional compounding exception, mass-producing drugs in an activity that closely resembled drug manufacturing. Rather than modifying an FDA-approved drug to meet the specialized needs of an individual patient, these companies would purchase large quantities of bulk active ingredients and process the chemicals into large lots and batches of standardized product.

Some of these products, marketed to both patients and health care providers, were designed to replicate FDA-approved drugs, meeting demand at times of shortage and competing with approved products even when no shortage existed. For example, the steroid linked to the NECC outbreak, methylprednisolone acetate, is available in several FDA-approved forms.[6] That drug was reported by a professional association of hospital pharmacists to be in temporary shortage in the summer of 2012,[7] although it was off the FDA drug shortages list in September, just before the NECC outbreak was announced.[8]

Other pharmacies make original products, containing new combinations,[9] formulations[10] and active ingredients[11] to treat conditions that may or may not have FDA-approved options available. Pharmacies even began to “brand” products, selling them to patients and health care providers, in packaging that made it hard to distinguish them from FDA-approved products.[12]

Disease outbreaks and failed oversight

Although the NECC is undoubtedly the most extreme example of patient harm resulting from illegal drug manufacturing under the guise of pharmacy compounding, similar outbreaks linked to unapproved drugs have been occurring for years on a smaller scale. For instance, two disease outbreaks, each involving about a dozen patients,[13] occurred in 2004 and 2005. These outbreaks were associated with products made by two compounding pharmacies with facilities in multiple states, PharMEDium and Central Admixture Pharmacy Services, or CAPS.[14]

In both cases, the FDA responded by inspecting the implicated facility and identifying sterility problems and contaminated medication. However, it took between six months and two years thereafter for the agency to issue warning letters describing sterility concerns and accusing the pharmacies of making adulterated and misbranded drugs in violation of federal law.[15]

Nevertheless, violations appear to have continued. The FDA had to investigate PharMEDium following another outbreak in 2007. The agency also visited various CAPS and PharMEDium facilities repeatedly in the years following the warning letters and found further sterility and quality concerns. Yet the findings of these investigations were never published, no further warning letter was ever issued and the FDA never publicly requested that the companies scale back operations or seek new drug approval for their products.[16]

PharMEDium and CAPS continue to market sterile products to hospitals and other health care providers, even as quality concerns continue.[17],[18] The FDA inspected multiple CAPS and PharMEDium facilities in 2013 and found a number of problems, including insects near areas where sterile drugs were being made, bacterial contamination in drug products and failure to test products adequately for sterility.[19],[20],[21]

These issues were not unique to two pharmacies. Since the NECC outbreak, the FDA has inspected dozens of compounding pharmacies making sterile products.[22] Some of these inspections were followed by drug recalls,[23] but only a few pharmacies have announced that they will cease production of sterile products, and even these have done so only after their state pharmacy license was suspended or by voluntary consent.[24],[25],[26]

The 2013 law: Legalizing unapproved drug manufacturing

Following the NECC outbreak, the FDA turned to Congress to provide a single, clear national framework for regulating pharmacy compounding. The FDA could have asked Congress to clarify the line between traditional compounding and drug manufacturing and put large-scale operations such as the NECC out of business unless they complied with all of the regulations applicable to drug manufacturing. Instead, the FDA went a different route, arguing that the compounding industry had “evolved” and now supplied so many drugs to hospitals that requiring these facilities to scale back operations or apply for premarket approval prior to marketing drugs might cause “disruptions.”[27]

The FDA successfully urged Congress to create a new, third category of drug producers, first called “compounding manufacturers” but eventually renamed “outsourcing facilities.”[28] Any company that makes drugs, regardless of how it was identified in the past, may choose to register as an outsourcer and produce drugs without having to undergo new drug approval or include adequate directions for use in its product’s labeling. In return, the outsourcer must meet certain requirements that include paying registration and inspection fees and complying with federal manufacturing standards. Notably, the company also must agree to only produce drugs that appear on the FDA’s drug shortages list or another list of drugs identified by the FDA as appropriate for compounding.

In addition, the law restores the non-advertising portions of the 1997 statute in which Congress first formalized the FDA’s policy on traditional compounding, which had been called into question by various court decisions. Like outsourcers, traditional compounders need not obtain new drug approval or include adequate directions for use, and they also need not comply with federal manufacturing standards.[29] Traditional compounders can generally make drugs out of any active ingredient, but they are prohibited from making drugs that appear on certain “do not compound” lists that the FDA will create.

Unfortunately, the statutory rules on traditional compounding do not provide a very precise definition for the type of activity qualifying as traditional compounding. Public Citizen has recently written to the FDA highlighting concerns with this ambiguity and requesting the agency to issue clarifying regulations.[30] Lack of clarity leaves the door open to abuse by companies like the NECC, many of whom may continue to mass-produce drugs illegally even with the new law in place.

Ongoing safety concerns

Because outsourcing facilities will all be voluntary registrants held to federal manufacturing standards, consumers might reasonably expect them to produce products that are of higher quality than traditionally compounded drugs. Yet these products will still carry a number of safety concerns that are not present with FDA-approved products, posing a dangerous risk to patients.

First, outsourced products will not have to undergo pre-market approval, meaning the FDA has no opportunity to confirm that clinical tests have been run to verify that the formulation, route of administration or even the basic active ingredient is safe and effective.[31] The FDA may choose to allow outsourcers to produce drugs using active ingredients that are not present in any FDA-approved product, and in most cases relatively little is known about the safety and effectiveness of these compounds.

Second, the labeling of outsourced products also will not be reviewed by the FDA prior to marketing and need not contain data from premarket clinical trials, meaning important information will not be available for physicians and patients. There will also be no label warning patients that the drug is not FDA-approved. Instead, outsourced drugs must bear a label stating, “This is a compounded drug.” Confusingly, traditionally compounded drugs have no federal labeling requirement, meaning there may be no way at all to identify that these products are compounded.

Finally, drug quality is also an issue, and infection outbreaks from contaminated drugs are only part of the problem. Studies have routinely shown that about one-fifth to one-third of all compounded products do not contain the amount and/or correct potency of active ingredient reflected on the labeling.[32],[33] In rare cases, this can result in products that are 10, 100 or even 1,000 times more potent than the declared labeling.[34]m[35]m[36]

The new law is meant to improve the quality of outsourced drugs by applying the same quality control requirements to outsourcers and drug manufacturers alike. However, without new drug approval, there will be no opportunity for the FDA to review manufacturing plans or inspect outsourcing facilities prior to marketing to make sure appropriate controls are in place before patients are exposed. The process of bringing a compounding facility up to federal standards is extremely resource-intensive, making it unlikely that even the most advanced compounders will actually meet stringent federal standards unless forced to do so through the new drug approval process.

As an example of these challenges, one former compounding pharmacist who went through the new drug approval process in the 1990s testified that it took him six years for his company, Nephron Pharmaceuticals, to gain its first generic drug approval from the FDA. To manufacture six different drugs, the company eventually hired more than 70 people to handle regulatory compliance and quality control, many of whom held degrees in microbiology and other fields.[37]

By contrast, a California compounding pharmacy, Leiter’s, recently advertised start of construction of a “state-of-the-art” compounding facility that would purportedly comply with federal standards and would begin operations in just six months. The pharmacy would make more than 10,000 different products, but at the time of the advertisement employed just two quality-control staff, only one of whom had earned a pharmacy degree.[38] (The company now employs four such staff.)[39],[40]

Protecting consumers moving forward

Individual consumers have few options when it comes to protecting themselves from the risks of compounded drugs moving forward. Patients should be cautious about visiting a compounding pharmacy to purchase drugs and should always ask their physician whether an FDA-approved product is available for the disease or condition being treated. Unfortunately, many compounded drugs are administered in clinics and hospitals, where the physician administering the drug many not understand how the drug was procured or know whether the product was FDA-approved.

For its part, to make the new law work, the FDA will have to work aggressively to ensure that outsourcers actually comply with federal standards. The agency also will have to step up enforcement against traditional compounders that engage in illegal drug manufacturing. The FDA can help protect patients by preventing hospitals from substituting compounded or outsourced products for FDA-approved products. It can do this by emphasizing the safety risks of compounded products and encouraging health care providers to look for FDA-approved alternatives where available. The agency also can restrict the types of active ingredients that may be compounded by outsourcers and traditional compounders, using the various lists that Congress has authorized the agency to create.

Yet the FDA has a daunting task ahead. Of the 22 facilities that have registered as outsourcers with the FDA since the new law was passed, only 12 have ever been inspected by the agency, and in 10 of the 12 cases, the inspectors noticed violations significant enough to issue an inspection report[41] (something inspectors only do when “significant objectionable conditions” are present ). Two of the registered outsourcers had previously received warning letters from the FDA describing sterility problems.[43],[44],[45] One of these pharmacies, Medi-Fare, previously had its state sterile compounding license suspended and was warned by the FDA last year not to resume production of sterile drugs without first notifying the agency.[46]

Perhaps even more troubling, Congress has not offered additional funding to the FDA to focus on illegal drug manufacturing by traditional compounders who will remain largely free of federal oversight under the new legislation. It is likely that most of the money the FDA receives in outsourcing registration fees will be spent on monitoring self-identified “outsourcers,” leaving the door open for unscrupulous companies to continue mass-producing drugs illegally under the guise of traditional pharmacy compounding.

To add to these problems, the FDA has not signaled much interest in warning the public about the risks of unapproved compounded or outsourced drugs. Public Citizen’s Health Research Group recently sent a letter to FDA Commissioner Margaret Hamburg criticizing the agency for several messages encouraging health care providers to purchase drugs from federally “registered” outsourcing facilities, while failing to mention the fact that these drugs are not, in fact, FDA-approved.[47] As the FDA moves forward with implementation of the new law, patient advocacy groups such as Public Citizen will continue to provide a critical source of pressure on the agency to maintain high standards for drugs sold in the U.S.


[1] CDC. Multistate outbreak of fungal meningitis and other infections – Case Count. Accessed January 31, 2014.

[2] Statement of Margaret A. Hamburg, M.D. Commissioner of Food and Drugs before the Subcommittee on Oversight and Investigations Committee on Energy and Commerce, US House of Representatives. April 16, 2013.


[4] Thompson v. Western States Medical Center, 535 U. S. 357 (2002).…. Accessed January 27, 2014.

[5] Gibbs JN, Davis, JB. FDA Law Blog. Fifth Circuit Medical Center Pharmacy v. Mukasey Decision Creates Circuit Split Over FDCA § 503A Pharmacy Compounding “Safe Harbor.” July 23, 2008.…. Accessed January 31, 2014.

[6] Injectable methylprednisolone acetate is currently marketed by Pfizer under the brand name Depo-Medrol and by Teva Pharmaceuticals and Sandoz as a generic. See Depo-Medrol Label. Approved April 7, 2009.…. Accessed January 29, 2014; Methylprednisolone Acetate Approval History (TEVA).…. Accessed January 29, 2014; Methylprednisolone Acetate Approval History (Sandoz).…. Accessed January 29, 2014. Accessed January 14, 2014.

[7] American Society of Health-System Pharmacists. Current Drug Shortages Bulletin: Methylprednisolone acetate injection. July 26, 2012. Accessed Aug 18, 2012.

[8] FDA. Current Drug Shortages L – N. Accessed September 15, 2012.

[9] FDA Warning Letter to Triangle Compounding Pharmacy, December 4, 2006.…. Accessed January 31, 2014.

[10] FDA Information for Healthcare Professionals: Colistimethate. June 28, 2007.…. Accessed January 31, 2014.

[11] See, e.g. FDA Warning Letter, Saint John’s Medical Plaza Pharmacy. January 7, 2008.…. Accessed January 31, 2014

[12] Labeling on file with author.

[13] Sorscher, S. Presentation on Pharmacy Compounding before the Food and Drug Law Institute Enforcement, Litigation, and Compliance Conference. December 18, 2013. Accessed January 31, 2014. Sorscher_Slides_SS.pptx, slide 9

[14] Ibid.

[15] Ibid.

[16] Ibid.

[17] PharMEDium Compounding Services. Accessed January 31, 2014.

[18] CAPS Central Admixture Pharmacy Services. Accessed January 31, 2014.

[19] FDA 483 Inspection Report: Central Admixture Pharmacy Services, Inc. January 29, 2013.… Accessed January 31, 2014.

[20] FDA 483 Inspection Report: Central Admixture Pharmacy Services, Inc. February 19, 2013.… Accessed January 31, 2014.

[21] FDA 483 Inspection Report, PharMEDium Services, LLC, February 27, 2013.… Accessed January 31, 2014.

[22] FDA. 2013 Pharmacy Inspections and Related Records.…. Accessed January 31, 2014.

[23] FDA. Compounding Recall Notices.…. Accessed January 31, 2014.

[24] FDA Warning Letter to Medi-Fare Drug and Home Health Center. March 7, 2013.…. Accessed January 31, 2014.

[25] FDA News Release: Federal judge enters consent decree with Med Prep Consulting. Accessed January 31, 2014.

[26] FDA Warning Letter: Stewart Compounding Pharmacy, August 21, 2013.…. Accessed August 21, 2013.

[27] Statement of Margaret A. Hamburg, M.D. Commissioner of Food and Drugs before the Subcommittee on Oversight and Investigations Committee on Energy and Commerce, US House of Representatives. April 16, 2013.

[28] Drug Quality and Security Act. Public Law No: 113-54. The portion of the bill addressing compounding is available on the FDA website:…. Accessed January 31, 2014.

[29] See Section 503A of the Federal Food, Drug and Cosmetics Act, codified as 21 U.S.C. § 353a.…. Accessed January 31, 2014.

[30] Public Citizen. Public Citizen asks the Food and Drug Administration (FDA) to clarify the line between pharmacy compounding and drug manufacturing. February 3, 2014. Accessed February 5, 2014.

[31] Public Citizen. Letter to FDA Commissioner Margaret Hamburg Criticizing Agency Messages Endorsing Compounded Drugs Made by Outsourcing Facilities. December 17, 2013. Accessed January 31, 2014.

[32] Food and Drug Administration. 2006 Limited FDA Survey of Compounded Drug Products. Last Updated March 22, 2010.…. Accessed March 22, 2013.

[33] Missouri Division of Professional Registration: Board of Pharmacy. Compounding Report. Accessed March 26, 2013.

[34] Romano, MJ, A 1000-fold overdose of clonidine caused by a compounding error in a 5-year-old child with attention deficit/hyperactivity disorder. Pediatrics 2001;108(2):471-472.

[35] Suchard JR, Graeme KA, Pediatric clonidine poisoning as a result of pharmacy compounding. Pediatric Emerg. Care 2002;18(4):295-296.

[36] North Carolina Board of Pharmacy. Consent order of discipline: Jewel Freeman. July 19, 2012.…. Accessed April 16, 2013.

[37] Testimony of William P. Kennedy: Owner Nephron Pharmaceuticals Corporation, before the Senate Committee on Health, Education, Labor and Pensions. October 23, 2003.

[38] Sorscher, S. Presentation on Pharmacy Compounding before the Food and Drug Law Institute Enforcement, Litigation, and Compliance Conference. December 18, 2013. Accessed January 31, 2014.

[39] Ibid.

[40] Leiter’s Compounding Pharmacy. Quality Assurance. Accessed January 31, 2014.

[41] FDA. Registered Outsourcing Facilities. Updated as of January 24, 2014.…. Accessed January 31, 2014.

[42] Public Citizen. Letter to the FDA urging re-inspection of compounding pharmacies with serious safety violations. November 29, 2012.

[43] FDA. Registered Outsourcing Facilities. Updated as of January 24, 2014.…

[44] FDA Warning Letter to Allergy Laboratories, Inc. October 4, 2013.…. Accessed January 31, 2014.

[45] FDA Warning Letter to Medi-Fare Drug and Home Health Center, March 7, 2013.…. Accessed January 31, 2014.

[46] Ibid.

[47] Public Citizen. Letter to FDA Commissioner Margaret Hamburg Criticizing Agency Messages Endorsing Compounded Drugs Made by Outsourcing Facilities. December 17, 2013. Accessed January 31, 2014.