United States: Compounding Pharmacies Protected By Medical Liability Act

In a court decision holding that a compounding pharmacy is entitled to certain protections against medical malpractice claims, the Supreme Court of Texas established a precedent that may well prove valuable to pharmacists facing lawsuits stemming from compounded drugs.

The court ruled that claims brought by a patient who allegedly suffered serious injuries as a result of a compounded drug are subject to the Texas Medical Liability Act (TMLA), which requires serving the complaint along with an expert report supporting the allegations. While the plaintiff tried to cast the allegations as a product liability case, the court determined they were, in essence, medical malpractice claims.

The case concerns an incident where a patient suffered a severe adverse reaction while receiving intravenous injections of lipoic acid, an antioxidant supplement, for treatment of hepatitis C. The product was administered by the plaintiff's doctor, who obtained it from a compounding pharmacy in Arlington, Texas. The compounding pharmacy did not receive a prescription for the patient when it compounded the product; it was part of an order the plaintiff's physician placed with the compounding pharmacy for lipoic acid for office use. The plaintiff alleged that as a result of the injection, she required hospitalization for several weeks and multiple blood transfusions, and that she ultimately became blind in both eyes. She sued the pharmacy and several individual pharmacists asserting "negligence in compounding, inadequate and inappropriate warnings and instructions for use," and that the product was "defective, ineffective and unreasonably dangerous." The plaintiff also alleged that the pharmacists, among other things, breached their implied warranties in the design, manufacture, inspection, marketing, and/or distribution of the product. The defendants moved to dismiss the complaint, arguing the plaintiff asserted medical malpractice claims that are governed by the TMLA, and that an expert report was required.

The court first considered whether the defendants were "health care providers" covered by the TMLA by determining whether they met the TMLA's definition for a "pharmacist," which limits qualifying activities to "the dispensing of prescription medicines that result in health care liability claims." Most cases against a pharmacy involve claims of misfilled prescriptions, and Texas courts generally agree that the TMLA applies in those circumstances. But the court went further to determine whether compounding the lipoic acid fell within the definition. It rejected the lower courts' holdings that the pharmacy's actions did not meet Texas Pharmacy Act's definition of "dispense," which means "to prepare, package, compound, or label, ... a prescription drug ... for delivery to an ultimate user or the user's agent under a practitioner's lawful order" because it was not compounded in connection with a prescription for a particular patient. The court noted that a pharmacist may "dispense ... a reasonable quantity of a compounded drug to a practitioner for office use," so compounding the product fell within the definition of "dispense." A "reasonable quantity" is an amount that the practitioner "anticipates may be used" before the drug's expiration date, so the Texas Pharmacy Act contemplates that a pharmacist may "dispense" a compounded drug to a physician without knowing the specific identity of the ultimate user, which may vary from requirements under the federal Drug Quality and Security Act (DQSA). The court also rejected the plaintiff's argument that the lipoic acid was not a prescription drug under the TMLA, noting that the Texas Pharmacy Act provides that only a "prescription drug or device" can be "dispensed."

The court also considered the plaintiff's argument that her claims were actually product liability claims, which are excluded from the TMLA. While the TMLA provides that pharmacists and pharmacies are healthcare providers for purposes of the TMLA with respect to "activities limited to the dispensing of prescription medicines which result in health care liability claims," the plaintiff argued it does not include other causes of action for the sale of mishandled or defective products, including the allegedly defective lipoic acid. The court concluded that the defendants were sued not simply for their roles as retailers of a potentially defective product, but also as manufacturers of that product. Because the Texas Pharmacy Act and its associated regulations distinguish between compounding and manufacturing, the compounding constituted "dispensing prescription medicines" under the TMLA rather than manufacturing, which can be subject to product liability claims.

Finally, the court rejected what it characterized as the plaintiff recasting her claims as breach of warranty and product liability claims to avoid the TMLA. The essence of the case was healthcare liability, the court concluded, and allowing a party to skirt the TMLA's requirements would undermine legislators' purpose for enacting it.

The court's decision is meaningful to pharmacies and pharmacists for a number of reasons. Clarifying that compounding falls under the auspices of the TMLA affords to them its multiple protections available to healthcare providers. Not only does it require a plaintiff to submit an expert report detailing the applicable standards of care, how the healthcare provider failed to meet those standards, and the relationship to the plaintiff's injuries, but this provision also stays discovery until the report has been served, and can entitle the healthcare provider to attorney's fees if the case is dismissed for failure to submit the report. Given the court's interpretation of what constitutes compounding, it appears the reasoning of the court's opinion would apply to compounding activities performed both under section 503A of the Federal Food, Drug, and Cosmetic Act as well as compounding performed by outsourcing facilities licensed under section 503B. While facilities operating under sections 503A and 503B may engage in other activities (e.g., repackaging), the opinion only discusses "compounding" as it is defined under the Texas Pharmacy Act, and "repackaging" is not included in that definition.

The TMLA also limits the damages and expenses a healthcare provider may be required to pay if a plaintiff prevails. First, it caps damages a plaintiff can recover. Damages for wrongful death are generally limited to $500,000, and noneconomic damages are typically capped at $250,000 for each claimant, adjusted for inflation. Texas does not require medical malpractice claims be referred to an arbitrator or screening panel, but counties are authorized to adopt alternative dispute resolution systems, and pretrial mediation is routine in many venues in Texas.

Finally, the case is notable for its conclusion that pharmacists are healthcare providers under the TMLA. Although opinions have been issued by Texas's Court of Appeals considering the TMLA's application to pharmacists, this case represents the Supreme Court of Texas's first opinion analyzing the issue in general, and considering its application to compounding pharmacists in particular. The court's analysis of the issues in light of the Texas Pharmacy Act's definition of various terms and phrases illustrates the importance of precision and specificity in crafting legislation that is designed to capture particular activities.

News reports indicate that the plaintiff plans to seek a rehearing, but parties generally must clear a high hurdle to succeed in a request that a court reverse its own decision. In the event the court's opinion stands, pharmacies and pharmacists – particularly those who compound drugs –have more assurance that certain of their activities are covered by the TMLA and the limits it places on medical malpractice claims.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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