In October 2021, the U.S. Food and Drug Administration (FDA) issued a new draft guidance document concerning pharmaceutical compounding by hospitals and health systems. This draft guidance replaces the agency's prior draft guidance issued in April 2016, and follows comments received in the months following from hospital systems, trade associations and members of the public. As discussed below, the new draft guidance liberalizes some criteria and imposes new standards for others.


In general, the distinction between pharmaceutical manufacturing and pharmaceutical compounding served as the dividing line between federally regulated activities (manufacturing) and those subject to regulation only by state boards of pharmacy (compounding). While many activities are clearly on one side or the other, a gray area has always existed between them. From time to time, the FDA would assert its authority over activities perceived by some to fall outside the appropriate scope of federal regulation. Thus, Congress provided in 1997 a new section of the Food, Drug, and Cosmetic Act (FD&C Act) — Section 503A — setting forth criteria under which compounding activities would be exempted from certain sections of the act. Most significantly, compounding pharmacies operating within the bounds of Section 503A were exempt from the obligation to comply with current good manufacturing practices (cGMP).

Following the New England Compounding Center tragedy in 2012, which resulted in more than 60 deaths from fungal meningitis in patients administered contaminated steroid injections made in a compounding pharmacy located in Massachusetts, Congress in 2013 passed the Drug Quality and Security Act, which created the new Section 503B of the FD&C Act. This section required compounding pharmacies acting as "outsourcing facilities" to comply with cGMP and subjected them to FDA oversight and inspection.

With the new statute in place, the traditional line between pharmaceutical manufacturing and pharmaceutical compounding is augmented by a new distinction between 503A compounding and 503B outsourcing. Accordingly, the FDA provides guidance on when a compounding facility is outside its purview under 503A, or at minimum, when it is within a zone of activities that will qualify for its exercise of enforcement discretion, even if the facility might not strictly comply with the restrictions of 503A.

2016 Draft Guidance for Hospital and Health System Pharmacies

In 2016, the FDA released a draft guidance document concerning "Hospital and Health System Compounding" that set forth conditions under which FDA would exercise its enforcement discretion with respect to compounding pharmacies controlled by hospitals and health systems. Among the requirements was a restriction on distributing compounded drug products beyond a 1-mile radius of the pharmacy. The FDA justified this restriction by appeal to patient safety, and to prompt hospitals to obtain compounded products from regulated Section 503B outsourcing facilities instead of preparing them in their in-house Section 503A compounding pharmacies:

The 1-mile radius in our policy is intended to distinguish a hospital campus from a larger health system. [C]ertain characteristics of hospital pharmacies distinguish them from conventional manufacturers. However, a health system pharmacy that compounds drug products without patient-specific prescriptions for facilities within its health system across a broader geographic area could function as a large manufacturing operation, but without the necessary standards to assure drug quality. If such a pharmacy contaminates or otherwise adulterates or misbrands a compounded drug, the drug has the potential to harm many patients. Outsourcing facilities, which are subject to CGMP requirements and other conditions that help to assure drug quality [i.e., Section 503B outsourcing facilities] can compound and distribute drug products to healthcare facilities nationwide without first receiving prescriptions for identified individual patients.

The 2016 guidance also offered a definition of "health system" for purposes of determining when related facilities could be served by a central compounding pharmacy that was not registered as an outsourcing facility under Section 503B:

FDA regards a health system as 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. There is no definition of "health system" that applies to all sections of the FD&C Act. However, this is the definition of a "health system" used in section 506F of the Act concerning hospital repackaging of drugs in shortage.

The 1-mile radius provision drew near-unanimous opposition from large hospital systems and trade associations that commented on the 2016 guidance. They pointed out that consolidating pharmaceutical compounding in a central pharmacy increased patient safety by ensuring that compounding operations could be carried out by specially trained pharmacists using the best available equipment. By contrast, pharmacists in smaller hospitals within a larger system might not have the training, experience, or equipment to perform at a similarly high level, nor would smaller hospitals be able to maintain the type of full-time coverage possible with centralized operations.

2021 Draft Guidance for Hospital and Health System Pharmacies

The FDA took note of the hospital industry's objections to the 1-mile radius requirement in the 2016 draft guidance, and explained in its press release accompanying the 2021 draft guidance that it was not continuing that requirement:

[T]he agency has received many comments on this proposed policy, including regarding a provision about FDA's intent not to take action if a hospital or health system pharmacy distributes compounded drugs to healthcare facilities within a one-mile radius, that are owned and controlled by the same entity that owns and controls the pharmacy. Stakeholders commented that the proposed one-mile policy was not reflective of the structure of health systems, many of which operate under a centralized compounding model and may service facilities at other sites located outside a one-mile radius without similar compounding capabilities.

While deleting the 1-mile radius standard, the 2021 draft guidance introduces a new limitation on the amount of time that may pass between dispatch of a compounded drug from the pharmacy and administration of that drug to the patient:

The compounded drug products are used or discarded within 24 hours of transfer out of the pharmacy.

The FDA's justification of this seemingly arbitrary time limit — which is not tied to any validated expiration date or beyond-use date that may have been established by the hospital pharmacy's stability and sterility testing, U.S. Pharmacopeia (USP) standards, or any other science-based measures — again appears to reflect an intent to drive hospitals toward use of Section 503B outsourcing facilities as much as possible:

[The 24-hour] limit mitigates concerns about the amount and scope of distribution of the compounded drug product. FDA selected 24 hours as the window within which compounded drug products be used or discarded because the Agency has heard from stakeholders that non-patient-specific drugs are needed for emergency uses. FDA anticipates that non-patient-specific compounded drugs that are kept on hand for longer periods can and should be obtained from outsourcing facilities because outsourcing facilities can compound and distribute drugs without receiving patient-specific prescriptions and, because they are subject to CGMPs, conduct appropriate stability tests and have more robust sterility assurance practices.

The 2021 guidance also adopts a new definition of "health system" as follows:

For the purposes of this guidance, the term health system means an organization that includes at least one hospital and at least one group of physicians that provides comprehensive care (including primary and specialty care) who are connected with each other and with the hospital through common ownership or joint management.

This definition no longer includes the requirement that a qualifying system must "share access to databases with drug order information for their patients." The elimination of this criterion should help systems that have grown by consolidation but that have not yet integrated their electronic health records.

The 2021 guidance also adds a new section that identifies risk-based factors the FDA will look to in determining the need for regulatory action, explaining that its compliance and enforcement resources would ordinarily be directed to noncompliant activities associated with indicia of potential harm to patients or the conduct of large-scale drug manufacturing:

  • Evidence of poor compounding practices or lack of sterility assurance. For example, the pharmacy compounds drug products under insanitary conditions, such as microbial contamination, performing aseptic manipulations with exposed hair or skin, and exposing sterile drug products and materials to lower than ISO 5 quality air.
  • Non-patient-specific compounded drug products not for emergency uses. Drug products are compounded and sent out of the pharmacy before the receipt of a patient-specific prescription in an amount that exceeds the amount needed for emergency situations (e.g., immediate administration for unplanned procedures in emergency or operating rooms).
  • Routine, large amounts of non-patient-specific compounded drug products. The pharmacy routinely compounds a large total number of compounded drug products that are sent out of the pharmacy before the receipt of valid prescriptions or orders for individually identified patients.
  • Routine interstate distribution of large amounts of non-patient-specific compounded drug products. The pharmacy routinely engages in interstate distribution of large amounts of compounded drug products, including distribution within the hospital or health system, without first receiving valid prescriptions for individually identified patients, particularly when the hospital or health system pharmacy is not located near a state border or when it distributes such products to multiple states.
  • No procedures to obtain non-patient-specific compounded drug products from an outsourcing facility. The hospital or health system lacks procedures to obtain non-patient specific compounded drug products from an outsourcing facility where such products are available and appropriate.

With the exception of the last item, these are generally common-sense standards that come as no surprise. The last item, i.e., the lack of procedures to satisfy routine and predictable needs for compounded drug products from a Section 503B outsourcing facility, is again reflective of the FDA's intent to reduce the volume of drugs that are compounded in Section 503A facilities in favor of regulated Section 503B facilities. The 2021 guidance is explicit on this point: "FDA encourages hospitals and health systems to obtain any non-patient-specific compounded drug products they may need from outsourcing facilities where that is possible, and to consider registering their pharmacies as outsourcing facilities."

Finally, the 2021 draft guidance carries forward without material change from the 2016 draft guidance or other Section 503A guidance documents several uncontroversial provisions. For example, the 2021 draft guidance 1) restates the requirement that administration of compounded drugs must be based on a valid prescription for an identified patient, 2) again provides that enforcement discretion will not be applied to hospital pharmacies acting outside the bounds of Section 503A that compound drugs for outpatient use, and 3) admonishes against using compounded drug products in place of a substantially identical FDA-approved product that is commercially available.

As with draft guidance documents generally, the FDA is soliciting comments from stakeholders concerning the 2021 draft guidance. Comments may be submitted electronically to docket FDA-2016-D-0271-0080, and should be received by ‎December‎ ‎6‎, ‎2021.

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