Prohibition on 
Wholesaling Under 
Section 503B of the 
Federal Food, Drug, and 
Cosmetic Act 
Guidance for Industry 
 
 
 
DRAFT GUIDANCE 
 
  This guidance document is being distributed for comment purposes only. 
 
Comments and suggestions regarding this draft document should be submitted within 60 days of 
publication in the Federal Register of the notice announcing the availability of the draft 
guidance.  Submit electronic comments to http://www.regulations.gov.  Submit written 
comments to the Dockets Management Staff (HFA-305), Food and Drug Administration, 5630 
Fishers Lane, Rm. 1061, Rockville, MD  20852.  All comments should be identified with the 
docket number listed in the notice of availability that publishes in the Federal Register. 
 
For questions regarding this draft document contact (CDER) Dominic Markwordt, 301-796-
3100. 
 
 
U.S. Department of Health and Human Services 
Food and Drug Administration 
Center for Drug Evaluation and Research (CDER) 
 
June 2023 
Compounding and Related Documents
   
Prohibition on 
Wholesaling Under 
Section 503B of the 
Federal Food, Drug, and 
Cosmetic Act 
Guidance for Industry  
 
 
Additional copies are available from: 
Office of Communications, Division of Drug Information 
Center for Drug Evaluation and Research 
Food and Drug Administration 
10001 New Hampshire Ave., Hillandale Bldg., 4th Floor 
Silver Spring, MD 20993-0002 
Phone: 855-543-3784 or 301-796-3400; Fax: 301-431-6353 
Email: druginfo@fda.hhs.gov 
https://www.fda.gov/drugs/guidance-compliance-regulatory-information/guidances-drugs 
 
 
 
 
 
 
 
 
 
 
U.S. Department of Health and Human Services 
Food and Drug Administration 
Center for Drug Evaluation and Research (CDER) 
 
June 2023 
Compounding and Related Documents 
  Contains Nonbinding Recommendations 
Draft  Not for Implementation 
 
TABLE OF CONTENTS 
 
 
 
I.  INTRODUCTION............................................................................................................. 1 
II.  BACKGROUND ............................................................................................................... 2 
III.  POLICY ............................................................................................................................. 4 
A.  Key Terms.......................................................................................................................... 4 
1. Sold or Transferred ............................................................................................................. 4 
2. Entities Other Than the Outsourcing Facility .................................................................... 5 
3. Administration or Dispensing ............................................................................................. 6 
B.  Application of the Wholesaling Prohibition to Examples of Sales and Transfers ...... 6 
1. Activities Prohibited by the Wholesaling Provision ........................................................... 6 
2. Activities Not Prohibited by the Wholesaling Provision..................................................... 8 
C.  Inspections and Regulatory or Enforcement Action ................................................... 10 
 
  Contains Nonbinding Recommendations 
Draft  Not for Implementation 
Prohibition on Wholesaling Under Section 503B of the Federal 
1 
Food, Drug, and Cosmetic Act 
2 
Guidance for Industry1 
3 
4   
5   
6  This draft guidance, when finalized, will represent the current thinking of the Food and Drug 
7  Administration (FDA or Agency) on this topic.  It does not establish any rights for any person 
8  and is not binding on FDA or the public.  You can use an alternative approach if it satisfies the 
9  requirements of the applicable statutes and regulations.  To discuss an alternative approach, 
10  contact the FDA staff responsible for this guidance as listed on the title page.  
11   
12   
13   
14   
15  I.  INTRODUCTION 
16   
17  Under section 503B of the Federal Food, Drug, and Cosmetic Act (FD&C Act) (21 U.S.C. 
18  353b), a drug compounded by an outsourcing facility2 qualifies for exemptions from certain 
19  statutory requirements if, among other conditions, the drug will not be sold or transferred by an 
20  entity other than the outsourcing facility that compounded such drug.3  However, this provision 
21  does not prohibit administration of a drug in a health care setting or dispensing a drug pursuant 
22  to a prescription executed in accordance with section 503(b)(1).4  This guidance describes 
23  FDAs interpretation of, and policies concerning, the prohibition on wholesaling in section 503B 
24  of the FD&C Act.  This guidance also describes examples of how FDA intends to apply section 
25  503Bs wholesaling provision.   
26   
27  In general, FDAs guidance documents do not establish legally enforceable responsibilities.  
28  Instead, guidances describe the Agencys current thinking on a topic and should be viewed only 
29  as recommendations, unless specific regulatory or statutory requirements are cited.  The use of 
30  the word should in Agency guidances means that something is suggested or recommended, but 
31  not required.  
32     
 
1 This guidance has been prepared by multiple offices in the Center for Drug Evaluation and Research in 
cooperation with the Office of Regulatory Affairs at the Food and Drug Administration. 
2 Outsourcing facility is defined in in section 503B(d)(4)(A) of the FD&C Act as a facility at one geographic 
location or address that  (i) is engaged in the compounding of sterile drugs; (ii) has elected to register as an 
outsourcing facility; and (iii) complies with all of the requirements of section 503B of the FD&C Act.  See the 
guidance for industry Facility Definition Under Section 503B of the Federal Food, Drug, and Cosmetic Act (May 
2018).  We update guidances periodically.  For the most recent version of a guidance, check the FDA guidance web 
page at https://www.fda.gov/regulatory-information/search-fda-guidance-documents.  
3 Section 503B(a)(8) of the FD&C Act. 
4 Id.  
1  Contains Nonbinding Recommendations 
Draft  Not for Implementation 
33   
34  II.  BACKGROUND 
35   
36  Section 503B of the FD&C Act describes the conditions that must be satisfied for human drug 
37  products compounded by an outsourcing facility to be exempt from section 505 (21 U.S.C. 355) 
38  (concerning the approval of drugs under new drug applications or abbreviated new drug 
39  applications), section 502(f)(1) (21 U.S.C. 352(f)(1)) (concerning the labeling of drugs with 
40  adequate directions for use), and section 582 of the FD&C Act (21 U.S.C. 360eee-1) (concerning 
41  drug supply chain security requirements).5   
42   
43  In contrast to drug products compounded in compliance with section 503A of the FD&C Act, 
44  drugs compounded in compliance with section 503B of the FD&C Act are not exempt from 
45  current good manufacturing practice (CGMP) requirements in section 501(a)(2)(B) of the FD&C 
46  Act.  Furthermore, among other requirements under section 501, a drug is deemed to be 
47  adulterated under section 501(a)(2)(A) if it has been prepared, packed, or held under insanitary 
48  conditions whereby it may have been contaminated with filth, or whereby it may have been 
49  rendered injurious to health, regardless of whether the drugs qualify for exemptions set forth in 
50  section 503B of the FD&C Act.6  Outsourcing facilities are also subject to FDA inspections 
51  according to a risk-based schedule, specific adverse event reporting requirements, and other 
52  conditions that help to mitigate the risks of the drugs they compound.7  In addition, outsourcing 
53  facilities may or may not obtain prescriptions for identified individual patients.8   
54   
55  One of the conditions that must be met for a drug compounded by an outsourcing facility to 
56  qualify for the exemptions in section 503B of the FD&C Act is that the drug will not be sold or 
57  transferred by an entity other than the outsourcing facility that compounded such drug.9  
58  However, this provision does not prohibit administration of a drug in a health care setting or 
59  dispensing a drug pursuant to a prescription executed in accordance with section 503(b)(1).10 
60   
61  The statutory prohibition on wholesaling in section 503B(a)(8) of the FD&C Act helps to ensure 
62  that compounding is based on individual patients needs, which, in turn, reduces the overall risk 
63  of patient harm and helps to preserve the integrity of the U.S. drug approval process.  It also 
64  helps to preserve the integrity of the U.S. drug supply chain.  This prohibition, like other 
65  conditions in section 503B, preserves important distinctions between outsourcing facilities, 
66  which are intended to compound drugs for patients whose medical needs cannot be met by 
67  approved drugs, from conventional manufacturers, which generally engage in mass 
68  manufacturing of FDA-approved drug products.11  
 
5 Section 503B(a) of the FD&C Act.  
6 Section 501(a)(2)(A) of the FD&C Act.  For purposes of section 503B, a drug does not include any biological 
product that is subject to licensure under section 351 of the Public Health Service (PHS) Act.  Accordingly, such 
biological products are not eligible for the exemptions for compounded drugs under section 503B of the FD&C Act. 
7 Section 503B(a), 503B(b)(4) and (5) of the FD&C Act. 
8 Section 503B(d)(4)(C) of the FD&C Act.  
9 Section 503B(a)(8) of the FD&C Act. 
10 Id. 
11 See, e.g., section 503B(a)(2) of the FD&C Act (bulk drug substances for which there is a clinical need can be used 
to compound drug products) and section 503B(a)(5) and 503B(d)(2)(B) of the FD&C Act (cannot compound drug 
 
2  Contains Nonbinding Recommendations 
Draft  Not for Implementation 
69   
70  Compounded drugs present a higher risk to patients than approved drugs.  Compounded drugs 
71  are not FDA-approved and have not been reviewed by the Agency for safety, effectiveness, or 
72  quality before they are marketed.  Because compounded drugs are subject to a lower regulatory 
73  standard than approved drugs, patients should not receive them unless an approved drug does not 
74  meet their medical needs.  Accordingly, although compounding under section 503B of the 
75  FD&C Act need not be based on the receipt of a prescription for an individually identified 
76  patient, Congress nevertheless contemplated a relationship between the outsourcing facility and  
77  prescriber to supply compounded drugs only to such patients.12  The more attenuated the 
78  connection between the outsourcing facility and patient or prescriber, the more the outsourcing 
79  facility resembles a conventional drug manufacturer that distributes drug products to its 
80  customers without regard to individual patient need. 
81   
82  Similarly, the prohibition on wholesaling helps to preserve the integrity of the drug approval 
83  process.  Approval of a new drug means that FDA has determined that it is safe and effective and 
84  that it was manufactured by a facility with appropriate methods used in, and facilities and 
85  controls used for, preserving the drugs identity, strength, quality, and purity to produce a high-
86  quality product.13  Approval of new, innovative treatments can save lives, and approval of 
87  generic drug products can increase access to critical therapies.  If an outsourcing facility could 
88  manufacture drug products for further sale or transfer by, for example, wholesale distributors, the 
89  outsourcing facility would more closely resemble a conventional manufacturer whose drug 
90  products are subject to new drug approval requirements.  Section 503B of the FD&C Act 
91  therefore imposes conditions which reduce the risk that conventional manufacturers would forgo 
92  seeking FDA approval of their drug products to instead market unapproved, compounded drugs 
93  as an outsourcing facility.  Because the typical supply chain for approved drug products involves 
94  wholesaling, consisting of multiple transfers between the manufacture of the drug and ultimately 
95  dispensing or administering it to a patient, section 503Bs prohibition on wholesaling helps 
96  reduce the incentive to compound drugs as an outsourcing facility rather than seek premarket 
97  approval.  
98   
99  Finally, because drugs compounded by outsourcing facilities in accordance with the conditions 
100  of section 503B of the FD&C Act are exempt from drug supply chain security requirements in 
101  section 582 of the FD&C Act, the prohibition on wholesaling is an important control to protect 
102  the drug supply chain.  Conditioning the exemption from section 582 on limitations on the sale 
103  or transfer of a compounded drug reduces supply chain concerns such as diversion.  The short 
104  supply chain required under section 503B also makes it easier to associate the compounded drug 
105  with the relevant outsourcing facility in the case of an adverse event or product quality issue.  
106  We further note that outsourcing facilities are required to report adverse events to FDA.14  
107     
 
products that contain the same bulk drug substance as an approved drug unless there is a change that produces a 
clinical difference for an individual patient).  
12 See, e.g., section 503B(a)(8) of the FD&C Act. 
13 See section 505(d) of the FD&C Act.  
14 See section 503B(b)(5) of the FD&C Act.  
3  Contains Nonbinding Recommendations 
Draft  Not for Implementation 
108   
109  III.  POLICY 
110   
111  A.  Key Terms 
112   
113  1.  Sold or Transferred 
114   
115  As discussed above, one of the conditions for a drug compounded by an outsourcing facility to 
116  qualify for the exemptions in section 503B of the FD&C Act is that the drug will not be sold or 
117  transferred by an entity other than the outsourcing facility that compounded such drug.15   This 
118  provision does not prohibit administration of a drug in a health care setting or dispensing a drug 
119  pursuant to a prescription executed in accordance with section 503(b)(1).16  The phrase, sold or 
120  transferred by an entity other than the outsourcing facility, as used in section 503B(a)(8) of the 
121  FD&C Act, encompasses instances when an entity other than the outsourcing facility that 
122  compounded a drug has sold or transferred the drug.  Transfers, for purposes of this provision, 
123  encompass movements of the drug from one entity to another, regardless of whether the drug 
124  was sold as part of the transfer.  We note that Congress included within the wholesaling 
125  prohibition the sale or transfer of compounded drugs, indicating that the provision is intended to 
126  capture movements where money does not change hands. 
127   
128  FDA generally does not intend to apply this provision in instances when a common carrier that 
129  has experience in safely and securely delivering drug products to health care providers, which 
130  does not take ownership of a product, takes physical possession of a drug compounded by an 
131  outsourcing facility but only provides transportation services by delivering the drug to the 
132  outsourcing facilitys customers.  Additionally, FDA generally does not intend to apply this 
133  provision when an outsourcing facility uses an authorized third-party logistics provider (3PL),17 
134  which also does not take ownership of products, to provide or coordinate warehousing or other 
135  logistics services for the compounded drug on behalf of the outsourcing facility.  The 
136  compounded drugs would remain subject to CGMP and other requirements, including with 
137  regard to proper storage and handling.  Outsourcing facilities should only use common carriers 
138  and 3PLs that will provide appropriate safeguards for their compounded drugs. 
139   
140  In addition, FDA generally does not intend to apply this provision to a compounded drug solely 
141  because it was moved: (1) to a regulatory entity;18 (2) to a returns processor for credit or 
 
15 Section 503B(a)(8) of the FD&C Act. 
16 Id. 
17 Section 581(2)(C) of the FD&C Act defines authorized in the case of a third-party logistics provider, as having a 
valid license under state law or section 584(a)(1), in accordance with section 582(a)(7), and complying with the 
licensure reporting requirements under section 584(b) of the FD&C Act.  Section 581(22) of the FD&C Act defines 
a third-party logistics provider (3PL) as an entity that provides or coordinates warehousing, or other logistics 
services of a product in interstate commerce on behalf of a manufacturer, wholesale distributor, or dispenser of a 
product, but does not take ownership of the product, nor have responsibility to direct the sale or disposition of the 
product.  The Agency has provided additional interpretations regarding the term 3PL in the revised draft guidance 
Identifying Trading Partners Under the Drug Supply Chain Security Act (July 2022).  When final, this guidance will 
represent the FDAs current thinking on this topic. 
18 Such as a federal agency (e.g., FDA), state agency (e.g., a board of pharmacy), or local agency (e.g., a health 
department). 
4  Contains Nonbinding Recommendations 
Draft  Not for Implementation 
142  disposition for destruction;19 (3) to a waste disposal company;20 (4) under a recall; or (5) to or 
143  from a contract testing laboratory solely for testing purposes.21  These types of transfers do not 
144  affect the integrity of the drug approval process or drug supply chain and are typically conducted 
145  for public health reasons.  
146   
147  Furthermore, FDA generally does not intend to apply this provision to a compounded drug solely 
148  because it was moved as part of an intracompany transfer during shipment to an outsourcing 
149  facilitys customer.22  Generally, intracompany transfers to facilitate the delivery of products to 
150  outsourcing facilities customers do not have an effect on the integrity of the drug approval 
151  process or drug supply chain.   
152   
153  As discussed in more detail below, prohibited sales and transfers under section 503B(a)(8) of the 
154  FD&C Act may include, for example, the distribution of a drug even if the entity does not take 
155  ownership and possession of the drug.   
156   
157  2.  Entities Other Than the Outsourcing Facility 
158   
159  Generally, a drug compounded by an outsourcing facility is not eligible for the statutory 
160  exemptions under section 503B of the FD&C Act if the drug is sold or transferred by an entity 
161  other than the outsourcing facility that compounded such drug.23  FDA interprets this phrase to 
162  refer to any entity that sells or transfers a drug compounded by an outsourcing facility, other than 
163  the outsourcing facility that compounded the drug, regardless of whether that entity has a 
164  physical address.  
165   
166  As discussed in more detail below, examples may include: 
167   
168    Outsourcing facilities that did not compound the drug being sold or transferred (but see 
169  section III.A.3.)  
170    Wholesale distributors 
171    Repackers and relabelers 
172    Marketing firms 
173    Website owners and operators 
174    Pharmacies (including mail order pharmacies) (but see section III.A.3.) 
175    Clinics (including virtual clinics) (but see section III.A.3.) 
176     
 
19 Including a reverse logistics provider solely for return of nonsalable products.  
20 Solely for destruction in accordance with all applicable laws and regulations.   
21 Undertaken in accordance with all applicable laws and regulations. 
22 Including when an outsourcing facility sends drugs it compounded to a warehouse it owns or leases that is not 
located in the outsourcing facility that compounded the drugs for shipment to the outsourcing facilitys customers.  
23 Section 503B(a)(8) of the FD&C Act. 
5  Contains Nonbinding Recommendations 
Draft  Not for Implementation 
177   
178  3.  Administration or Dispensing 
179   
180  Section 503B(a)(8) of the FD&C Act provides that the prohibition on wholesaling does not 
181  prohibit administration of a drug in a health care setting or dispensing a drug pursuant to a 
182  prescription executed in accordance with section 503(b)(1).  
183   
184  FDA interprets this provision to mean that a drug compounded by an outsourcing facility may be 
185  eligible for the exemptions in section 503B of the FD&C Act where the drug is distributed 
186  directly from an outsourcing facility to a health care facility, such as a hospital or clinic, where 
187  the drug is administered to a patient, or to a State-licensed pharmacy or Federal facility where 
188  the drug is dispensed pursuant to a prescription executed in accordance with section 503(b)(1) of 
189  the FD&C Act.  As discussed further below, certain activities by a health care facility or 
190  pharmacy would not be considered to constitute administration in a health care setting or 
191  dispensing to a patient in accordance with section 503(b)(1).  In addition, the fact that a 
192  compounded drug is ultimately dispensed by a pharmacy or administered in a health care setting 
193  is not determinative of whether wholesaling (i.e., sales or transfers prohibited by section 
194  503B(a)(8)) has occurred before that point, because ordinarily all prescription drugs are 
195  ultimately dispensed by a pharmacy or administered in a health care setting.   
196   
197  B.  Application of the Wholesaling Prohibition to Examples of Sales and 
198  Transfers  
199   
200  1.  Activities Prohibited by the Wholesaling Provision 
201   
202  Drugs compounded by outsourcing facilities must meet the conditions in section 503B of the 
203  FD&C Act, including the prohibition on wholesaling under section 503B(a)(8), to be eligible for 
204  the statutory exemptions available under that section.  This guidance provides FDAs policies 
205  concerning the prohibition on wholesaling, as explained in section III.A.  In general, as described 
206  in section III.A.1 and 2, the wholesaling provision applies to the sale or transfer of a 
207  compounded drug by an entity other than the outsourcing facility that compounded the drug.  As 
208  described in section III.A.3, the prohibition on wholesaling does not apply to the administration 
209  of a compounded drug in a health care setting or dispensing a compounded drug pursuant to a 
210  prescription in accordance with section 503(b)(1) of the FD&C Act.  None of the scenarios in 
211  section III.B.1 involve, among other things, administration of a drug in a health care setting or 
212  dispensing pursuant to a prescription in accordance with section 503(b)(1), so the exception to 
213  the prohibition on wholesaling would not apply to any of them.  
214   
215  The following are examples of situations that generally would be subject to the wholesaling 
216  prohibition of section 503B(a)(8) of the FD&C Act (i.e., in these situations the drug would be 
217  considered sold or transferred by an entity other than the outsourcing facility that compounded 
218  such drug): 
219   
220  (a) An outsourcing facility distributes a drug it compounded to a wholesale distributor that 
221  sells or otherwise transfers the compounded drug.   
222   
6  Contains Nonbinding Recommendations 
Draft  Not for Implementation 
223  The drug has been sold or transferred by an entity (the wholesale distributor) other than 
224  the outsourcing facility that compounded it.  Because the wholesale distributor does not 
225  administer the compounded drug or dispense it pursuant to a prescription in accordance 
226  with section 503(b)(1) of the FD&C Act, the sale or transfer by the wholesale distributor 
227  would not be included within the exception to the wholesaling prohibition. 
228   
229  (b) An outsourcing facility (A) compounds a drug and transfers the drug to a second 
230  outsourcing facility (B) for subsequent distribution (without obtaining a prescription in 
231  accordance with section 503(b)(1) of the FD&C Act) to customers.  Outsourcing facilities 
232  (A) and (B) are owned by different entities and registered with FDA as separate 
233  outsourcing facilities.   
234   
235  The drug has been sold or transferred by an entityoutsourcing facility (B)other than 
236  the outsourcing facility (A) that compounded the drug.  Because the outsourcing facility 
237  (B) that distributed the drug, which it did not compound, does not administer the 
238  compounded drug or dispense the drug pursuant to a prescription in accordance with 
239  section 503(b)(1) of the FD&C Act, the sale or transfer by the outsourcing facility (B) of 
240  the drug to its customers would not be included within the exception to the wholesaling 
241  prohibition.  
242   
243  (c) An outsourcing facility distributes a drug it compounded to a manufacturer (e.g., a 
244  repacker or relabeler) that sells or transfers the compounded drug.   
245   
246  The drug has been sold or transferred by an entity other than the outsourcing facility that 
247  compounded it.  Because the manufacturer (e.g., a repacker or relabeler) does not 
248  administer the compounded drug or dispense it pursuant to a prescription in accordance 
249  with section 503(b)(1) of the FD&C Act, the sale or transfer by the manufacturer would 
250  not be included within the exception to the wholesaling prohibition. 
251   
252  (d) An outsourcing facility distributes a drug it compounded to a repacker or relabeler 
253  (regardless of whether the repacker or relabeler actually repacks or relabels the drug) that 
254  sells or transfers the drug to another entity (e.g., a pharmacy, health clinic, or physicians 
255  office), which then dispenses the drug pursuant to a prescription in accordance with 
256  section 503(b)(1) of the FD&C Act.   
257   
258  The drug has been sold or transferred by an entity (the repacker or relabeler) other than 
259  the outsourcing facility that compounded it.  Because the entity (the repacker or relabeler) 
260  to which the outsourcing facility distributed the compounded drug does not administer 
261  the compounded drug or dispense it pursuant to a prescription in accordance with section 
262  503(b)(1) of the FD&C Act, the sale or transfer by the repacker or relabeler would not be 
263  included within the exception to the wholesaling prohibition.  
264   
265  (e) A third party (e.g., a marketing firm or operator of a website that is not a pharmacy) sells 
266  a drug compounded by an outsourcing facility, even though the third party does not take 
267  physical possession of the drug, by providing services (e.g., training, billing, advertising) 
7  Contains Nonbinding Recommendations 
Draft  Not for Implementation 
268  to physicians that prescribe the drug and bundling the cost of those services with the cost 
269  for obtaining the drug.   
270   
271  If the outsourcing facility does not recoup the cost of the compounded drug directly from 
272  the prescribing physicians, and the outsourcing facility is compensated by the third party 
273  from the proceeds of its bundled services that it charged the prescribing physicians, the 
274  third party is selling the compounded drug, regardless of whether the bundled services 
275  itemize the cost of the drugs.  Because the third party (e.g., a marketing firm or operator 
276  of a website that is not a pharmacy) does not administer the compounded drug or 
277  dispense it pursuant to a prescription in accordance with section 503(b)(1) of the FD&C 
278  Act, the sale by the third party would not be included within the exception to the 
279  wholesaling prohibition.  
280   
281  2.  Activities Not Prohibited by the Wholesaling Provision 
282   
283  The following are examples of situations that generally would not be subject to the wholesaling 
284  prohibition of section 503B(a)(8) (i.e., in these situations the drug would not be considered sold 
285  or transferred by an entity other than the outsourcing facility that compounded such drug, or the 
286  sale or transfer would fall within the exception to the wholesaling prohibition): 
287   
288  (a) An outsourcing facility moves a drug it compounded to another location (e.g., a 
289  warehouse) that is part of the same outsourcing facility (i.e., at the same address or 
290  geographic location) for subsequent distribution.24   
291   
292  The drug has not been sold or transferred by an entity other than the outsourcing facility 
293  that compounded it.  Therefore, because the transfer was solely within the outsourcing 
294  facility that compounded the drug, the prohibition on wholesaling would not be 
295  applicable. 
296   
297  (b) An outsourcing facility distributes a drug it compounded (without obtaining a patient-
298  specific prescription) to a health care professional who administers it in a health care 
299  setting (e.g., in a hospital or the physicians office).   
300   
301  The drug has been sold or transferred by an entity (a health care professional) other than 
302  the outsourcing facility that compounded it.  However, because the sale or transfer by the 
303  health care professional took place as part of administering the drug in a health care 
304  setting, the sale or transfer involved would be included within the exception to the 
305  prohibition on wholesaling. 
306   
307  (c) An outsourcing facility distributes a drug it compounded (without obtaining a patient-
308  specific prescription) to a hospital or health system,25 health clinic, or physicians office, 
 
24 See the guidance for industry Facility Definition Under Section 503B of the Federal Food, Drug, and Cosmetic 
Act (May 2018).  
25 For 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 
 
8  Contains Nonbinding Recommendations 
Draft  Not for Implementation 
309  and it is administered within that hospital or health system, health clinic, or physicians 
310  office.   
311   
312  The drug has been sold or transferred by an entity (a hospital or health system, health 
313  clinic, or physicians office) other than the outsourcing facility that compounded it.  
314  However, because the sale or transfer in that health care setting took place as part of 
315  administering the drug, the sale or transfer involved would be included within the 
316  exception to the prohibition on wholesaling. 
317   
318  (d) An outsourcing facility distributes a drug it compounded (without obtaining a patient-
319  specific prescription) to a hospital or health system, health clinic, or physicians office 
320  where it is used as office stock to dispense to patients pursuant to prescriptions in 
321  accordance with section 503(b)(1) of the FD&C Act.  
322    
323  The drug has been sold or transferred by an entity (a hospital or health system, health 
324  clinic, or physicians office) other than the outsourcing facility that compounded it.  
325  However, because the sale or transfer took place as part of dispensing the drug to a 
326  patient in accordance with section 503(b)(1) of the FD&C Act, the sale or transfer 
327  involved would be included within the exception to the prohibition on wholesaling.  
328   
329  (e) An outsourcing facility distributes a drug it compounded to a state-licensed pharmacy, 
330  federal facility, or licensed physician, which subsequently dispenses the drug pursuant to 
331  a prescription in accordance with section 503(b)(1) of the FD&C Act.   
332   
333  The drug has been sold or transferred by an entity (a state-licensed pharmacy, a federal 
334  facility, or licensed physician) other than the outsourcing facility that compounded it.  
335  However, because the sale or transfer by the state-licensed pharmacy, federal facility, or 
336  licensed physician took place as part of dispensing the drug pursuant to a prescription in 
337  accordance with section 503(b)(1) of the FD&C Act, the sale or transfer involved would 
338  be included within the exception to the prohibition on wholesaling.  
339   
340  (f) An outsourcing facility distributes a drug it compounded to an entity that provides 
341  healthcare services (e.g., a hospital or health system, health clinic, or physicians office) 
342  for administration in that health care setting based on pricing agreements the outsourcing 
343  facility negotiated with a third party (e.g., group purchasing organization (GPO)) acting 
344  on behalf of the healthcare services entity.  In this example, the GPO only works on 
345  behalf of hospital and health systems, health clinics, and physicians offices seeking 
346  multiple products produced by outsourcing facilities to facilitate business transactions by 
347  finding products based on availability and competitive pricing.  The GPO does not own 
348  drugs, ship drugs, warehouse drugs, handle drugs, or hold drugs.  The GPO does not sell 
349  or dispose of drugs.  The GPO does not purchase, or decide to purchase, drugs.  GPO 
 
connected with each other and with the hospital through common ownership or joint management.  See the Agency 
for Healthcare Research and Qualitys Compendium of U.S. Health Systems, 2016, available at 
https://www.ahrq.gov/chsp/data-resources/compendium-2016.html.  
9  Contains Nonbinding Recommendations 
Draft  Not for Implementation 
350  members independently decide when and how much (if any) drugs to purchase from the 
351  outsourcing facility with which the GPO has an agreement.  
352   
353  The GPO has not sold or transferred the drug compounded by the outsourcing facility.  
354  The drug has been sold or transferred by an entity (the hospital or health system, health 
355  clinic, or physicians office) other than the outsourcing facility that compounded it.  
356  However, the sale and transfer of the drug by a hospital or health system, health clinic, or 
357  physicians office to administer in its health care setting would be included within the 
358  exception to the wholesaling prohibition, despite the involvement of the third-party GPO.  
359   
360  (g) An outsourcing facility dispenses its compounded drugs in accordance with section 
361  503(b)(1) of the FD&C Act to patients of a third party (e.g., a health clinic) after 
362  receiving patient-specific prescriptions26 for the patients from the third party and its 
363  affiliated medical providers.  The third party does not receive any type of compensation 
364  and does not sell or transfer the drugs compounded by the outsourcing facility.   
365   
366  The drugs have not been sold or transferred by an entity other than the outsourcing 
367  facility that compounded them.  Because the outsourcing facility that compounded the 
368  drugs sold or transferred the drugs directly to the patients, the prohibition on wholesaling 
369  would not be applicable. 
370   
371  C.  Inspections and Regulatory or Enforcement Action 
372   
373  Pursuant to section 704(a) of the FD&C Act, during inspections of outsourcing facilities, FDA 
374  reviews records, such as contractual agreements, distribution data, shipment data, and customer 
375  lists to evaluate compliance with section 503B(a)(8) of the FD&C Act.27  If the Agency identifies 
376  agreements or procedures concerning a third partys sale or transfer of the outsourcing facilitys 
377  compounded drugs that are not limited to administration in a health care setting or dispensing 
378  pursuant to a prescription in accordance with section 503(b)(1), FDA may consider pursuing 
379  regulatory or enforcement action against the outsourcing facility because drugs that are not 
380  compounded in accordance with the conditions of section 503B of the FD&C Act are subject to 
381  the requirements of sections 505, 502(f)(1), and 582 of the FD&C Act.  The third party that sold 
382  or transferred the outsourcing facilitys drugs may also be subject to regulatory or enforcement 
383  action for distributing or causing the distribution of drugs in violation of section 301 of the 
384  FD&C Act. 
385   
 
26 The patient-specific prescriptions may include situations where they are generated as a result of a telehealth visit. 
27 See section 503B(b)(4) of the FD&C Act. 
10