EI-01-16-00180 
December 2018 
 
oig.hhs.gov 
 
U.S. Department of Health and Human Services 
Office of Inspector General 
 
Most Hospitals 
Obtain Compounded 
Drugs From 
Outsourcing 
Facilities, Which 
Must Meet FDA 
Quality Standards 
 
OEI-01-17-00090 
June 2019 
OEI-01-17-00090 
 
Suzanne Murrin 
October 2018 
oig.hhs.gov 
Deputy Inspector General 
 
for Evaluation and Inspections 
oig.hhs.gov  Report in Brief  U.S. Department of Health and Human Services 
June 2019 
Office  of Inspector General 
OEI-01-17-00090 
   
 
Why OIG Did This Review           
Most Hospitals Obtain Compounded Drugs 
To provide FDA with insights to improve 
From Outsourcing Facilities, Which Must 
its oversight of compounders and 
enhance patient safety, OIG determined 
Meet FDA Quality Standards
  
the extent to which hospitals purchase 
non-patient-specific compounded drugs 
What OIG Found 
from outsourcing facilities. Only 
Most hospitals that obtained non-patient- Key Takeaway  compounders registered with FDA as 
Most hospitals obtain non-
specific compounded drugs from outside  outsourcing facilities can legally 
patient-specific  
compounders obtained them from what the  compound and distribute non-patient-
compounded drugs from 
Food and Drug Admnistration (FDA) calls  specific drugs.      
outsourcing facilities
outsourcing facilitiescompounders that are 
registered with FDA.  In fact, 89 percent of  facilities that are registered  In response to deaths from an outbreak 
hospitals that obtained non-patient-specific  with FDA.  Factors associated  of fungal meningitis caused by 
compounded drugs did so exclusively from  with quality, including  contaminated compounded injections, 
outsourcing facilities, 9 percent of such  registration with FDA as an  Congress passed the Drug Quality and 
hospitals obtained at least some from  outsourcing facility, are  Security Act in November 2013.  This 
outsourcing facilities, and just 2 percent  among the most important  legislation enhanced FDAs authority 
obtained them exclusively from unregistered  factors that hospitals  over facilities that perform large-scale 
compounders.  We provided FDA with a list  consider when they decide  compounding of non-patient-specific 
of compounders sorted by registration status,  where to obtain their non- drugs.  It distinguished the work of 
which it can use to prioritize followup.  patient-specific compounded  these facilities from traditional 
drugs.    pharmaceutical compounding, which is 
Hospitals reported that quality 
done on a patient-specific basis.  The 
considerationsincluding FDA registration; 
Drug Quality and Security Act allows 
State and Federal enforcement actions; product recalls; and quality assurance 
compounders that are registered as 
documentationdrive their decisions on where to obtain non-patient-specific 
outsourcing facilities with FDA to 
compounded drugs.  Hospitals rated quality considerations as extremely 
compound and distribute drugs without 
important when choosing compounders.  One expert told us, ... I would be 
a patient-specific prescription.  FDA 
very hesitant to purchase from a nonregistered facility. 
must inspect such facilities according to 
Of hospitals that compounded non-patient-specific drugs in their own  a risk-based schedule.  
pharmacies, only 2 percent had considered registering those pharmacies with 
FDA as outsourcing facilities, and only one hospital had actually registered its  How OIG Did This Review 
compounding facility.  Cost, as well as equipment and facility design limitations,  We selected a stratified random sample 
were extremely important factors for hospitals in deciding whether to register  of 601 Medicare-participating hospitals 
their pharmacies as outsourcing facilities.   and sent them a questionnaire, 
achieving an overall 94-percent 
What OIG Recommends and How the Agency Responded  response rate.  We asked the hospitals 
OIG recommends that FDA further communicate with hospitals about the  detailed questions about where they 
importance of obtaining their non-patient-specific compounded drugs from  obtain non-patient-specific 
outsourcing facilities.  We also recommend that FDA take appropriate followup  compounded drugs and the factors they 
actions with the unregistered compounding facilities on the list that we  considered in choosing where to obtain 
provided; these facilities may not be in compliance with Federal law.  FDAs  them.  To determine the registration 
followup could include for-cause inspections and any advisory or enforcement  status of the compounding facilities that 
actions that are warranted.  FDA concurred with our recommendations. the hospitals identified, we compared 
those facilities' names to FDAs list of 
registered outsourcing facilities as of 
January 2018. 
   
TABLE OF CONTENTS 
BACKGROUND      1 
Methodology  5 
   
FINDINGS   
Most hospitals that obtained non-patient-specific compounded drugs from outside  7 
compounders got them from outsourcing facilities 
Hospitals reported that quality considerations, including whether a compounder was  9 
registered as an outsourcing facility, drive decisions about where to obtain compounded 
drugs 
Hospitals rarely considered registering their pharmacies with FDA as outsourcing facilities  10 
 
CONCLUSION AND RECOMMENDATIONS   
FDA should further communicate to hospitals the importance of obtaining  12 
non-patient-specific compounded drugs from outsourcing facilities 
 
FDA should take appropriate followup action with the unregistered compounding facilities on  13 
the list we provided  
 
AGENCY COMMENTS AND OIG RESPONSE  14 
     
      APPENDICES   
A:  Types of drugs obtained by hospitals from outside compounders on a non-patient-specific  15 
basis  
 
B:  Types of drugs compounded in hospital pharmacies on a non-patient-specific basis   20 
   
C:  Types of drugs that hospitals reported being unable to obtain on a non-patient-specific  24 
basis   
 
D:  Point estimates and confidence intervals for findings                                                                  28 
 
      E:  Factors that hospitals considered when choosing where to obtain compounded drugs    30 
   
      F:  Agency Comments  32 
   
   
   
ACKNOWLEDGMENTS  35 
   
   
BACKGROUND 
  Objectives 
To determine the extent to which Medicare-participating hospitals:  
1.  acquire compounded drugs from entities registered as 
outsourcing facilities with the Food and Drug Administration 
(FDA), and 
2.  consider registering their pharmacies with FDA as 
outsourcing facilities. 
 
In 2012, contaminated steroid injections compounded by the New England 
Compounding Center caused a nationwide meningitis outbreak resulting in 
64 deaths and a total of 753 cases of fungal infection.1  The outbreak raised 
concerns about oversight of compounded drugs and prompted Congress to 
pass the Drug Quality and Security Act (DQSA) in November of 2013.2 
The DQSA added a new section 503B to the Federal Food, Drug, and 
Cosmetic Act (FD&C Act) and established requirements for compounding 
facilities that elect to register with FDA.  FDA calls such registered facilities 
outsourcing facilities.3  Only entities that register and comply with section 
503B of the FD&C Act can compound and distribute drugs without 
a patient-specific prescription.  
Outsourcing facilities are subject to FDA inspections in accordance with 
a risk-based schedule.4  FDA inspections assess the facilities for compliance 
with the FD&C Act, including section 503B and the current good 
manufacturing practice (CGMP) requirements under section 501(a)(2)(B).  
These inspections frequently identify CGMP violations.  One such violation 
would be poor aseptic technique that may result in a lack of sterility that 
facilities must address to protect the publics health.5  FDA lists outsourcing 
facilities and their inspection results on its website, thereby promoting 
transparency and compliance with quality standards.6  In addition, 
outsourcing facilities must indicate to FDA each year whether they intend to 
compound drugs that are in shortage.7  
Use of compounded drugs is widespread in hospitals.  Prior Office of 
Inspector General work found that 92 percent of Medicare-participating 
hospitals used compounded sterile drugs in 2012, and that 79 percent of 
those hospitals contracted with at least one compounding facility  to 
produce these products.8  In a 2014 letter to hospitals, FDA encouraged 
them to purchase their compounded drugs from outsourcing facilities 
because such facilities have greater assurances of quality (see Exhibit 1).9  
Our current report determines the extent to which hospitals have purchased 
their compounded drugs from outsourcing facilities; provides FDA with 
Most Hospitals Obtain Compounded Drugs From Registered Outsourcing Facilities, Which Must Meet FDA Quality Standards  1 
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further data on the landscape of compounded drugs; and adds to OIGs 
body of work on this important topic. 
 
Exhibit 1. Excerpt from FDAs 2014 Letter to Hospitals 
As a purchaser of compounded drugs, you can play an important role in 
improving the quality of compounded drugs by requiring compounding 
pharmacies that supply drugs to your facility to register as outsourcing 
facilities.  Once they register, you and the patients you serve can be 
assured that FDA will inspect these facilities on a risk-based schedule, hold 
them to CGMP requirements, monitor adverse events reports they are 
required to submit to the agency, and require appropriate labeling. 
 
 
Pharmaceutical  Compounding is generally the practice of combining, mixing, or altering 
a prescription drug to meet the needs of an individual patient.  For example, 
Compounding 
a licensed pharmacist may compound a drug without a certain dye to which 
a patient may be allergic, or the pharmacist might create a liquid form of 
a drug for a patient who is unable to swallow a pill.  Traditionally, licensed 
pharmacists and physicians compound a drug for an individual patient and 
dispense it upon the receipt of a prescription.  In contrast, outsourcing 
facilities can engage in large-scale compounding of non-patient-specific 
(NPS) drugsa process akin to conventional manufacturing.10   
Unlike with most prescription drugs, FDA does not review and approve 
compounded drugs.  Therefore, FDA does not verify their safety, 
effectiveness, or quality prior to their being marketed in the United States.  
Hospitals may contract with multiple outside compounders in addition to 
compounding drugs within their own pharmacies. 
 
The Drug  The DQSA added a new section 503B to the FD&C Act, thereby enhancing 
FDAs oversight authority over facilities that perform large-scale non-
Quality and 
patient-specific compounding of drugs.11  State boards of pharmacy have 
Security Act 
primary responsibility for overseeing traditional compounding pharmacies, 
which perform patient-specific compounding (i.e., they prepare drugs for 
identified individual patients), distribute those products pursuant to patient-
specific prescriptions, and otherwise comply with section 503A of the FD&C 
Act. 
Section 503B of the FD&C Act created a new category of compounding 
facilitiescalled outsourcing facilitiesthat often compound and distribute 
drugs without a patient-specific prescription.  Unlike with traditional 
pharmacy compounding, outsourcing facilities may legally compound and 
distribute drugs without a patient-specific prescription if they register with 
FDA and comply with section 503B of the FD&C Act.   
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Section 503B of the FD&C Act does not limit the quantities of compounded 
drugs that outsourcing facilities may sell without a patient-specific 
prescription anywhere in the United States.  If an outsourcing facility 
complies with section 503B of the FD&C Act, it is eligble for exemption from 
certain FD&C Act requirements, including from the drug-approval process 
required for conventional manufacturers.  See Exhibit 2.   
 
Exhibit 2.  Outsourcing facilities and outside compounders, explained 
Outsourcing facility  
A compounder that is registered with FDA as a 503B outsourcing facility.  
Registration with FDA enables a facility to compound and distribute 
drugs without a patient-specific prescription (referred to as NPS drugs 
throughout this report), provided that the facility meets certain statutory 
conditions.  Outsourcing facilities are subject to routine FDA oversight. 
 
Outside compounder 
Any entity other than a hospitals pharmacy that produces compounded 
drugs.  An outside compounder may be an outsourcing facility or an 
unregistered facility.   
 
 
 
Among other things, under section 503B of the FD&C Act, outsourcing 
facilities must meet the stringent qualit y standards found in FDAs CGMP 
requirements under section 501(a)(2)(B) of the FD&C Act and parts 210 and 
211 of Title 21 of the Code of Federal Regulations.12  FDAs CGMP 
requirements establish baseline standards for the physical plant, equipment, 
and production controls in place at registered outsourcing facilities.13   
FDAs goal is generally to inspect an outsourcing facility within 2 months of 
the facilitys initial registration.14  As of September 21, 2018, 73 compounding 
facilities had registered as outsourcing facilities with FDA.15  As of 
January 2017, FDA had conducted 85 inspections of outsourcing facilities
it had inspected all facilities at least once, and had inspected some facilities 
more than once.  Almost all of these inspections resulted in FDAs issuing 
an FDA Form 483 to notify the facilities of objectionable conditions.16  FDA 
encourages facilities to respond to the form in writing with corrective action 
plans and to implement the plans expeditiously.  If the objectionable 
conditions warrant further action, FDA may take an advisory or enforcement 
action, including sending the facility a warning letter or bringing an action 
for seizure or injunction.17, 18 
 
 
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Compounding  Hospital pharmacies can fulfill an array of patient needs, compounding both 
non-patient-specific (NPS) and patient-specific drugs to varying degrees.  
Within a Hospital 
Sometimes, hospital pharmacies may not be able to compound a patient-
Pharmacy 
specific drug in an emergency situation.  In such cases, hospitals sometimes 
  compound those drugs without a patient-specific prescription.  Federal law 
does not permit a hospital pharmacy to compound and  distribute non-
patient-specific drugs within or outside of the hospital. In its 2016 draft 
guidance on hospital compounding, FDA recognizes that hospital 
pharmacies may need NPS supplies of certain compounded drugs,19 and 
FDA recommends that hospitals obtain NPS compounded drugs from 
outsourcing facilities.  The draft guidance also proposes certain parameters 
within which FDA generally would not intend to object if hospitals 
compounded and distributed NPS drugs.   
 
In January 2018, FDA released its 2018 Compounding Policy Priorities Plan.  
FDAs Proposed 
According to the plan, FDAs priorities include transitioning from the current 
Risk-Based 
CGMP regulations to promulgating more specific CGMP regulations for 
Approach to  outsourcing facilities. 20  In December 2018, FDA issued revised draft 
Manufacturing  guidance outlining a risk-based approach to CGMP requirements.  This 
approach seeks to recognize the differences between outsourcing facilities 
Standards 
and conventional drug manufacturers while protecting patients from 
 
substandard compounded drugs.21       
 
 
Related OIG Work  This study is part of a larger body of OIG work examining hospital use of 
  compounded drugs.  In 2013, OIG found that among Medicare hospitals 
that used compounded drugs, 95 percent prepared compounded sterile 
drugs onsite and 79 percent of these hospitals also purchased compounded 
sterile drugs from external compounding facilities.22 
An OIG study published in 2014 found that Medicare claims data do not 
include identifying information for external compounding facilities that 
provide a hospital with compounded drugs.  Including such identifying 
information on claims would help the Centers for Medicare & Medicaid 
Services (CMS) and hospitals identify the source(s) of future outbreaks.23 
CMS did not concur with OIGs recommendation to explore including that 
information, citing questions about CMSs authority to do so and the 
significant resources that would be necessary to adjust the claims 
processing system. 
In 2015, OIG released a study that examined Medicares oversight of 
hospitals practices related to compounding.  This study found that 
Medicares oversight addresses most of the expert-recommended practices 
related to compounding some of the time, but the study did not generally 
review hospitals contracts with external compounding facilities.  These 
Most Hospitals Obtain Compounded Drugs From Registered Outsourcing Facilities, Which Must Meet FDA Quality Standards  4 
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contracts help ensure that external compounding facilities provide safe, 
nontainted compounded drugs to hospitals.24  CMS implemented our 
recommendations for it to train surveyors on standards from nationally 
recognized organizations related to safe compounding practices and for it 
to amend its interpretive guidelines to address contracting with outside 
compounding pharmacies. 
 
Methodology  Scope 
This report is national in scope.  We selected our sample from all 
Medicare-participating acute-care hospitals as of September 2017.  From 
that population, we focused our analysis on the estimated 80 percent of 
hospitals that obtained NPS compounded drugs from any source (hospital 
pharmacy, outside compounder, and/or outsourcing facility).25 
Data Sources and Analysis 
To conduct this study, we relied on a survey of hospitals, FDAs registry of 
outsourcing facilities, and stakeholder interviews.  Stakeholders included 
officials from FDA and experts in pharmaceutical compounding and hospital 
compounding. 
We selected a sample of acute-care hospitals to determine where they 
obtained their patient-specific and NPS compounded drugs.  To do so, we 
first identified 4,746 acute-care hospitals that participated in Medicare in 
2017.26  We then stratified that population by size (bed count) and by 
whether a hospital was known to have registered its pharmacy as 
a 503B outsourcing facility.  We selected 300 large hospitals(50 beds), 
300 small hospitals (<50 beds), and the 1 hospital with a pharmacy that was 
on FDAs registry of outsourcing facilities at the time we selected our 
sample, resulting in a total sample of 601 hospitals.27  See Exhibit 3 for 
additional details on the sample size and response rates.    
 
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Exhibit 3. Sample and Population Data for Medicare-Participating 
Hospitals Surveyed for This Study 
 
Number of  Number of 
Strata Descriptions  Hospitals in  Hospitals  Response rate 
 
Population  in Sample 
   
  Large hospitals (50 beds) 
2925  300  93% 
 
 
 
 
Small hospitals (<50 beds) 
1820  300  94% 
 
 
 
Hospital registered as  
  outsourcing facilities 
1  1  100% 
 
 
 
 
Total  4746  601  94% 
We administered our electronic questionnaire between October 20, 2017, 
 
and January 4, 2018.  We analyzed the responses as a whole and by hospital 
size.  We requested information on (among other related questions) 
whether hospitals considered registering their pharmacies as outsourcing 
facilities, the hospitals sources for their compounded drugs, and factors 
that hospitals considered in sourcing their compounded drugs.  For 
purposes of this report, we considered hospitals that reported 
compounding NPS drugs in their pharmacies or obtaining them from 
outside compounders to be using NPS compounded drugs. 
To determine the registration status of each source of compounded drugs, 
we compared by name the sources that responding hospitals identified and 
FDAs registry as of January 2, 2018.   
 
Limitations 
Our review relied on self-reported information from hospitals. We did not 
independently verify hospitals responses.  
 
Standards  We conducted this study in accordance with the Quality Standards for 
Inspection and Evaluation issued by the Council of the Inspectors General on 
Integrity and Efficiency. 
   
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FINDINGS 
Most hospitals that  Outsourcing facilities are major sources for hospitals compounded drugs.  
Among hospitals that obtained NPS compounded drugs from outside 
obtained NPS 
compounders, 89 percent of hospitals obtained them only from 
compounded drugs 
compounders that were registered with FDA as 503B outsourcing facilities.  
from outside  This means that the facilities are subject to FDA inspection and reporting 
compounders got  requirements, and that they must adhere to CGMP requirements.  See 
Appendix D for point estimates and 95-percent confidence intervals for 
them from 
findings pertaining to the FDA registration status of outside compounders 
outsourcing 
from which hospitals obtain NPS compounded drugs.     
facilities   
Among hospitals that obtained NPS compounded drugs from outside 
compounders, about 11 percent obtained at least some of these drugs from 
unregistered facilities:  9 percent both from outsourcing facilities and 
unregistered facilities, and 2 percent exclusively from unregistered facilities 
(see Exhibit 4).  Unregistered facilities that distribute NPS compounded 
drugs are not in compliance with the FD&C Act and are a potential 
significant threat to public health.  We provided the list of all identified 
outside compounding facilities sorted by registration status to the FDA for 
appropriate followup.28 
 
Exhibit 4. Most hospitals that obtained NPS compounded drugs from 
outside compounders got them from outsourcing facilities. 
               
Source: OIG analysis of survey data from Medicare-participating hospitals, 2017. 
 
Many hospitals obtain NPS compounded drugs from multiple outside 
compounders.  Over half of hospitals that obtained such drugs from outside 
compounders obtained them from more than one outside compounder.  
Most Hospitals Obtain Compounded Drugs From Registered Outsourcing Facilities, Which Must Meet FDA Quality Standards  7 
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Among all of these hospitals, almost 90 percent used between one and 
three outside compounders (see Exhibit 5).    
 
Exhibit 5. Most hospitals that obtained NPS compounded drugs 
obtained them from more than one outside compounder 
 
 
Source: OIG analysis of hospital-reported data.  Analysis limited to hospitals that obtained 
non-patient-specific compounded drugs in the 12 months prior to October 2017. 
 
Three kinds of drugsnarcotics/controlled substances, patient-controlled 
analgesia, and epiduralswere among those commonly obtained from 
outside compounders and compounded in hospitals own pharmacies.  See 
Appendix A for information on the kinds of drugs that hospitals obtain from 
outside compounders.  See Appendix B for information on the kinds of 
drugs that hospitals compound in their own hospital pharmacies. 
Nearly half (45 percent) of hospitals faced some challenges in obtaining all 
the NPS compounded drugs they sought from outside compounders.  Of 
these hospitals, 76 percent were unable to obtain a drug on FDAs drug 
shortage list from outside compounders.29 Outsourcing facilities generally 
cannot make products that are essentially copies of approved drugs, but 
drugs that appear on FDAs drug shortage list at the time of compounding, 
distribution, and dispensing are not considered to be essentially copies of 
approved drugs.30  However, some factors that contribute to drug 
shortagessuch as lack of raw materialsaffect outsourcing facilities and 
conventional manufacturers alike.  The unpredictability of drug shortages 
also makes it risky for outsourcing facilities to invest in compounding a drug 
that remains for an indefinite period on the drug shortage list.31 
Of the hospitals that reported facing challenges in obtaining all the NPS 
compounded drugs they sought from outside compounders, more than 
a quarter specifically reported challenges in obtaining patient-controlled 
Most Hospitals Obtain Compounded Drugs From Registered Outsourcing Facilities, Which Must Meet FDA Quality Standards  8 
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analgesia, operating room syringes, narcotics/controlled substances, and 
pitocin/oxytocin from outside compounders.  More information on the 
challenges that hospitals faced in obtaining NPS compounded drugs is 
included in Appendix C.   
 
Hospitals  Nearly all hospitals rated quality considerations as extremely important in 
choosing sources for compounded drugs.  (See Exhibit 6 for descriptions of 
reported that 
the factors we defined as quality considerations for the purposes of this 
quality 
report.)  Overall, 94 percent of hospitals reported that a sources history of 
considerations,  Federal enforcement actions, such as product seizures or injunctions, was 
including  extremely important.  Likewise, 94 percent identified the history of State 
actions, such as suspension or revocation of a State license, as being 
whether a 
extremely important.  Furthermore, 92 percent rated product recalls, quality 
compounder was 
assurance documentation, and 503B registration status as being extremely 
registered as an  important.  In fact, one stakeholder told us that FDA registration was a way 
to determine whether a compounder passed muster.    
outsourcing 
facility, drive   
decisions about 
If I was a pharmacy director, I would be very hesitant 
where to obtain 
to purchase from a nonregistered facility. 
compounded 
  Pharmacy expert  
drugs 
 
Finally, stakeholders with whom we spoke noted that the 2012 meningitis 
outbreak heightened hospitals awareness of the risks associated with 
compounding, and that it focused their attention on quality, risk 
management, and liability. 
 
 
 
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Exhibit 6.  Factors Defined as Quality Considerations for This Report 
  
  History of State actions against facility (e.g., suspension or 
revocation of State license) 
  History of Federal enforcement actions against facility (e.g., 
seizure or injunction) 
  History of product recalls and/or cessation of sterile operations 
  Quality assurance documentation 
  Registration with FDA as a 503B outsourcing facility 
  Facilitys accreditation status 
  Appropriate licensure of pharmacy staff 
  Warning letters issued based on FDA inspection findings 
  Facilitys reputation 
  Staff training and competency assessment documentation 
  Observations listed on FDA Form 483 
 
 
Although the cost of compounded drugs matters to many hospitals, it does 
not appear to drive hospital decisions about where to obtain compounded 
drugs as strongly as do quality considerations.  For example, 58 percent of 
hospitals considered the cost of the compounded drugs extremely 
important in choosing where to obtain them.  A similar proportion
53 percentconsidered contracts with group purchasing organizations, 
which allow hospitals to leverage their buying power for discounts, to be 
extremely important.  Less than half (49 percent) reported that their own 
purchasing histories with compounders were extremely important.  See 
Appendix E for additional factors that hospitals consider when making 
decisions about where to obtain compounded drugs. 
 
Fewer than 2 percent of hospitals that compound NPS drugs in their 
Hospitals rarely 
pharmacies had considered or were currently considering registering their 
considered 
pharmacies as 503B outsourcing facilities.  Registering as 503B outsourcing 
registering their  facilities and complying with the FD&C Act represents a high bar for 
pharmacies with  hospitals, which generally compound under less stringent conditions than 
those that must be met by outsourcing facilities.  Stakeholders told us that 
FDA as outsourcing 
meeting this bar could represent a huge leap in cost and talent for 
facilities 
hospitals, calling for initial investments of $3 million to $10 million.  Hospitals 
reported both that initial cost of making a pharmacy CGMP-compliant and 
the limitations of their equipment and facility design were extremely 
important in deciding whether to register.   
Nearly half of hospitals (47 percent) obtained NPS compounded drugs from 
both their own pharmacies and one or more other source(s)usually, 
an outsourcing facility. Hospitals rarely relied solely on their own pharmacies 
to provide NPS compounded drugs; just 8 percent did so.  Therefore, 
Most Hospitals Obtain Compounded Drugs From Registered Outsourcing Facilities, Which Must Meet FDA Quality Standards  10 
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hospital pharmacies that compound NPS drugs may have little incentive to 
expend the significant amount of time and resources required to make their 
pharmacies CGMP-compliant.  See Appendix D for compounding and 
purchasing practices for NPS drugs.      
Just one hospital pharmacy, associated with a large hospital system, 
is registered with the FDA.  
 
 
   
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CONCLUSION AND RECOMMENDATIONS 
FDA stated that it is committed to implementing the Drug Quality and 
Security Act (DQSA) in a way that enhances patient safety by protecting 
patients from unsafe, ineffective, and poor-quality compounded drugs while 
preserving access to lawfully compounded drugs.32  The DQSA created 
outsourcing facilities, a new category of drug-compounding facility that is 
subject to FDA registration and oversight.  Patient safety is advanced when 
hospitals choose to obtain compounded drugs from outsourcing facilities 
that are registered with FDA.  Outsourcing facilities must adhere to current 
good manufacturing practices, report adverse events to FDA, and label 
products with certain information.  According to our analysis, hospitals have 
largely chosen to obtain their NPS compounded drugs from such facilities.  
They based their decisions primarily on factors related to quality, and FDA 
registration was key among these factors.  
In 2014, FDA wrote to hospitals about the DQSA and urged them to obtain 
their compounded drugs from outsourcing facilities.  Most heeded that call, 
but 11 percent still obtain at least some of their NPS compounded drugs 
from unregistered compounders.  We provided a list that included those 
unregistered facilities to FDA for its information and appropriate followup. 
In light of our findings, we offer FDA the following recommendations as it 
continues to implement the DQSA: 
 
FDA should further communicate to hospitals the importance 
of obtaining NPS compounded drugs from outsourcing 
facilities 
Hospitals are the frontline of patient safety, and safely compounded drugs 
are necessary for effective patient care.  To that end, FDA should further 
promote how hospitals can better ensure quality and patient safety by 
obtaining NPS compounded drugs from outsourcing facilities.  FDA could 
communicate to hospitals by writing to them; posting information on its 
website; or publishing information or an article; among other options.  In 
doing so, FDA could provide additional information on its oversight of 
outsourcing facilitiesincluding information on its inspection and 
enforcement activitiesto help hospitals make decisions about where to 
obtain compounded drugs.  To help hospitals obtain drugs that are on 
FDAs drug shortage list, FDA could make available information about 
outsourcing facilities that have informed it of their intent to compound such 
drugs.  Finally, we encourage FDA to evaluate opportunities for enhancing 
its website as a tool for hospitals that wish to assess the compliance history 
of outsourcing facilities. 
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FDA should take appropriate followup action with the 
unregistered compounding facilities on the list that we 
provided 
NPS compounders that are unregistered and are not operating in 
compliance with section 503B of the FD&C Act could pose a public health 
threat.  We provided a list that included unregistered NPS compounders to 
the FDA.  FDA should review that list and take appropriate actions with 
unregistered compounders, such as conducting for-cause inspections and 
any advisory or enforcement actions warranted. 
 
 
 
 
   
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AGENCY COMMENTS AND OIG RESPONSE 
FDA concurred with both of our recommendations. 
In response to our first recommendation, FDA agreed that ongoing 
outreach to hospitals about obtaining compounded drugs from registered 
outsourcers is important.  FDA stated that it regularly engages with hospitals 
and health-system stakeholders regarding drug compounding and 
applicable law and policy, and that its specific engagement efforts include 
holding annual listening sessions, developing policy on compounding in 
hospital and health-system settings, and continuing to post information 
about the products that outsourcing facilities have recently produced, which 
may include drugs in shortage.   
In response to our second recommendation, FDA stated that it has used the 
list we provided to conduct inspections and has confirmed that some sites 
distributed NPS compounded drugs.  Those inspections also identified 
objectionable conditions, and some have led to a recall.  FDA stated that it 
will continue to take appropriate followup actions.   
OIG appreciates FDAs concurrences and its commitment to implementing 
the DQSA.  FDAs continued efforts in NPS compounding can help protect 
patients from unsafe, ineffective, and poor-quality compounded drugs while 
preserving access to lawfully compounded drugs. 
For the full text of FDAs comments, see Appendix F.   
 
 
 
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APPENDIX A:  Types of drugs obtained by 
hospitals from outside compounders on a non-
patient-specific basis 
Percentage of hospitals that obtained NPS compounded drugs with the 
following characteristics from outside compounding facilities 
Independent 
Point Estimate  Group T-
(95-Percent  Test By 
Drug  Sample Size 
Confidence  Hospital 
Intervals)  Size (P-
Value) 
Small: 32.1% 
High-volume compounded  57.6% 
421  Large: 67.9% 
sterile preparations  (53.2%-62.0%) 
(<0.0001) 
Small: 54.6% 
Low-volume compounded  61.2% 
421  Large: 64.0% 
sterile preparations  (56.7%-65.6%) 
(0.0752) 
Small: 15.2% 
High-risk compounded sterile  24.5% 
421  Large: 28.2% 
preparations  (20.7%-28.7%) 
(0.0047) 
Small: 30.9% 
58.1% 
Products in shortage  421  Large: 69.0% 
(53.7%-62.4%) 
( <0.0001) 
Small: 17.0% 
25.6% 
Emergency cart medications  421  Large: 29.0% 
(21.7%-29.8%) 
(0.0103) 
Small: 0% 
0.3% 
Research/study drugs  421  Large: 0.4% 
(0.04%-1.8%) 
(0.4919 ) 
           
Most Hospitals Obtain Compounded Drugs From Registered Outsourcing Facilities, Which Must Meet FDA Quality Standards  15 
OEI-01-17-00090   
Percentage of hospitals that obtained NPS compounded drugs with the 
following mode of delivery or dosage form type from outside compounding 
facilities 
Independent 
Point Estimate  Group T-
(95-Percent  Test By 
Drug  Sample Size 
Confidence  Hospital 
Intervals)  Size (P-
Value) 
Small: 43.0% 
63.0% 
Operating room syringes  421  Large: 71.0% 
(58.6%-67.2%) 
(<0.0001) 
Small: 47.3% 
70.6% 
Patient-controlled analgesia  421  Large: 80.0% 
(66.5%-74.4%) 
(<0.0001) 
Small: 29.7% 
55.0% 
Epidurals  421  Large: 65.1% 
(50.5%-59.3%) 
(<0.0001) 
Small: 6.1% 
32.0% 
Critical care infusions  421  Large: 42.4% 
(27.8%-36.4%) 
(<0.0001) 
Small: 1.8% 
4.7% 
Intrathecals  421  Large: 5.9% 
(3.1%-7.2%) 
(0.0756) 
Small: 12.1% 
8.2% 
Eye drops  421  Large: 6.7% 
(6.1%-11.0%) 
(0.0689) 
Small: 9.1% 
Creams/ointments/suppositories  9.6% 
421  Large: 9.8% 
or other topical agents  (7.2%-12.7%) 
(0.8237) 
Small: 1.2% 
1.8% 
Tablets/capsules  421  Large: 2.0% 
(0.9%-3.5%) 
(0.5971) 
Most Hospitals Obtain Compounded Drugs From Registered Outsourcing Facilities, Which Must Meet FDA Quality Standards  16 
OEI-01-17-00090   
Small: 3.0% 
4.5% 
Oral solutions  421  Large: 5.1% 
(2.9%-6.9%) 
(0.3564) 
Small: 0.6% 
0.5% 
Otic solutions  421  Large: 0.4% 
(0.1%-1.7%) 
(0.7669) 
           
   
Most Hospitals Obtain Compounded Drugs From Registered Outsourcing Facilities, Which Must Meet FDA Quality Standards  17 
OEI-01-17-00090   
Percentage of hospitals that obtained any of the following categories of 
NPS compounded drugs from outside compounding facilities 
Independent 
Point Estimate  Group T-
(95-Percent  Test By 
Drug  Sample Size 
Confidence  Hospital 
Intervals)  Size (P-
Value) 
Small: 32.1% 
57.6% 
Pitocin/oxytocin  421  Large: 67.9% 
(53.2%-62.0%) 
(<0.0001) 
Small: 0.0% 
4.8% 
Parenteral Nutrition  421  Large: 6.7% 
(3.1%-7.3%) 
(0.0036) 
Small: 53.3% 
74.9% 
Narcotics/controlled substances  421  Large: 83.5% 
(71.0%-78.4%) 
(<0.0001) 
Small: 5.5% 
Antiarrhythmic agents (e.g.,  11.1% 
421  Large: 13.4% 
amiodarone)   (8.5%-14.4%) 
(0.0193) 
Small: 7.3% 
Inotropic/vasopressors agents  23.4% 
421  Large: 29.8% 
(e.g., dobutamine)  (19.6%-27.6%) 
(<0.0001 ) 
Small: 0.0% 
14.0% 
Cardioplegia  421  Large: 19.6 
(11.0%-17.7%) 
(<0.0001 ) 
Small: 10.3% 
22.6% 
Antibiotics/antimicrobials  421  Large: 27.5% 
(18.9%-26.7%) 
(0.0001) 
Small: 3.6% 
5.2% 
Radiopharmaceuticals  421  Large: 5.9% 
(3.5%-7.8%) 
(0.3511) 
Most Hospitals Obtain Compounded Drugs From Registered Outsourcing Facilities, Which Must Meet FDA Quality Standards  18 
OEI-01-17-00090   
Small: 7.9% 
14.6% 
Nerve blocks  421  Large: 17.3% 
(11.5%-18.2%) 
(0.0136) 
Small: 1.8% 
12.3% 
Electrolyte solutions  421  Large: 16.5% 
(9.5%-15.8%) 
(<0.0001) 
Dialysis fluid and drugs (e.g., 
Small: 0.0% 
continuous renal replacement  2.5% 
421  Large: 3.5% 
therapy, continuous veno- (1.4%-4.6%) 
(0.0366) 
venous hemofiltration) 
Small: 0.6% 
0.7% 
Oncology drugs  421  Large: 0.8% 
(0.2%-2.2%) 
(0.8469) 
Small: 1.2% 
5.1% 
Non-chemo hazardous drugs  421  Large: 6.7% 
(3.3%-7.7%) 
(0.0214) 
Small: 10.9% 
16.3% 
Anesthetic agents  421  Large: 18.4% 
(13.1%-20.0%) 
(0.0590) 
Small: 27.3% 
Anesthesia syringes  44.7% 
421  Large: 51.7% 
(neuromuscular blockers)  (40.2%-49.3%) 
(<0.0001) 
Small: 0.0% 
2.0% 
Diagnostic testing reagents  421  Large: 2.7% 
(1.0%-3.9%) 
(0.0662) 
Small: 10.9% 
Compounded topical  9.8% 
421  Large: 9.4% 
medications  (7.4%-12.9%) 
(0.6409) 
Most Hospitals Obtain Compounded Drugs From Registered Outsourcing Facilities, Which Must Meet FDA Quality Standards  19 
OEI-01-17-00090   
APPENDIX B:  Types of drugs compounded in 
hospital pharmacies on a non-patient-specific basis 
Percentage of hospitals that compounded NPS drugs with the following 
characteristics in their pharmacies 
Point Estimate  Independent 
Sample  (95-Percent  Group T-Test By 
Drug 
Size  Confidence  Hospital Size (P-
Intervals)  Value) 
Small: 6.8% 
High-volume compounded  24.0% 
428  Large: 31.5% 
sterile preparations  (20.3%-28.2%) 
(<0.0001) 
Small: 11.9% 
Low-volume compounded  22.8% 
428  Large: 27.5% 
sterile preparations  (19.1%-26.9%) 
(0.0004) 
Small: 0.6% 
High-risk compounded sterile  3.8% 
428  Large: 5.2% 
preparations  (2.3%-6.1%) 
(0.0214) 
Small: 8.5% 
22.3% 
Products in shortage  428  Large: 28.3% 
(18.6%-26.4%) 
(<0.0001) 
Small: 1.7% 
4.7% 
Emergency cart medications  428  Large: 6.0% 
(3.0%-7.2%) 
(0.0546) 
Small: 0.0% 
0.6% 
Research/study drugs  428  Large: 0.8% 
(0.1%-2.0%) 
(0.3087) 
           
   
Most Hospitals Obtain Compounded Drugs From Registered Outsourcing Facilities, Which Must Meet FDA Quality Standards  20 
OEI-01-17-00090   
Percentage of hospitals that compounded NPS drugs with the following 
mode of delivery or dosage form type 
Point Estimate  Independent 
Sample  (95-Percent  Group T-Test By 
Drug 
Size  Confidence  Hospital Size (P-
Intervals)  Value) 
Small: 5.1% 
15.2% 
Operating room syringes  428  Large: 19.6% 
(12.1%-18.9%) 
(0.0001) 
Small: 5.1% 
19.1% 
Patient-controlled analgesia  428  Large: 25.1% 
(15.6%-23.0%) 
(<0.0001) 
Small: 4.0% 
14.8% 
Epidurals  428  Large: 19.6% 
(11.8%-18.5%) 
(<0.0001) 
Small: 0.6% 
10.7% 
Critical care infusions  428  Large: 15.2% 
(8.1%-14.1%) 
(<0.0001) 
Small: 0.0% 
0.6% 
Intrathecals  428  Large: 0.8% 
(0.1%-2.0%) 
(0.3087) 
Small: 1.7% 
3.9% 
Eye drops  428  Large: 4.8% 
(2.4%-6.2%) 
(0.1289) 
Small: 10.2% 
Creams/ointments/suppositories  14.2% 
428  Large: 15.9% 
or other topical agents  (11.2%-17.8%) 
(0.1207) 
Small: 1.1% 
0.9% 
Tablets/capsules  428  Large: 0.8% 
(0.3%-2.3%) 
(0.7285) 
Small: 11.9% 
23.0% 
Oral solutions  428  Large: 27.9% 
(19.3%-27.2%) 
(0.0003) 
Small: 0.6% 
0.7% 
Otic solutions  428  Large: 0.8% 
(0.2%-2.1%) 
(0.7988) 
           
Most Hospitals Obtain Compounded Drugs From Registered Outsourcing Facilities, Which Must Meet FDA Quality Standards  21 
OEI-01-17-00090   
Percentage of hospitals that compounded any of the following categories 
of NPS drugs 
Point Estimate  Independent 
Sample  (95-Percent  Group T-Test By 
Drug 
Size  Confidence  Hospital Size (P-
Intervals)  Value) 
Small: 9.7% 
23.2% 
Pitocin/oxytocin  428  Large: 29.1% 
(19.5%-27.4%) 
(<0.0001) 
Small: 0.0% 
3.1% 
Parenteral Nutrition  428  Large: 4.4% 
(1.8%-5.3%) 
(0.0153) 
Small: 6.8% 
20.7% 
Narcotics/controlled substances  428  Large: 26.7% 
(17.1%-24.7%) 
(<0.0001) 
Small: 0.0% 
Antiarrhythmic agents (e.g.,  2.5% 
428  Large: 3.6% 
amiodarone)   (1.4%-4.6%) 
(0.0279) 
Small: 0.0% 
Inotropic/vasopressors agents  6.4% 
428  Large: 9.2% 
(e.g., dobutamine)  (4.4%-9.2%) 
(0.0003) 
Small: 0% 
5.5% 
Cardioplegia  428  Large: 8.0% 
(3.7%-8.2%) 
(0.0009) 
Small: 7.4% 
23.3% 
Antibiotics/antimicrobials  428  Large: 30.3% 
(19.6%-27.5%) 
(<0.0001) 
Small: 0% 
0.0% 
Radiopharmaceuticals  428  Large: 0% 
(0.0%-1.8%) 
(N/A) 
Small: 1.1% 
4.2% 
Nerve blocks  428  Large: 5.6% 
(2.7%-6.6%) 
(0.0359) 
Small: 0.0% 
7.5% 
Electrolyte solutions  428  Large: 10.8% 
(5.3%-10.5%) 
(<0.0001) 
Most Hospitals Obtain Compounded Drugs From Registered Outsourcing Facilities, Which Must Meet FDA Quality Standards  22 
OEI-01-17-00090   
Dialysis fluid and drugs (e.g., 
Small: 0.0% 
continuous renal replacement  0.3% 
428  Large: 0.4% 
therapy, continuous veno- (0.04%-1.8%) 
(0.4724) 
venous hemofiltration) 
Small: 0.0% 
0.6% 
Oncology drugs  428  Large: 0.8% 
(0.1%-2.0%) 
(0.3087) 
Small: 0.0% 
2.8% 
Non-chemo hazardous drugs  428  Large: 4.0% 
(1.5%-4.9%) 
(0.0210) 
Small: 0.6% 
4.6% 
Anesthetic agents  428  Large: 6.4% 
(3.0%-7.1%) 
(0.0084) 
Small: 1.7% 
Anesthesia syringes  3.9% 
428  Large: 4.8% 
(neuromuscular blockers)  (2.4%-6.2%) 
(0.1289) 
Small: 0% 
0.6% 
Diagnostic testing reagents  428  Large: 0.8% 
(0.1%-2.0%) 
(0.3087) 
Small: 9.1% 
Compounded topical  14.1% 
428  Large: 16.3% 
medications  (11.2%-17.7%) 
(0.0482) 
 
   
Most Hospitals Obtain Compounded Drugs From Registered Outsourcing Facilities, Which Must Meet FDA Quality Standards  23 
OEI-01-17-00090   
APPENDIX C:  Types of drugs that hospitals 
reported being unable to obtain on a non-patient-
specific basis 
Percentage of hospitals that were unable to obtain NPS compounded drugs 
with the following characteristics from outside compounders 
Point Estimate 
Independent Group 
Sample  (95-Percent 
Drug  T-Test By Hospital 
Size  Confidence 
Size (P-Value) 
Intervals) 
Small: 41.7% 
High-volume compounded sterile  58.6% 
223  Large: 61.5% 
preparations  (52.3%-64.6%) 
(0.0164) 
Small: 41.7% 
Low-volume compounded sterile  51.2% 
223  Large: 52.8% 
preparations  (44.9%-57.5%) 
(0.1731) 
Small: 8.3% 
High-risk compounded sterile  16.9% 
223  Large: 18.4% 
preparations  (12.6%-22.3%) 
(0.1585) 
Small: 52.1% 
76.3% 
Products in shortage  223  Large: 80.5% 
(70.7%-81.1%) 
(0.0006) 
Small: 14.6% 
25.7% 
Emergency cart medications  223  Large: 27.6% 
(20.5%-31.6%) 
(0.1176) 
Small: 2.1% 
0.3% 
Research/study drugs  223  Large: 0.0% 
(0.05%-1.8%) 
(0.0464) 
           
   
Most Hospitals Obtain Compounded Drugs From Registered Outsourcing Facilities, Which Must Meet FDA Quality Standards  24 
OEI-01-17-00090   
Percentage of hospitals that were unable to obtain NPS compounded drugs 
with the following mode of delivery or dosage form type from outside 
compounders 
Point Estimate 
Independent Group 
Sample  (95-Percent 
Drug  T-Test By Hospital 
Size  Confidence 
Size (P-Value) 
Intervals) 
Small: 27.1% 
44.2% 
Operating room syringes  223  Large: 47.2% 
(38.1%-50.6%) 
(0.0329) 
Small: 33.3% 
49.5% 
Patient-controlled analgesia  223  Large: 52.3% 
(43.3%-55.8%) 
(0.0451) 
Small: 31.3% 
34.5% 
Epidurals  223  Large: 35.1% 
(28.8%-40.8%) 
(0.6711) 
Small: 8.3% 
24.3% 
Critical care infusions  223  Large: 27.1% 
(19.3%-30.2%) 
(0.0212) 
Small: 2.1% 
1.3% 
Intrathecals  223  Large: 1.2% 
(0.4%-3.8%) 
(0.6772) 
Small: 2.1% 
2.3% 
Eye drops  223  Large: 2.3% 
(1.0%-5.2%) 
(0.9398) 
Small: 4.2% 
Creams/ointments/suppositories  1.1% 
223  Large: 0.6% 
or other topical agents  (0.4%-3.2%) 
(0.0696) 
Small: 0.0% 
0.5% 
Tablets/capsules  223  Large: 0.6% 
(0.1%-3.1%) 
(0.6659) 
Small: 4.2% 
1.6% 
Oral solutions  223  Large: 1.2% 
(0.6%-4.0%) 
(0.2046) 
Small: 0.0% 
0.0% 
Otic solutions  223  Large: 0.0% 
(0.0%-3.4%) 
(N/A) 
       
Most Hospitals Obtain Compounded Drugs From Registered Outsourcing Facilities, Which Must Meet FDA Quality Standards  25 
OEI-01-17-00090   
Percentage of hospitals unable to obtain NPS compounded drugs in the 
following categories from outside compounders 
Point Estimate 
Independent Group 
Sample  (95-Percent 
Drug  T-Test By Hospital 
Size  Confidence 
Size (P-Value) 
Intervals) 
Small: 37.5% 
48.1% 
Pitocin/oxytocin  223  Large: 50.0% 
(41.9%-54.5%) 
(0.1892) 
Small: 2.1% 
1.8% 
Parenteral Nutrition  223  Large: 1.7% 
(0.7%-4.5%) 
(0.8763) 
Small: 41.7% 
61.6% 
Narcotics/controlled substances  223  Large: 65.0% 
(55.3%-67.4%) 
(0.0050) 
Small: 4.2% 
Antiarrhythmic agents (e.g.,  8.9% 
223  Large: 9.8% 
amiodarone)   (5.9%-13.3%) 
(0.3026) 
Small: 8.3% 
Inotropic/vasopressors agents  16.9% 
223  Large: 18.4% 
(e.g., dobutamine)  (12.6%-22.3%) 
(0.1585) 
Small: 0.0% 
5.4% 
Cardioplegia  223  Large: 6.3% 
(3.1%-9.2%) 
(0.1410) 
Small: 8.3% 
21.8% 
Antibiotics/antimicrobials  223  Large: 24.1% 
(17.0%-27.6%) 
(0.0437) 
Small: 0.0% 
1.5% 
Radiopharmaceuticals  223  Large: 1.7% 
(0.5%-4.2%) 
(0.4521) 
Small: 8.3% 
7.6% 
Nerve blocks  223  Large: 7.5% 
(4.9%-11.7%) 
(0.8478) 
Small: 8.3% 
18.9% 
Electrolyte solutions  223  Large: 20.7% 
(14.4%-24.4%) 
(0.0966) 
Most Hospitals Obtain Compounded Drugs From Registered Outsourcing Facilities, Which Must Meet FDA Quality Standards  26 
OEI-01-17-00090   
Dialysis fluid and drugs (e.g., 
Small: 0.0% 
continuous renal replacement  1.0% 
223  Large: 1.2% 
therapy, continuous veno-venous  (0.3%-3.6%) 
(0.5404) 
hemofiltration) 
Small: 2.1% 
0.3% 
Oncology drugs  223  Large: 0.0% 
(0.1%-1.8%) 
(0.0464) 
Small: 0.0% 
2.0% 
Non-chemo hazardous drugs  223  Large: 2.3% 
(0.8%-4.9%) 
(0.3840) 
Small: 8.3% 
11.5% 
Anesthetic agents  223  Large: 12.1% 
(8.0%-16.2%) 
(0.5396) 
Small: 14.6% 
Anesthesia syringes  31.1% 
223  Large: 33.9% 
(neuromuscular blockers)  (25.5%-37.2%) 
(0.0277) 
Small: 0.0% 
1.0% 
Diagnostic testing reagents  223  Large: 1.2% 
(0.3%-3.6%) 
(0.5404) 
Small: 4.2% 
1.1% 
Compounded topical medications  223  Large: 0.6% 
(0.4%-3.2%) 
(0.0696) 
 
 
 
 
 
 
 
 
   
Most Hospitals Obtain Compounded Drugs From Registered Outsourcing Facilities, Which Must Meet FDA Quality Standards  27 
OEI-01-17-00090   
APPENDIX D:  Point estimates and confidence 
intervals for findings 
Point Estimate 
Sample 
Finding  (95-Percent Confidence 
Size 
Intervals) 
 
Hospitals that obtained non-patient-
specific drugs only from facilities 
registered with FDA as 503B  88.9% 
389 
outsourcing facilities (among hospitals  (86.1%-91.3%) 
that obtained non-patient-specific 
drugs from outside compounders) 
 
 
Hospitals that obtained non-patient-
specific drugs from unregistered  
facilities and facilities registered with 
9.3% 
FDA as 503B outsourcing facilities  389 
(7.1%-12.0%) 
(among hospitals that obtained non-
patient-specific drugs from outside 
compounders) 
 
 
Hospitals that obtained non-patient-
specific drugs only from unregistered  
1.8% 
facilities (among hospitals that obtained  389 
(1.0%-3.1%) 
non-patient-specific drugs from outside 
compounders) 
 
 
Hospitals that obtained non-patient-
specific drugs from more than one 
55.8% 
outside compounder (among hospitals  389 
(51.7%-59.9%) 
that obtained non-patient-specific 
drugs from outside compounders) 
 
 
88.7% 
Hospitals that obtained non-patient- 389 
(85.7%-91.1%) 
specific drugs from between one and 
Most Hospitals Obtain Compounded Drugs From Registered Outsourcing Facilities, Which Must Meet FDA Quality Standards  28 
OEI-01-17-00090   
three outside compounders (among 
hospitals that obtained non-patient-
specific drugs from outside 
compounders) 
 
 
Hospitals that faced challenges in 
obtaining all the non-patient-specific  44.8% 
563 
drugs they sought from outside  (41.1%-48.5%) 
compounders (among all hospitals) 
 
 
Hospitals that considered or were 
currently considering registering their 
pharmacies as 503B outsourcing  1.7% 
428 
facilities (among hospitals that  (0.7%-4.2%) 
compounded drugs in their own 
pharmacies) 
 
   
Hospitals that obtained non-patient-
specific compounded drugs from at 
least one outside compounder and also 
compounded them in their own  47.2% 
426 
pharmacies (among hospitals that  (42.8%-51.8%) 
compounded non-patient-specific 
drugs in-house and/or obtained them 
from outside compounders) 
 
 
Hospitals that relied solely on their 
pharmacies for non-patient-specific 
compounded drugs  
(among hospitals that compound non-
8.1% 
patient-specific drugs in-house and/or  426 
(6.0%-10.1%) 
obtain them from outside 
compounders) 
 
 
 
 
 
 
Most Hospitals Obtain Compounded Drugs From Registered Outsourcing Facilities, Which Must Meet FDA Quality Standards  29 
OEI-01-17-00090   
APPENDIX E:  Factors that hospitals considered 
when choosing where to obtain compounded 
drugs   
Sample  Point Estimate 
Factor 
Size  (95% Confidence Intervals) 
History of State actions against facility 
94.1% 
(e.g., suspension or revocation of State  421 
(91.7%-95.8%) 
license) 
History of Federal enforcement actions 
94.0% 
against facility (e.g., seizure or  421 
(91.6%-95.7%) 
injunction) 
History of product recalls and/or  92.1% 
421 
cessation of sterile operations  (89.4%-94.1%) 
91.6% 
Quality assurance documentation  421 
(88.9%-93.8%) 
Registration status with FDA as a 503B  91.5% 
421 
outsourcing facility  (88.8%-93.6%) 
90.6% 
Facilitys accreditation status  421 
(87.6%-92.9%) 
89.7% 
Appropriate licensure of pharmacy staff  421 
(86.7%-92.1%) 
Warning letters issued based on FDA  87.1% 
421 
inspection findings  (83.7%-89.8%) 
85.9% 
Facilitys reputation  421 
(82.5%-88.8%) 
Most Hospitals Obtain Compounded Drugs From Registered Outsourcing Facilities, Which Must Meet FDA Quality Standards  30 
OEI-01-17-00090   
Facilitys ability to produce a specific  84.9% 
421 
product  (81.3%-87.9%) 
Facilitys ability to produce products 
78.7% 
with extended beyond use  421 
(74.8%-82.1%) 
dates/expiration dates 
Staff training and competency  75.3% 
421 
assessment documentation  (71.2%-79.0%) 
69.8% 
Observations listed on FDA Form 483  421 
(65.5%-73.8%) 
58.3% 
Cost of products  421 
(53.7%-62.7%) 
Hospital contract with group  53.2% 
421 
purchasing organization  (48.6%-57.7%) 
Hospitals history of purchasing from  48.9% 
421 
facility  (44.3%-53.5%) 
 
   
Most Hospitals Obtain Compounded Drugs From Registered Outsourcing Facilities, Which Must Meet FDA Quality Standards  31 
OEI-01-17-00090   
APPENDIX F:  Agency Comments 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Most Hospitals Obtain Compounded Drugs From Registered Outsourcing Facilities, Which Must Meet FDA Quality Standards  32 
OEI-01-17-00090   
 
 
 
Most Hospitals Obtain Compounded Drugs From Registered Outsourcing Facilities, Which Must Meet FDA Quality Standards  33 
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Most Hospitals Obtain Compounded Drugs From Registered Outsourcing Facilities, Which Must Meet FDA Quality Standards  34 
OEI-01-17-00090   
ACKNOWLEDGMENTS 
Jesse Valente served as the team leader for this study, and Matt Blackburn 
served as the lead analyst.  Office of Evaluation and Inspections staff who 
provided support include Althea Hosein, Christine Moritz, Michael Novello, 
and Melicia Seay.  
This report was prepared under the direction of Joyce Greenleaf, Regional 
Inspector General for Evaluation and Inspections in the Boston regional 
office, and Kenneth Price, Deputy Regional Inspector General.  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
To obtain additional information concerning this report or to obtain copies, 
contact the Office of Public Affairs at Public.Affairs@oig.hhs.gov.  
Most Hospitals Obtain Compounded Drugs From Registered Outsourcing Facilities, Which Must Meet FDA Quality Standards  35 
OEI-01-17-00090   
ABOUT THE OFFICE OF INSPECTOR GENERAL 
The mission of the Office of Inspector General (OIG), as mandated by Public 
Law 95-452, as amended, is to protect the integrity of the Department of 
Health and Human Services (HHS) programs, as well as the health and 
welfare of beneficiaries served by those programs.  This statutory mission is 
carried out through a nationwide network of audits, investigations, and 
inspections conducted by the following operating components: 
Office of Audit  The Office of Audit Services (OAS) provides auditing services for HHS, either 
by conducting audits with its own audit resources or by overseeing audit 
Services 
work done by others.  Audits examine the performance of HHS programs 
and/or its grantees and contractors in carrying out their respective 
responsibilities and are intended to provide independent assessments of 
HHS programs and operations.  These assessments help reduce waste, 
abuse, and mismanagement and promote economy and efficiency 
throughout HHS. 
Office of Evaluation  The Office of Evaluation and Inspections (OEI) conducts national evaluations 
to provide HHS, Congress, and the public with timely, useful, and reliable 
and Inspections 
information on significant issues.  These evaluations focus on preventing 
fraud, waste, or abuse and promoting economy, efficiency, and 
effectiveness of departmental programs.  To promote impact, OEI reports 
also present practical recommendations for improving program operations.   
Office of  The Office of Investigations (OI) conducts criminal, civil, and administrative 
investigations of fraud and misconduct related to HHS programs, 
Investigations 
operations, and beneficiaries.  With investigators working in all 50 States 
and the District of Columbia, OI utilizes its resources by actively 
coordinating with the Department of Justice and other Federal, State, and 
local law enforcement authorities.  The investigative efforts of OI often lead 
to criminal convictions, administrative sanctions, and/or civil monetary 
penalties. 
Office of Counsel to  The Office of Counsel to the Inspector General (OCIG) provides general 
legal services to OIG, rendering advice and opinions on HHS programs and 
the Inspector 
operations and providing all legal support for OIGs internal operations.  
General 
OCIG represents OIG in all civil and administrative fraud and abuse cases 
involving HHS programs, including False Claims Act, program exclusion, and 
civil monetary penalty cases.  In connection with these cases, OCIG also 
negotiates and monitors corporate integrity agreements.  OCIG renders 
advisory opinions, issues compliance program guidance, publishes fraud 
alerts, and provides other guidance to the health care industry concerning 
the anti-kickback statute and other OIG enforcement authorities. 
 
   
 
Endnotes 
 
1 CDC, Multistate Outbreak of Fungal Meningitis and Other Infections.  Accessed at 
http://www.cdc.gov/hai/outbreaks/meningitis.html on January 20, 2017. 
2 Drug Quality and Security Act, P.L. No. 113-54 (enacted Nov. 27, 2013). 
3 An outsourcing facility is 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 the requirements of section 503B of the FD&C 
Act.  Section 503B(d)(4) of the FD&C Act. 
4 Section 503(b)(4) of the FD&C Act. 
5 FDA, FDAs Human Drug Compounding Progress Report: Three Years After Enactment of the Drug Quality and Security Act, 
January 2017.  Accessed at 
http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/PharmacyCompounding/UCM536549.pdf on 
January 23, 2017. 
6 Section 503B(b)(1)(B)(ii) of the FD&C Act.  FDA, Registered Outsourcing Facilities.  Accessed at 
http://www.fda.gov/Drugs/GuidanceComplianceRegulatoryInformation/PharmacyCompounding/ucm378645.htm on January 23, 
2017. 
7 Section 503B(b)(1)(A) of the FD&C Act. 
8 OIG, Memorandum Report:  High-Risk Compounded Sterile Preparations and Outsourcing by Hospitals That Use Them, 
OEI-01-13-00150, April 2013. 
9 FDA, letter to hospitals regarding registered outsourcing facilities.  Accessed at 
https://web.archive.org/web/20140630095703/http:/www.fda.gov:80/downloads/Drugs/GuidanceComplianceRegulatoryInformatio
n/PharmacyCompounding/UCM380599.pdf on June 26, 2018.  
10 FDA, FDAs Human Drug Compounding Progress Report: Three Years After Enactment of the Drug Quality and Security Act, 
January 2017.  Accessed at 
http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/PharmacyCompounding/UCM536549.pdf on 
May 18, 2017. 
11 Section 102 of Drug Quality and Security Act, adding section 503B to the FD&C Act. 
12 Section 503B(a) of the FD&C Act. 
13 FDAs regulations regarding CGMP requirements for the preparation of drug products are established in 21 CFR pts. 210 and 211. 
FDA intends to promulgate more specific CGMP regulations for outsourcing facilities.  Until those regulations are finalized, 
outsourcing facilities are subject to 21 CFR pts. 210 and 211.  FDA, Draft Guidance for Industry:  Current Good Manufacturing 
PracticeInterim Guidance for Human Drug Compounding Outsourcing Facilities Under Section 503B of the FD&C Act (Revision 1), 
December 2018.  Accessed at 
http://www.fda.gov/downloads/drugs/guidancecomplianceregulatoryinformation/guidances/ucm403496.pdf on January 30, 2017. 
14 FDA, Information Concerning Outsourcing Facility Registration.  Accessed at 
https://www.fda.gov/Drugs/GuidanceComplianceRegulatoryInformation/PharmacyCompounding/ucm389118.htm#10 on March 2, 
2017. 
15 FDA, Registered Outsourcing Facilities.  Accessed at 
http://www.fda.gov/Drugs/GuidanceComplianceRegulatoryInformation/PharmacyCompounding/ucm378645.htm on January 23, 
2017. 
16 FDA, FDAs Human Drug Compounding Progress Report: Three Years After Enactment of the Drug Quality and Security Act, 
January 2017.  Accessed at 
http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/PharmacyCompounding/UCM536549.pdf on 
January 23, 2017. 
17 FDA, FDA Form 483 Frequently Asked Questions.  Accessed at http://www.fda.gov/ICECI/Inspections/ucm256377.htm on 
January 23, 2017. 
18 FDA, Regulatory Procedures Manual.  Accessed at                          
https://www.fda.gov/ICECI/compliancemanuals/regulatoryproceduresmanual/default.htm on May 18, 2017. 
19  FDA, Draft Guidance for Industry:  Hospital and Health System Compounding Under the Federal Food, Drug, and Cosmetic Act, 
April 2016. Accessed at 
 
   
 
https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM496287.pdf  on January 16, 
2019. 
20FDA, 2018 Compounding Policy Priorities.  Accessed at  
https://www.fda.gov/Drugs/GuidanceComplianceRegulatoryInformation/PharmacyCompounding/ucm592795.htm on February 27, 
2018.   
21 FDA, Draft Guidance for Industry:  Current Good Manufacturing PracticeInterim Guidance for Human Drug Compounding 
Outsourcing Facilities Under Section 503B of the FD&C Act (Revision 1), December 2018.  Accessed at 
http://www.fda.gov/downloads/drugs/guidancecomplianceregulatoryinformation/guidances/ucm403496.pdf on March 21, 2019. 
22 OIG, High-Risk Compounded Sterile Preparations and Outsourcing by Hospitals That Use Them, OEI-01-13-00150 (April 2013). 
23 OIG, Compounded Drugs Under Medicare Part B: Payment and Oversight, OEI-03-13-00270 (April 2014). 
24 OIG, Medicares Oversight of Compounded Drugs Used in Hospitals, OEI-01-13-00400 (January 2015). 
25 The 95-percent confidence interval for this estimate is 77.3% to 82.4%. 
26 Five hospitals participated in a pre-test of our electronic questionnaire.  We dropped these hospitals from the sampling frame 
for this study. 
27 We dropped one hospital from our sample at the request of OIGs Office of Investigations.  We dropped four hospitals in 
Puerto Rico from our sample because of Hurricane Maria. 
28 OEI provided FDA with a list of outside compounding facilities identified by the hospitals that responded to our survey.  
Hospitals identified the outside compounding facilities from which they obtained compounded drugs in the year prior to the 
survey.  We matched these hospital-identified outside compounding facilities with the compounding facilities that FDAs website 
listed as registered outsourcing facilities as of January 2, 2018.  Hospitals also identified whether the outside compounding facilities 
provided them with patient-specific and/or non-patient-specific compounded drugs. 
29 According to FDA, it prioritizes drugs for its drug shortage list that are medically necessary, meaning that they are used to 
treat or prevent serious diseases or medical conditions for which no alternative drugs, available in adequate supply, are acceptable 
substitutes.  FDA, Report on Drug Shortages for Calendar Year 2016, Required by Section 1002 of the Food and Drug Administration 
Safety and Innovation Act.  Accessed at https://www.fda.gov/downloads/Drugs/DrugSafety/DrugShortages/UCM561290.pdf  on 
May 30, 2018. 
30 FDA, Guidance for Industry:  Compounded Drug Products That Are Essentially Copies of a Commercially Available Drug Product 
Under Section 503B of the Federal Food, Drug, and Cosmetic Act, January 2018. Accessed at 
https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM510153.pdf on January 16, 
2019. 
31ASHP (formerly the American Society of Hospital Pharmacists) and the Pew Charitable Trusts, 2015 Pharmaceutical Compounding 
Roundtable:  How can outsourcing facilities meet provider needs?  Accessed at https://www.ashp.org/-/media/assets/pharmacy-
practice/resource-centers/sterile-compounding/compounding-roundtable.ashx on March 1, 2017.  
32 FDA, 2018 Compounding Policy Priorities.  Accessed at  
https://www.fda.gov/Drugs/GuidanceComplianceRegulatoryInformation/PharmacyCompounding/ucm592795.htm on January 29, 
2019.