United States General Accounting Office 

GAO Testimony 

Before the Committee on Health, 

Education, Labor, and Pensions, U.S. 

Senate 

For Release on Delivery 

Expected at 10:00 a.m. 

Thursday, October 23, 2003 PRESCRIPTION DRUGS 

State and Federal Oversight 

of Drug Compounding by 

Pharmacies 

Statement of Janet Heinrich 


Director, Health Care—Public Health Issues 


GAO-04-195T 

Highlights of GAO-04-195T, a testimony to 

the Committee on Health, Education, 

Labor, and Pensions, U.S. Senate 

Drug compounding—the process of 

mixing, combining, or altering 

ingredients—is an important part 

of the practice of pharmacy 

because there is a need for 

medications tailored to individual 

patient needs. Several recent 

compounding cases that resulted in 

serious illness and deaths have 

raised concern about oversight to 

ensure the safety and quality of 

compounded drugs. These 

concerns have raised questions 

about what states—which regulate 

the practice of pharmacy—and the 

Food and Drug Administration 

(FDA) are doing to oversee drug 

compounding. GAO was asked to 

examine (1) the actions taken or 

proposed by states and national 

pharmacy organizations that may 

affect state oversight of drug 

compounding, and (2) federal 

authority and enforcement power 

regarding compounded drugs. 

This testimony is based on 

discussions with the National 

Association of Boards of Pharmacy 

(NABP) and a GAO review of four 

states: Missouri, North Carolina, 

Vermont, and Wyoming. GAO also 

interviewed and reviewed 

documents from pharmacist 

organizations, FDA, and others 

involved in the practice of 

pharmacy or drug compounding. 

October 23, 2003 

PRESCRIPTION DRUGS 

State and Federal Oversight of Drug 

Compounding by Pharmacies 

A number of efforts have been taken or are under way both at the state level 

and among pharmacy organizations at the national level that may strengthen 

state oversight of drug compounding. Actions among the four states 

reviewed included adopting new regulations about compounding and 

conducting more extensive testing of compounded drugs. For example, the 

pharmacy board in Missouri is starting a program of random testing of 

compounded drugs for safety, quality, and potency. At the national level, 

industry organizations are working on standards for compounded drugs that 

could be adopted by the states in their laws and regulations, thereby 

potentially helping to ensure that pharmacies consistently produce safe, 

high-quality compounded drugs. While these actions may help improve 

oversight, the ability of states to oversee and ensure the quality and safety of 

compounded drugs may be affected by state-specific factors such as the 

resources available for inspections and enforcement. 

FDA maintains that drug compounding activities are generally subject to 

FDA oversight, including its authority to oversee the safety and quality of 

new drugs. In practice, however, the agency generally relies on states to 

regulate the limited compounding of drugs as part of the traditional practice 

of pharmacy. In 1997, the Congress passed a law exempting drug 

compounders that met certain criteria from key provisions of the Federal 

Food Drug and Cosmetic Act (FDCA), including the requirements for the 

approval of new drugs. These exemptions, however, were nullified in 2002 

when the United States Supreme Court ruled part of the 1997 law to be an 

unconstitutional restriction on commercial speech, which resulted in the 

entire compounding section being declared invalid. Following the court 

decision in 2002, FDA issued guidance to indicate when it would consider 

taking enforcement actions regarding drug compounding. For example, it 

said the agency would defer to states regarding “less significant” violations 

of the Act, but would consider taking action in situations more analogous to 

drug manufacturing. 

www.gao.gov/cgi-bin/getrpt?GAO-04-195T. 

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Janet Heinrich 

at (202) 512-7119. 
Mr. Chairman and Members of the Committee: 

I am pleased to be here today as you consider state and federal oversight 

to ensure the safety and quality of compounded prescription drugs. Drug 

compounding—the process of mixing, combining, or altering ingredients 

to create a customized medication for an individual patient—is an 

important part of the practice of pharmacy. Common examples of 

compounded drugs include tailor-made medications for patients who are 

allergic to an ingredient in a manufactured drug. Drug compounding is 

part of pharmacy education and, like other aspects of pharmacy practice, 

it is regulated by state pharmacy practice acts, which in turn are enforced 

by state boards of pharmacy. All 50 states describe drug compounding in 

their state laws and regulations on pharmacy practice, although specific 

statutes or regulations vary across states. At the federal level, the Food 

and Drug Administration (FDA), which oversees the introduction of new 

drugs into the marketplace under the Federal Food, Drug and Cosmetic 

Act (FDCA),1

 maintains that compounded drugs are generally subject to 

the act. 

While drug compounding is an important part of ensuring that medications 

are available to meet individual patient needs, the quality and extent of 

drug compounding have surfaced as important issues in recent years. For 

example, several compounding cases in the past several years have 

resulted in serious illnesses and deaths, raising concern about oversight to 

ensure the safety and quality of compounded drugs. In addition, concerns 

have been raised by FDA and others that some pharmacies are going 

beyond traditional drug compounding for individual patients by, for 

example, compounding and selling large quantities of drugs without 

meeting safety and other requirements for new manufactured drugs. 

Because both states and the federal government have oversight 

responsibilities, you asked us to address (1) the actions taken or proposed 

by states and national pharmacy organizations that may affect state 

oversight of drug compounding, and (2) federal authority and enforcement 

power regarding compounded drugs. 

My testimony today is based in part on discussions with the National 

Association of Boards of Pharmacy (NABP), as well as a review we 

conducted of four states: Missouri, North Carolina, Vermont, and 

Wyoming. We selected these states based on their geographic location and 

1

See 21 U.S.C. § 355. 

Page 1 GAO-04-195T 
variation in compounding regulations. Two of the states came to our 

attention as having taken unique steps with regard to oversight of 

compounded drugs, and the other two had each adopted new regulations 

on drug compounding. For each of the four states, we reviewed state 

statutes and regulations, interviewed officials from the state board of 

pharmacy, and reviewed relevant documents such as pharmacy inspection 

forms. In addition to examining state-level actions, we examined national 

industry efforts by interviewing officials from the American Pharmacists 

Association, the International Academy of Compounding Pharmacists, the 

American Society of Health-System Pharmacists, the National Association 

of Chain Drug Stores, and Professional Compounding Centers of America, 

which provides training to pharmacists and also sells bulk ingredients for 

drug compounding. We also contacted and obtained information from the 

United States Pharmacopeia (USP), which is a nonprofit agency that 

develops standards for pharmaceuticals. Finally, to examine federal 

authority and enforcement power, we reviewed federal statutes, FDA 

compliance policy guides, court decisions, and other relevant documents, 

and interviewed FDA officials and industry experts. We conducted our 

work from August 2003 to October 2003 in accordance with generally 

accepted government auditing standards. 

In summary, efforts at the state level and among pharmacy organizations 

at the national level have been taken or are under way to potentially 

strengthen state oversight of drug compounding. Actions among the four 

states we reviewed included adopting new statutes and regulations about 

compounding, such as requirements for facilities and equipment, and 

conducting more extensive testing of compounded drugs. For example, 

the pharmacy board in Missouri is starting a program of random testing of 

compounded drugs for safety, quality, and potency. At the national level, 

industry organizations are working on standards for compounded drugs 

that could be adopted by the states in their laws and regulations, thereby 

helping to ensure that pharmacies consistently produce safe, high-quality 

compounded drugs. While these actions may help improve oversight, the 

ability of states to oversee and ensure the quality and safety of 

compounded drugs may be affected by state-specific factors such as the 

resources available for inspections and enforcement. For example, in 

three of the four states we reviewed, pharmacy board officials indicated 

that resource limitations affected their ability to conduct routine 

inspections. 

Page 2 GAO-04-195T 
FDA maintains that drug compounding activities are generally subject to 

its oversight, including its authority to oversee the safety and quality of 

new drugs. In practice, however, the agency generally relies on states to 

regulate the compounding of drugs as part of the traditional practice of 

pharmacy. In 1997, the Congress passed a law exempting drug 

compounders that met certain criteria from key FDCA provisions, 

including safety and efficacy requirements for the approval of new drugs. 

However, the entire section of the law dealing with drug compounding 

was nullified in 2002 after the United States Supreme Court ruled that part 

of it was an unconstitutional restriction on commercial speech. Following 

the court decision in 2002, FDA issued guidance to indicate when the 

agency would consider taking enforcement actions regarding drug 

compounding. For example, it said the agency would generally defer to the 

states for “less significant” violations of the FDCA but would consider 

taking action in situations more analogous to drug manufacturing. 

Background 	 For most people and many pharmacies, filling a prescription is a matter of 

dispensing a commercially available drug product that has been 

manufactured in its final ready-to-use form. This has been particularly true 

in the United States since the rise of pharmaceutical manufacturing 

companies. In addition to meeting federal safety and efficacy requirements 

before a new drug is marketed, the drugs manufactured by these 

companies are routinely tested by FDA after marketing. According to FDA, 

the testing failure rate for more than 3,000 manufactured drug products 

sampled and analyzed by FDA since fiscal year 1996 was less than 2 

percent. Drug manufacturers are also required to report adverse events 

associated with their drugs, such as illness and death, to FDA within 

specified time frames. 

Drug compounding, which has always been a part of the traditional 

practice of pharmacy, involves the mixing, combining, or altering of 

ingredients to create a customized medication for an individual patient. 

According to the American Pharmacists Association, some of the most 

commonly compounded products include lotions, ointments, creams, gels, 

suppositories, and intravenously administered fluids and medication. 

Some of these compounded drugs, such as intravenously administered 

chemotherapy drugs, are sterile products that require special safeguards to 

prevent injury or death to patients receiving them. For example, sterile 

compounding requires cleaner facilities than nonsterile compounding, as 

well as specific training for pharmacy personnel and testing of the 

compounded drug for sterility. 

Page 3 GAO-04-195T 
The extent of drug compounding is unknown, but it appears to be 

increasing in the United States. While industry representatives, the media, 

and others have cited estimates for the proportion of prescription drugs 

that are compounded ranging from 1 percent to 10 percent of all 

prescriptions, we found no data supporting most estimates.2

 FDA does not 

routinely collect data on the quantity of prescriptions filled by 

compounded drugs. Similarly, we found no publicly available data, either 

from FDA or from industry organizations, on the amount of bulk active 

ingredients and other chemicals that are used in drug compounding in the 

United States. However, many state officials, pharmacist association 

representatives, and other experts we interviewed reported that the 

number of compounded prescriptions, which had decreased when 

pharmaceutical manufacturing grew in the 1950s and 1960s, has been 

increasing over the past decade. 

Problems have come to light regarding compounded drugs, some of which 

resulted in death or serious injury, because the drugs were contaminated 

or had incorrect amounts of the active ingredient. Unlike drug 

manufacturers, who are required to report adverse events associated with 

the drugs they produce, FDA does not require pharmacies to report 

adverse events associated with compounded drugs. Based on voluntary 

reporting, media reports, and other sources, FDA has become aware of 

over 200 adverse events involving 71 compounded products since about 

1990. These incidents, including 3 deaths and 13 hospitalizations following 

injection of a compounded drug that was contaminated with bacteria in 

2001, have heightened concern about compounded drugs’ safety and 

quality. In addition, a limited survey conducted by FDA’s Division of 

Prescription Drug Compliance and Surveillance in 2001 found that nearly 

one-third of the 29 sampled compounded drugs were subpotent—that is, 

they had less of the active ingredients than indicated. 

FDA and others have also expressed concern about the potential for harm 

to the public health when drugs are manufactured and distributed in 

commercial amounts without FDA’s prior approval. While FDA has stated 

that traditional drug compounding on a small scale in response to 

2

A 2001 draft report of a study contracted by FDA included an estimate that about 6 percent 

of all prescriptions were compounded but cautioned that there was considerable 

uncertainty around this estimate due to limited data. The report acknowledged that 

definitive statistics on compounding activities were not available. Eastern Research Group 

Inc., Profile of the Pharmaceutical Compounding Industry, draft final report prepared for 

the Food and Drug Administration, August 27, 2001. 

Page 4 GAO-04-195T 
individual prescriptions is beneficial, FDA officials have voiced concern 

that some establishments with retail pharmacy licenses might be 

manufacturing new drugs under the guise of drug compounding in order to 

avoid FDCA requirements. 

Actions Taken or 

Under Way by States 

and National 

Organizations to 

Strengthen State 

Oversight of Drug 

Compounding, but 

Affect Likely to Vary 

from State to State 

We found efforts at the state level and among national pharmacy 

organizations to potentially strengthen state oversight of drug 

compounding. Actions among the four states we reviewed included 

adopting new drug compounding regulations and random testing of 

compounded drugs. At the national level, industry organizations are 

working on standards for compounded drugs that could be adopted by 

states in their laws and regulations. According to experts we interviewed, 

uniform standards for compounded drugs could help ensure that 

pharmacists across states consistently produce safe, quality products. 

While these actions may help improve oversight, the ability of states to 

oversee and ensure the quality and safety of compounded drugs may be 

affected by their available resources and their ability to adopt new 

standards and enforce penalties. 

Four States Reviewed 

Have Taken a Variety of 

Approaches to Strengthen 

Oversight 

The four states we reviewed have taken a variety of approaches to 

strengthen state oversight. 

• 	 Missouri. The pharmacy board in Missouri has taken a different approach 

from other states: it is in the process of implementing random batch 

testing of compounded drugs. No other state has random testing, 

according to an NABP official. Random testing will include both sterile 

and nonsterile compounded drugs and the board plans on testing 

compounded drugs for safety, quality, and potency. A Missouri pharmacy 

board official said testing will include random samples of compounded 

drugs in stock in pharmacies in anticipation of regular prescriptions, 

random selection of prescriptions that were just prepared, and testing of 

compounded drugs obtained by undercover investigators posing as 

patients. The official added that random testing will help to ensure the 

safety and quality of compounded drugs and is also intended to serve as a 

deterrent for anyone who might consider purposely tampering with 

compounded prescriptions. 

• 	 North Carolina. North Carolina is the only state in the country that 

requires mandatory adverse event reporting involving prescription drugs, 

Page 5 GAO-04-195T 
including compounded drugs, according to an NAPB official. Regulations 

in North Carolina require pharmacy managers to report information to the 

pharmacy board that suggests a probability that prescription drugs caused 

or contributed to the death of a patient. This reporting system, which does 

not extend to incidents of illness or injury, allows the board to investigate 

all prescription-drug-related deaths and determine whether an 

investigation is warranted. 

• 	 Vermont. The pharmacy board in Vermont overhauled the state’s 

pharmacy rules in August 2003 to address changes in pharmacy practice, 

including the increase in Internet and mail-order pharmacies, according to 

the pharmacy board chairman. For example, the chairman reported that 

prior to the adoption of the new rules, Vermont had no definition of out-ofstate pharmacies and no requirements for these pharmacies to have a 

Vermont license to do business in the state. The board chairman said that 

the new rule requiring licensing for out-of-state pharmacies would provide 

a mechanism to monitor pharmacies that ship prescription drugs, 

including compounded drugs, into the state. In addition, he added that the 

board revised the rules for compounding sterile drugs by including 

specifics on facilities, equipment, and quality assurance measures. 

• 	 Wyoming. Prior to March 2003, Wyoming did not have state laws or rules 

that established specific guidelines for drug compounding, aside from a 

definition of drug compounding, according to a pharmacy board official. 

The new rules include requirements for facilities, equipment, labeling, and 

record keeping for compounded drugs, as well as a specific section on 

compounding sterile drugs. In addition, under the new rules, the official 

added that pharmacy technicians-in-training are no longer allowed to 

prepare compounded drugs, including sterile products, which is a more 

complex procedure requiring special equipment to ensure patient safety. 

Efforts of National 

Organizations May Help 

States Strengthen 

Oversight of Drug 

Compounding 

At the national level, industry organizations are working on uniform 

practices and guidelines for compounded drugs and a committee of 

national association representatives recently began work on developing a 

program that would include certification and accreditation for drug 

compounding that could be used for state oversight. Groups such as the 

NABP concluded that state oversight of drug compounding would be 

strengthened if the states had uniform standards and other tools that could 

be adopted to address the quality and safety of compounded drugs. 

Several experts that we spoke with said national standards for 

compounding drugs that could be incorporated into state laws and 

regulations could help to ensure the quality and safety of compounded 

drugs. One expert noted that an advantage to incorporating compliance 

Page 6 GAO-04-195T 
with national compounding standards into state laws is that it would be 

easier for states to keep up with updated standards without going through 

the process of legislative changes. 

NABP developed and updated a Model State Pharmacy Act that provides 

standards for states regarding pharmacy practice. Recently revised in 

2003, the model act includes a definition of drug compounding and a 

section on good drug compounding practices. According to the executive 

director of NABP, many states have incorporated portions of the model act 

into their state pharmacy statutes or regulations by including similar 

definitions of drug compounding and components of NABP’s good drug 

compounding practices. For example, officials in Missouri and Wyoming 

reported using the model act’s good drug compounding practices as a 

guideline for developing their drug compounding regulations. In addition, 

USP has established standards and guidelines for compounding nonsterile 

and sterile drug products, both of which are being updated by expert 

committees. An official told us that these revisions would be completed 

early in 2004. 

In addition, recognizing that there is no coordinated national program to 

oversee compounding practices and that states’ oversight may vary, NABP 

recently began working with other national organizations, including the 

American Pharmacists Association and USP, to create a steering 

committee to develop a national program to provide a national quality 

improvement system for compounding pharmacies and the practice of 

compounding. The committee, which held its second meeting in October 

2003, is developing a program that is anticipated to include (1) the 

accreditation of compounding pharmacies, (2) certification of 

compounding pharmacists, and (3) requirements for compounded 

products to meet industry standards for quality medications. To strengthen 

state oversight of drug compounding, these accreditations, certifications, 

and product standards, once developed, could be adopted by the states 

and incorporated into their requirements for compounding pharmacists 

and pharmacies. 

Factors Such as Available Although there are several efforts by states and national organizations that 

Resources May Affect may help strengthen state oversight, some states may lack the resources to 

States’ Ability to Oversee provide the necessary oversight. State pharmacy board officials in three of 

the four states reported that resources were limited for inspections, for Compounded Drugs example: 

Page 7 GAO-04-195T 
• 	 The Missouri pharmacy board director reported that pharmacy inspections 

typically occur every 12 to 18 months; however, an increase in complaints 

has resulted in less frequent routine pharmacy inspections, because 

investigating complaints takes priority over routine inspections. 

• 	 North Carolina has six inspectors for about 2,000 pharmacies, which the 

state pharmacy board director said are inspected at least every 18 months. 

The director added that it is difficult to keep up with this schedule of 

routine inspections with the available resources while also investigating 

complaints, which take first priority. 

• 	 In Vermont, the pharmacy board chairman reported that, for a period of 

about 8 years until January 2003, pharmacy inspectors were only able to 

respond to complaints and not conduct routine inspections because of a 

shortage of inspectors. Vermont now has four full-time inspectors that 

cover the state’s 120 pharmacies; however, in addition to routine 

pharmacy inspections, the inspectors are also responsible for inspecting 

other facilities such as nursing homes and funeral homes. The chairman 

added that the board would like to have pharmacies inspected annually 

but it is difficult to keep up with the current schedule of inspections once 

every 2 years. 

Since drug compounding may occur in mail-order and Internet 

pharmacies, the compounding pharmacy may be located in a state 

different from the location of the patient or prescribing health 

professional. Three of the four states we reviewed had a large number of 

out-of-state pharmacies that were licensed to conduct business in those 

states, and inspection and enforcement activities may differ for these 

pharmacies. For example, Wyoming has 274 licensed out-of-state 

pharmacies, which is nearly twice as many as the number of in-state 

licensed pharmacies. The four states we reviewed said that they have 

authority to inspect out-of-state pharmacies licensed in their states but 

because of limited resources, they generally leave inspections to the state 

in which the pharmacy is located. Regarding enforcement authority, all 

four states reported having authority to take disciplinary action against 

out-of-state pharmacies licensed in their states. 

While the pharmacy boards in all four states we reviewed can suspend or 

revoke pharmacy licenses or issue letters of censure, enforcement 

mechanisms vary. For example, Missouri and North Carolina are not 

authorized to charge fines for violations; however, Wyoming can fine a 

pharmacist up to $2,000 and Vermont can fine a pharmacy or pharmacist 

$1,000 for each violation. Further, not all state pharmacy boards have the 

Page 8 GAO-04-195T 
FDA Asserts 

Oversight Authority 

Under FDCA but 

Generally Relies on 

States to Regulate 

Drug Compounding 

authority to take enforcement action independently. For example, in 

Missouri when attempting to deny, revoke, or suspend a license through 

an expedited procedure, the pharmacy board must first file a complaint 

with an administrative hearing commission. Only after the commission 

determines that the grounds for discipline exist may the board take 

disciplinary action. 

Pharmacy board officials reported relatively few complaints and 

disciplinary actions involving drug compounding. For example, of the 307 

complaints received and reviewed by the board of pharmacy against 

pharmacies and pharmacists in Missouri in fiscal year 2002, only 5 were 

related to drug compounding.3 

FDA maintains that drug compounding activities are generally subject to 

FDA oversight, including the “new drug” requirements and other 

provisions of the FDCA. In practice, however, the agency generally relies 

on the states to regulate the traditional practice of pharmacy, including the 

limited compounding of drugs for the particular needs of individual 

patients. In recent years, the Congress has attempted to clarify the extent 

of federal authority and enforcement power regarding drug compounding. 

In 1997, the Congress passed a law that exempted drug compounders from 

key portions of the FDCA if they met certain criteria. Their efforts, 

however, were nullified when the Supreme Court struck down a portion of 

the law’s drug compounding section as an unconstitutional restriction on 

commercial speech, which resulted in the entire compounding section 

being declared invalid.

4

 In response, FDA issued a compliance policy guide 

to provide the compounding industry with an explanation of its 

enforcement policy, which included a list of factors the agency would 

consider before taking enforcement actions against drug compounders. 

3

The state pharmacy board officials that we spoke with reported that most complaints and 

disciplinary actions cover dispensing errors related to manufactured drugs, such as 

incorrectly counting the number of pills for a prescription. 

4

Thompson v. Western States Medical Center, 535 U.S. 357 (2002). 

Page 9 GAO-04-195T 
FDA Asserts Jurisdiction 

to Regulate Drug 

Compounding Under 

FDCA 

FDA maintains that FDCA requirements, such as those regarding the 

safety and efficacy requirements for the approval of new drugs, are 

generally applicable to pharmacies, including those that compound drugs. 

The agency recognized in its brief submitted in the 2002 Supreme Court 

case that applying FDCA’s new drug approval requirements to drugs 

compounded on a small scale is unrealistic—that is, it would not be 

economically feasible to require drug compounding pharmacies to 

undergo the testing required for the new drug approval process for drugs 

compounded to meet the unique needs of individual patients. The agency 

has stated that its primary concern is where drug compounding is being 

conducted on a scale tantamount to manufacturing in an effort to 

circumvent FDCA’s new drug approval requirements. FDA officials 

reported that the agency has generally left regulation of traditional 

pharmacy practice to the states, while enforcing the act primarily when 

pharmacies engage in drug compounding activities that FDA determines to 

be more analogous to drug manufacturing. 

FDA Modernization Act 

Exempted Drug 

Compounders from Some 

FDCA Requirements but 

Was Declared Invalid 

Federal regulatory authority over drug compounding attracted 

congressional interest in the 1990s, as some in the Congress believed that 

“clarification is necessary to address current concerns and uncertainty 

about the Food and Drug Administration’s regulatory authority over 

pharmacy compounding.”5

 The Congress addressed this and other issues 

when it passed the FDA Modernization Act of 1997 (FDAMA), which 

included a section exempting drugs compounded on a customized basis 

for an individual patient from key portions of FDCA that were otherwise 

applicable to manufacturers.6

 According to the congressional conferees, its 

purpose was to ensure continued availability of compounded drug 

products while limiting the scope of compounding so as “to prevent 

manufacturing under the guise of compounding.”7 

In order to be entitled to the exemption, drug compounders had to meet 

several requirements, including one that prohibited them from advertising 

or promoting “the compounding of any particular drug, class of drug, or 

5

S. Rep. No. 105-43, at 67 (1997). 

6

These portions covered “adequate directions for use” labeling, manufacturing, and new 

drug approval requirements. See former 21 U.S.C. § 353a (a). Pub. L. No. 105-115, 111 Stat. 

2296, former section 503A. 

7

H.R. Conf. Rep. No. 105-399, at 94 (1997). 

Page 10 GAO-04-195T 
type of drug.”

8

 This prohibition was challenged in court by a number of 

compounding pharmacies and eventually resulted in a 2002 Supreme Court 

decision holding that it was unconstitutional. As a result, the entire drug 

compounding section was declared invalid.9

 However, the Court did not 

address the extent of FDA’s authority to regulate drug compounding. 

Current FDA Enforcement 

Focuses on Drug 

Compounding Outside of 

the Traditional Practice of 

Pharmacy 

FDA issued a compliance policy guide in May 2002, following the Supreme 

Court decision, to offer guidance about when it would consider exercising 

its enforcement authority regarding pharmacy compounding.10 In the 

guide, FDA stated that the traditional practice of drug compounding by 

pharmacies is not the subject of the guidance. The guide further stated 

that FDA will generally defer to state authorities in dealing with “less 

significant” violations of FDCA, and expects to work cooperatively with 

the states in coordinating investigations, referrals, and follow-up actions. 

However, when the scope and nature of a pharmacy’s activities raise the 

kinds of concerns normally associated with a drug manufacturer and 

result in significant violations of FDCA, the guide stated that FDA has 

determined that it should seriously consider enforcement action and listed 

factors, such as compounding drug products that are commercially 

available or using “commercial scale manufacturing or testing equipment,” 

that will be considered in deciding whether to take action.11 

8

See former 21 U.S.C. § 353a (c). 

9

Both the district and appellate courts held that the prohibition was unconstitutional. 

However, the district court held that the prohibition was “severable” and that the rest of 

the pharmacy compounding section remained good law. While the appellate court agreed 

with the district court on the constitutional question, it disagreed on the severability issue 

and invalidated the entire section. The Supreme Court agreed with both courts on the 

constitutional issue, but because the severability decision was not challenged, the Court 

did not rule on it, and left it in place. See Thompson v. Western States Medical Center; 69 F. 

Supp. 2d 1288 (D. Nev. 1999), aff’d in part and rev’d in part, 238 F. 3d 1090 (9th Cir. 2001), 

aff’d, 535 U.S. 357. 

10This guide was similar to an earlier compliance policy guide published by FDA in 1992. 

After the drug compounding section of FDAMA was declared invalid, FDA determined that 

it needed to issue new guidance to the compounding industry on what factors the agency 

would consider in exercising its enforcement discretion regarding drug compounding. 

11“Compliance Policy Guide: Compliance Policy Guidance for FDA Staff and Industry”, 

Chapter 4, Sub Chapter 460, May 2002. 

Page 11 GAO-04-195T 
Some representatives of pharmacist associations and others have 

expressed concern that FDA’s compliance policy guide has created 

confusion regarding when FDA enforcement authority will be used. For 

example, some pharmacy associations assert that FDA’s guidance lacks a 

clear description of the circumstances under which the agency will take 

action against pharmacies. In particular, they pointed to terms in the 

guide, such as “very limited quantities” and “commercial scale 

manufacturing or testing equipment” that are not clearly defined, and 

noted that FDA reserved the right to consider other factors in addition to 

those in the guide without giving further clarification. FDA officials told us 

that the guide allows the agency to have the flexibility to respond to a 

wide variety of situations where the public health and safety are issues, 

and that they plan to revisit the guide after reviewing the comments the 

agency received, but did not have a time frame for issuing revised 

guidance. 

In several reported court cases involving FDA’s regulation of drug 

compounders, the courts have generally sided with FDA. Two cases we 

identified involved drug compounders engaged in practices that were 

determined to be more analogous to drug manufacturing. In a district 

court case decided this year, the court upheld FDA’s authority to inspect a 

pharmacy specializing in compounding, noting that it believed that FDA’s 

revised compliance policy guide was a reasonable interpretation of the 

statutory scheme established by FDCA.12 

While drug compounding is important and useful for patient care, 

problems that have occurred raise legitimate concerns about the quality 

and safety of compounded drugs and the oversight of pharmacies that 

compound them. However, the extent of problems related to compounding 

is unknown. FDA maintains that drug compounding activities are generally 

subject to FDA oversight under its authority to oversee the safety and 

quality of new drugs, but the agency generally relies on states to provide 

the necessary oversight. At the state level, our review provides some 

indication that at least some states are taking steps to strengthen state 

oversight, and national pharmacy organizations are developing standards 

that might help strengthen oversight if the states adopted and enforced 

them. However, the effectiveness of these measures is unknown, and 

12In the Matter of Establishment Inspection of Wedgewood Village Pharmacy, Inc., 270 F. 

Supp. 525, 549 (D. N.J. 2003). 

Concluding 

Observations 

Page 12 GAO-04-195T 
factors such as the availability of resources may also affect the extent of 

state oversight. 

Mr. Chairman, this completes my prepared statement. I would be happy to 

respond to any questions you or other Members of the Committee may 

have at this time. 

Contact and For further information, please contact Janet Heinrich at (202) 512-7119. 

Individuals making key contributions to this testimony included Matt Byer,

Acknowledgments Lisa A. Lusk, and Kim Yamane. 

(290318) Page 13 GAO-04-195T 
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