DRUG 

COMPOUNDING

Clear Authority and 

More Reliable Data 

Needed to Strengthen 

FDA Oversight

Report to Congressional Requesters

July 2013

GAO-13-702

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-13-702, a report to 

congressional requesters

July 2013

DRUG COMPOUNDING

Clear Authority and More Reliable Data Needed to 

Strengthen FDA Oversight

Why GAO Did This Study

Drug compounding is the process by 

which a pharmacist combines, mixes, 

or alters ingredients to create a drug 

tailored to the medical needs of an 

individual. An outbreak of fungal 

meningitis in 2012 linked to 

contaminated compounded drugs has 

raised concerns about state and 

federal oversight of drug compounding. 

GAO was asked to update its 2003 

testimony on drug compounding. 

Specifically, this report addresses 

(1) the status of FDA’s authority to 

oversee drug compounding, and the 

gaps, if any, between state and federal 

authority; (2) how FDA has used its 

data and authority to oversee drug 

compounding; and (3) the actions 

taken or planned by states or national 

pharmacy organizations to improve 

oversight of drug compounding. GAO 

reviewed relevant statutes and 

guidance; reviewed FDA data; and 

interviewed officials from FDA, national 

pharmacy organizations, and four 

states with varied geography, 

population, and pharmacy regulations. 

What GAO Recommends

To help ensure that the entities that 

compound drugs have appropriate 

oversight, Congress should consider 

clarifying FDA’s authority to oversee 

drug compounding. In addition, FDA 

should ensure its databases collect 

reliable and timely data on inspections 

associated with compounded drugs, 

and differentiate drug compounders 

from manufacturers. HHS's comments 

support the need to clarify FDA's 

authority, and stated that the 

information in its inspection database 

could be improved and that it would 

consider whether it can differentiate 

compounding pharmacies from 

manufacturers.

What GAO Found

The authority of the Food and Drug Administration (FDA), an agency within the 

Department of Health and Human Services (HHS), to oversee drug compounding 

is unclear. Two federal circuit court decisions have resulted in differing FDA 

authority in different parts of the country. According to FDA officials, these 

inconsistent decisions and the agency’s limited inspection authority over 

pharmacies have created challenges in FDA’s ability to inspect and take 

enforcement action against entities engaging in drug compounding. For example, 

from 2002 through 2012, in order to inspect some facilities engaged in drug 

compounding, FDA officials said they had to obtain 11 warrants to gain access to 

drug compounders’ facilities that had challenged FDA’s inspection authority. 

GAO also found that while FDA and national pharmacy organization officials 

generally agreed that states regulate the practice of pharmacy and FDA 

regulates drug manufacturing, there was no consensus on whether compounding 

drugs in large quantities—in anticipation of individual prescriptions or without 

prescriptions—and selling those drugs across state lines falls within the practice 

of pharmacy or is a type of drug manufacturing that should be overseen by FDA. 

This lack of consensus and differing FDA authority to oversee compounded 

drugs across the country has resulted in gaps in oversight of drug compounding.

FDA lacks timely and reliable information to oversee the entities that compound 

drugs, but has found problems through its limited oversight. Specifically, FDA’s 

inspection database cannot identify all of the agency’s inspections of 

compounding pharmacies, or the final classification of inspection results, for all of 

the inspections. Until 2013, FDA limited its inspections of compounding 

pharmacies to those conducted in response to complaints or adverse events. 

However, the agency recently inspected compounding pharmacies that it 

identified as posing a significant threat to public health from poor sterile drug 

production practices in the past and found problems, such as concerns about a 

lack of sterility, which resulted in recalls of compounded drugs. In addition, drug 

manufacturers are required to register with FDA and are subject to FDA’s 

inspection and drug approval processes; pharmacies meeting certain 

requirements are generally exempt from registration. However, some 

compounding pharmacies may have registered with FDA to market themselves 

as “FDA-registered” which may lead some purchasers to assume that FDA has 

inspected or approved their compounded drugs; whereas, according to FDA 

officials, this is generally not the case.

The states GAO reviewed—California, Connecticut, Florida, and Iowa—have 

each taken actions to enhance their oversight of drug compounding. For 

example, Florida required all pharmacies—both those located in the state and 

out-of-state that sell drugs in Florida—to notify the board of their compounding 

activities. In addition, national pharmacy organizations have undertaken efforts to 

help states oversee drug compounding. For example, a national pharmacy 

organization is working with Iowa to inspect out-of-state pharmacies that ship 

drugs into the state. However, according to national pharmacy organizations and 

officials from state boards of pharmacy, some states do not have the resources 

to inspect pharmacies on a regular basis. Instead, these states inspect 

pharmacies only in response to a complaint or a reported adverse drug event.

View GAO-13-702. For more information, 

contact Marcia Crosse at (202) 512-7114 or 

crossem@gao.gov.
 

Page i GAO-13-702 Drug Compounding

Letter 1 

Background 4

Unclear Federal Authority and Lack of Consensus on When Drug 

Compounding Becomes Manufacturing 9

FDA Lacks Reliable and Timely Data on Compounding Pharmacies, 

but Has Found Problems through Its Limited Oversight 13

States and National Organizations Have Taken Various Actions to 

Strengthen Oversight of Drug Compounding 20

Conclusions 26

Matter for Congressional Consideration 27

Recommendations for Executive Action 27

Agency Comments and Our Evaluation 27

Appendix I Information on Selection Criteria for Four States 30

Appendix II History of the Food and Drug Administration’s (FDA) 

Authority over Drug Compounding and Approach to 

Oversight 32

Appendix III Comments from the Department of Health and Human 

Services 39

Appendix IV GAO Contact and Staff Acknowledgments 45

Tables

Table 1: Characteristics Considered in Selecting Four States for 

Inclusion in Review of State Oversight of Compounding 

Pharmacies 31

Table 2: Comparison of the Food and Drug Administration’s (FDA) 

Authority and Oversight of Drug Compounding under 

Section 503A of the Federal Food, Drug, and Cosmetic Act 

(FDCA) and FDA’s 2002 Compliance Policy Guide 37

Contents 
 

Page ii GAO-13-702 Drug Compounding

Figure

Figure 1: Food and Drug Administration (FDA) Oversight of Drug 

Compounding 10

Abbreviations

FACTS Field Accomplishments and Compliance Tracking System

FDA Food and Drug Administration

FDAMA Food and Drug Administration Modernization Act of 1997

FDCA Federal Food, Drug, and Cosmetic Act

HHS Department of Health and Human Services 

NABP National Association of Boards of Pharmacy

OIG Office of Inspector General

PCAB Pharmacy Compounding Accreditation Board

USP The United States Pharmacopeial Convention

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately.
Page 1 GAO-13-702 Drug Compounding

441 G St. N.W.

Washington, DC 20548

July 31, 2013

The Honorable Elijah Cummings

Ranking Member

Committee on Oversight and Government Reform

House of Representatives

The Honorable John Tierney

Ranking Member

Subcommittee on National Security

Committee on Oversight and Government Reform

House of Representatives

Drug compounding is the process by which a pharmacist or doctor 

combines, mixes, or alters ingredients to create a drug tailored to the 

medical needs of an individual patient. Compounding, a traditional 

component of the practice of pharmacy, is typically used to prepare drugs 

that are not commercially available, such as a drug for a patient who is 

allergic to an ingredient in a mass-produced pharmaceutical product.1

Traditionally, state pharmacy regulatory bodies (e.g., boards of 

pharmacy) regulate pharmacy practice, including drug compounding 

activities, through state laws and regulations. The Food and Drug 

Administration (FDA) is the agency within the Department of Health and 

Human Services (HHS) responsible for assuring the safety and 

effectiveness of drugs marketed in the United States.2 Under the Federal 

Food, Drug, and Cosmetic Act (FDCA), and its implementing regulations, 

FDA approves new drugs and regulates the manufacture, marketing, and 

distribution of pharmaceutical products.3

An outbreak of fungal meningitis in 2012 linked to contaminated 

compounded drugs—resulting in over 60 deaths and hundreds of people 

becoming ill—has led to questions about the safety and quality of 

 

1

While drug compounding is often referred to as “pharmacy compounding,” physicians 

may compound drugs in certain instances. The focus of this review is drug compounding 

by pharmacies. 

2

FDA is responsible for assuring the safety and effectiveness of these drugs regardless of 

whether they are manufactured in the United States or abroad.

3

21 U.S.C. §§ 301 et seq.

 
 

Page 2 GAO-13-702 Drug Compounding

compounded drugs, and raised concerns about state and federal 

oversight of drug compounding.4

You asked us to update our 2003 testimony on drug compounding.

Concerns have also been raised by FDA 

and others, including members of Congress and public health advocates, 

that some pharmacies are going beyond traditional drug compounding by 

producing large quantities of compounded drugs without prescriptions for 

individual patients, and selling those compounded drugs to facilities in 

multiple states. Many believe that these types of pharmacies are 

manufacturing drugs under the guise of compounding without meeting 

safety and other requirements with which drug manufacturers must 

comply. 

5

To describe the status of FDA’s authority to oversee drug compounding 

and any gaps between state and federal authority, we reviewed FDCA 

provisions pertaining to drug compounding and other relevant federal 

statutes, regulations, and guidance documents on federal oversight of 

drug compounding, including FDA’s 2002 compliance policy guide on 

drug compounding. We also reviewed other relevant FDA documents, 

and interviewed FDA officials on any gaps or proposed actions to address 

gaps, or to clarify federal and state authority. We selected four states—

California, Connecticut, Florida, and Iowa—and reviewed documents, and 

interviewed officials from state regulatory bodies in each of these states.

Specifically, this report addresses (1) the status of FDA’s authority to 

oversee drug compounding, and the gaps, if any, between state and 

federal authority to oversee drug compounding; (2) how FDA has used its 

data and authority to oversee drug compounding; and (3) the actions 

taken or planned by states or national pharmacy organizations to improve 

oversight of drug compounding.

6

 

4

The contaminated product was traced to a compounding pharmacy in Massachusetts, 

which had shipped approximately 17,000 vials of a contaminated injectable steroid to 

23 states. According to the Centers for Disease Control and Prevention, as of July 1, 

2013, 749 individuals who received the contaminated steroid injections became ill with 

fungal meningitis or other types of infections, and 61 of them have died.

(App. I contains information on the four states.) In addition, we reviewed 

documents, and interviewed officials from national organizations 

5

See GAO, Prescription Drugs: State and Federal Oversight of Drug Compounding by 

Pharmacies, GAO-04-195T (Washington, D.C.: Oct. 23, 2003).

6

We selected four states based on variations in geography, population, organization of 

pharmacy regulatory bodies, and pharmacy compounding laws and regulations.
 

Page 3 GAO-13-702 Drug Compounding

representing pharmacies and pharmacists—including the American 

Pharmacists Association, American Society of Health-System 

Pharmacists, International Academy of Compounding Pharmacists, and 

National Community Pharmacists Association—and other organizations, 

including the National Association of Boards of Pharmacy (NABP) and the 

United States Pharmacopeial Convention (USP).7

To examine how FDA has used its data and authority to oversee drug 

compounding, we reviewed documents and interviewed FDA officials—

including officials in the Center for Drug Evaluation and Research, Office 

of Regulatory Affairs, and Office of the Chief Counsel—regarding data 

FDA collects on compounded drugs, the entities that compound them, 

and FDA inspections of those entities. Specifically, we examined data 

related to drug compounding from (1) FDA’s Drug Registration and Listing 

System on entities that compound drugs that registered with FDA in its 

drug manufacturer database, and (2) FDA’s Field Accomplishments and 

Compliance Tracking System (FACTS) on inspections of entities that 

compound drugs. We also interviewed FDA officials on the availability 

and limitations of FDA’s data on adverse events associated with 

compounded drugs. We compared FDA’s data on compounded drugs 

and the entities that compound them, including FDA’s inspections and 

outcomes of those inspections, to standards described in Standards for 

Internal Control in the Federal Government—which specifies that 

relevant, reliable, and timely information be available for management 

decision making and external reporting purposes.

We also reviewed 

reports and studies related to oversight of drug compounding, and 

interviewed officials involved in those studies, including those from the 

Congressional Research Service and the HHS Office of Inspector 

General (OIG).

8

 

7

NABP is a professional association that assists its member state boards of pharmacy and 

jurisdictions in developing, implementing, and enforcing uniform standards for the purpose 

of protecting the public health. USP is a scientific nonprofit organization that sets 

standards for the identity, strength, quality, and purity of medicines, food ingredients, and 

dietary supplements. For this report, we refer to these organizations, including those 

representing pharmacies and pharmacists, as national pharmacy organizations.

We also reviewed 

8

These standards provide an overall framework for establishing and maintaining internal 

controls; and for identifying and addressing major performance and management 

challenges, and areas at greatest risk of fraud, waste, abuse, and mismanagement. See 

GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

(Washington, D.C.: November 1999), and its supplemental guide, Internal Control 

Management and Evaluation Tool, GAO-01-1008G (Washington, D.C.: August 2001).
 

Page 4 GAO-13-702 Drug Compounding

information on FDA’s efforts in 2013 to conduct inspections of entities 

that, according to the agency, were known to have produced sterile 

compounded drugs in the past. To assess the reliability of the FDA data, 

we reviewed FDA guidance and related documentation; interviewed 

knowledgeable agency officials; and viewed data FDA made available 

from these databases on its website. We determined that the data were 

sufficiently reliable for purposes of our report.

To identify actions planned or taken by states or national pharmacy 

organizations, we reviewed state laws and regulations, and proposed 

changes to state laws and regulations, in the four states we selected. For 

each state, we reviewed documents and interviewed representatives of 

the states’ pharmacy regulatory bodies regarding actions taken or 

planned relating to the oversight of drug compounding, the implications of 

existing and proposed state laws and regulations, and the challenges 

state regulatory bodies face in overseeing drug compounding. We also 

discussed the states’ pharmacy inspection and enforcement activities, as 

well as state efforts to collect pharmacy data. In addition, we reviewed 

surveys of states—for example, results of surveys of states to determine 

the number requiring compliance with USP provisions for sterile 

compounding. We also reviewed documents and interviewed officials 

from national pharmacy organizations, including NABP, regarding the 

actions planned or taken by these national pharmacy organizations 

related to the oversight of drug compounding.

We conducted this performance audit from February 2013 to July 2013 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

Traditionally, a drug is compounded, through the process of mixing, 

combining, or altering ingredients, to create a customized drug tailored to 

the medical needs of an individual patient upon receipt of a prescription. 

For example, a pharmacist may tailor a drug for a patient who is allergic 

to an ingredient in a manufactured drug or prepare a liquid formulation for 

a patient who has difficulty swallowing pills. Some pharmacies also 

Background 

Drug Compounding by 

Pharmacies
 

Page 5 GAO-13-702 Drug Compounding

compound drugs in advance of receiving individual patient prescriptions in 

anticipation of receiving prescriptions based on historical prescribing 

patterns, a practice referred to as anticipatory compounding. 

Compounded drugs include nonsterile preparations, such as capsules, 

ointments, creams, gels, and suppositories; and sterile preparations, 

including intravenously administered fluids and injectable drugs. 

Compounded sterile drugs pose special risks of contamination if not 

made properly and require special safeguards to prevent injury or death 

to patients receiving them.

Drug compounding is an integral part of the pharmacy profession and is 

practiced in a variety of settings, including hospital pharmacies, 

community pharmacies, chain drug store pharmacies, and home infusion 

settings. The exact proportion of all prescriptions filled by compounded 

drugs is unknown. In 2003, we reported that estimates ranged from 

1 percent to 10 percent.9

The exact number of pharmacies that compound drugs is also unknown. 

In 2013, the International Academy of Compounding Pharmacists 

provided the following estimates:

More recently, in 2013, the International 

Academy of Compounding Pharmacists estimated that the compounding 

industry made up 1 to 3 percent of the U.S. prescription drug market.

• About 26,000 community-based pharmacies reported that they 

provide some sort of prescription compounding services, based on 

information from the National Council of Prescription Drug Program’s 

database on pharmacies.

• Of those 26,000 community-based pharmacies, about 7,500 

pharmacies specialize in compounding.

• Of those 7,500 community-based pharmacies that specialize in 

compounding, about 3,000 pharmacies compound both sterile and 

nonsterile preparations.

• In addition, there are about 8,200 hospital pharmacies in the United 

States, and all of them are likely conducting some sort of 

compounding, both sterile and nonsterile.

 

9

GAO-04-195T. 
 

Page 6 GAO-13-702 Drug Compounding

A recent report indicates that there has been an increase in the 

outsourcing of drug compounding in the last decade, primarily by 

hospitals. In April 2013, the HHS-OIG reported that nearly all (92 percent) 

of surveyed hospitals that participated in Medicare reported using 

compounded sterile products, and that more than three-fourths of these 

hospitals (77 percent) purchased some of these compounded drugs from 

at least one outside pharmacy.10 The HHS-OIG found factors that 

hospitals cited for outsourcing included the need to ensure a ready supply 

of products in the event of shortages and the need for products with 

extended shelf lives, which require sophisticated equipment and testing to 

prepare these products that may not be readily available on the hospital 

premises.

State pharmacy regulatory bodies are responsible for oversight of the 

practice 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, according to NABP.

USP is involved in setting standards that affect compounding.11

 

10Department of Health and Human Services, Office of Inspector General, High-Risk 

Compounded Sterile Preparations and Outsourcing by Hospitals That Use Them

(Washington, D.C.: Apr. 10, 2013).

According 

to USP, compounding standards help practitioners adhere to widely 

acknowledged, scientifically sound procedures and best practices, and 

facilitate the delivery of consistent and good-quality prepared medicines 

to patients. Twenty-five state pharmacy regulatory bodies reported that 

11USP’s current suite of General Chapters for compounding includes: Chapter 797 

Pharmaceutical Compounding—Sterile Preparations, which provides procedures and 

requirements for compounding sterile preparations; Chapter 795 Pharmaceutical 

Compounding—Nonsterile Preparations, which provides guidance on applying good 

compounding practices in the preparation of nonsterile compounded formulations for 

dispensing and/or administration to humans or animals; Chapter 1160—Pharmaceutical 

Calculations in Prescription Compounding; Chapter 1163—Quality Assurance in 

Pharmaceutical Compounding; and Chapter 1176—Prescription Balances and Volumetric 

Apparatus. According to USP officials, these compounding chapters reference an 

additional 48 USP chapters. In addition to setting standards that affect compounding, 

USP, through the United States Pharmacopeia-National Formulary, a compendium of 

public pharmacopeial standards, provides monographs for drug articles, including 

ingredients used in compounded preparations, and monographs for the compounded 

preparations themselves, comprising standards of identity, quality, purity, strength, 

packaging, and labeling.

State Regulation of 

Pharmacy Practice
 

Page 7 GAO-13-702 Drug Compounding

they require compliance with USP’s chapter on sterile compounding, 

according to the NABP’s 2013 survey of pharmacy law.12

FDA considers compounded drugs to be “new drugs” subject to FDA 

oversight; however, the agency has acknowledged that it is not 

practicable for pharmacies to complete and obtain approval for a new 

drug application for each compounded drug prepared for an individual 

patient.13 In 1992, FDA, through guidance, and, in 1997, Congress, 

through legislation, attempted to clarify when compounded drugs will be 

exempt from certain requirements of the FDCA, including new drug 

approval requirements. Specifically, the Food and Drug Administration 

Modernization Act of 1997 (FDAMA) enacted section 503A of the FDCA.

This section exempted drug products compounded by a pharmacist or 

physician based on a valid prescription for a compounded product that is 

necessary for the identified patient from three key provisions of the FDCA 

that are otherwise applicable to drugs, provided the pharmacy had, 

among other conditions, not solicited prescriptions or advertised or 

promoted the compounded drugs.14

In 2001, however, the United States Court of Appeals for the Ninth Circuit 

struck down all of the advertising, promotion, and solicitation provisions of 

section 503A of the FDCA because those provisions violated the Free 

 

12National Association of Boards of Pharmacy, Survey of Pharmacy Law—2013 (Mount 

Prospect, IL: 2013). The pharmacy regulatory bodies of Guam and Puerto Rico also 

reported that they require compliance with USP’s standards on sterile compounding.

13The FDCA defines “new drug” as “Any drug ... the composition of which is such that 

such drug is not generally recognized, among experts qualified by scientific training and 

experience to evaluate the safety and effectiveness of drugs, as safe and effective for use 

under the conditions prescribed, recommended, or suggested in the labeling thereof. . . . .” 

21 U.S.C. § 321(p)(1). Drug manufacturers submit new drug applications to FDA to seek 

approval to market and sell a new pharmaceutical drug product in the United States. In 

addition, abbreviated new drug applications are submitted to FDA to seek approval to 

market a generic version of a drug after the period of exclusivity and any patents for a 

brand-name drug expire. In fiscal year 2013, user fees for new drug applications ranged 

from $979,400 to $1,958,800, depending on whether or not the application required 

clinical data, and were $51,520 for abbreviated new drug applications.

14Pub. L. No. 105-115, § 127, 111 Stat. 2296, 2328 (Nov. 21, 1997). Compounded drug 

products that met these requirements did not have to comply with good manufacturing 

practices, label drugs with adequate directions for use, or have an FDA-approved new 

drug or abbreviated new drug application. References to section 503A in this report are to 

section 503A of the FDCA, as codified at 21 U.S.C. § 353a.

FDA Regulation of Drug 

Compounding 
 

Page 8 GAO-13-702 Drug Compounding

Speech Clause of the First Amendment. The court also held that, 

because these provisions could not be severed from the remainder of 

section 503A, all of section 503A was invalid. In 2002, the United States 

Supreme Court struck down the law’s advertising, promotion, and 

solicitation restrictions without addressing whether the rest of 

section 503A remained law. As a result, FDA issued a revised version of 

its compliance policy guide on drug compounding in 2002, which provides 

guidance, in light of the Ninth Circuit and Supreme Court decisions, on 

the types of factors the agency will consider in determining whether to 

take enforcement action against drug compounders for violations of the 

FDCA. These factors include activities, such as offering compounded 

drug products at wholesale, that suggest a drug compounder is engaged 

in drug manufacturing, rather than drug compounding. Subsequently, in 

2005, the United States Court of Appeals for the Fifth Circuit issued a 

decision holding that, although section 503A’s advertising, promotion, and 

solicitation restrictions were invalid, these restrictions could be severed 

from the rest of section 503A and, therefore, the law’s remaining drug 

compounding provisions remain valid. See appendix II for details about 

these developments and how they have affected FDA’s authority to 

oversee drug compounding.

The FDCA provides FDA authority to inspect pharmacies that compound 

drugs; however, this authority is limited. Generally, FDA’s inspection 

authority does not extend to a pharmacy’s records if the pharmacy meets 

certain requirements.15 While FDA has not routinely inspected 

compounding pharmacies, FDA has used its authority to conduct some 

inspections in recent years, generally in response to complaints. These 

inspections have resulted in FDA issuing inspection observation reports, 

which are called FDA form 483s, and, in some cases, warning letters.16

 

15A pharmacy’s records are exempt from FDA’s inspection authority if the pharmacy is in 

compliance with any applicable local laws regulating the practice of pharmacy and 

medicine, regularly engages in dispensing drugs upon a prescription from a licensed 

practitioner, and does not manufacture, prepare, or compound drugs for sale other than 

during the regular course of its business of dispensing or selling drugs at retail. 21 U.S.C. 

§ 374(a)(2)(A).

FDA’s FACTS database contains information on these inspections, 

16An FDA form 483 is an inspection observation report that lists objectionable conditions 

observed at the facilities. An FDA warning letter is a correspondence that notifies a 

responsible individual or firm that the agency considers one or more products, practices, 

processes, or other activities to be in violation of the FDCA, its implementing regulations, 

and other federal statutes.
 

Page 9 GAO-13-702 Drug Compounding

including the type of inspection (e.g., routine or in response to a 

complaint).

Under the FDCA, drug manufacturers are required to register with FDA 

and list the drugs they manufacture.17 The FDCA exempts from these 

registration and listing requirements those pharmacies that meet certain 

requirements.18 FDA’s Drug Registration and Listing System contains 

information on drug establishments that have registered with FDA to 

market their drugs in the United States. These establishments provide 

information, including company name and address, and identify the drugs 

they manufacture for commercial distribution in the United States.

Although FDAMA attempted to clarify FDA’s authority to oversee drug 

compounding, subsequent court decisions have contributed to a lack of 

clarity regarding the legal standards FDA must apply to oversee drug 

compounding. Specifically, two federal circuit court decisions resulted in 

differing FDA authority over drug compounding in different parts of the 

country, which has affected FDA’s ability to oversee drug compounding. 

Section 503A provisions exempting certain compounded drugs from the 

FDCA’s good manufacturing practice, certain labeling, and new drug and 

abbreviated new drug application requirements are in effect in those 

states in the Fifth Circuit, in which the U.S. Court of Appeals has held that 

the law, other than its advertising, promotion, and solicitation provisions, 

is valid. However, FDA follows its 2002 compliance policy guide in states 

in the Ninth Circuit, in which the U.S. Court of Appeals has held all of the 

drug compounding provisions in section 503A are invalid. In states 

outside of the Fifth and Ninth Circuits, where federal courts have not 

considered the validity of these drug compounding provisions, FDA 

considers both section 503A’s drug compounding provisions and its 2002 

compliance policy guide to guide its oversight. Figure 1 shows how FDA 

generally conducts its oversight of drug compounding in different parts of 

the country based on the differing court decisions.

 

1721 U.S.C. § 360.

18A pharmacy is exempt from these registration and listing requirements if the pharmacy is 

in compliance with any applicable local laws regulating the practice of pharmacy and 

medicine, regularly engages in dispensing drugs upon a prescription from a licensed 

practitioner, and does not manufacture, prepare, or compound drugs for sale other than 

during the regular course of its business of dispensing or selling drugs at retail. 21 U.S.C. 

§ 360(g)(1).

Unclear Federal 

Authority and Lack of 

Consensus on When 

Drug Compounding 

Becomes 

Manufacturing 
Page 10 GAO-13-702 Drug Compounding

FL

LA

MS GA AL

SC AK

TX

NC

TN

NM

AZ OK

KY

VA

MD

DE

KS MO

WV CO

NJ

IN

OH NV

UT

CA

RI

CT

PA

IL

MA

NE

IA

WY

NY

VT

NH

MI

SD

OR

WI

ME ND

ID

MT

WA

MN

DC

HI

AK

.

Figure 1: Food and Drug Administration (FDA) Oversight of Drug Compounding

Ninth Circuit Fifth Circuit Remaining states

Area/Jurisdiction affected

Interactive instructions

Roll over the color legend to the right 

for information about FDA’s authority 

to oversee drug compounding and 

how it approaches oversight of these 

drugs.

Sources: GAO analysis of federal court decisions and interviews with FDA officials; Map Resources (map).
 

Page 11 GAO-13-702 Drug Compounding

Furthermore, according to FDA officials, the agency’s inconsistent 

authority to oversee drug compounding and the agency’s limited 

inspection authority over pharmacies have led to legal challenges to 

FDA’s authority to inspect entities engaging in drug compounding and to 

take appropriate enforcement actions against these entities. For example, 

from 2002 through 2012, FDA had to obtain 11 inspection warrants to 

gain access to drug compounders’ facilities and records, representing 

nearly half of the 25 administrative warrants obtained by FDA for all FDAregulated products in that same period, according to agency officials.19

FDA officials said that these entities refused FDA access to their facilities 

or records, citing the provision of the FDCA that limits the agency’s 

inspection authority over a pharmacy that is in compliance with state and 

local laws.20

In addition, we found a lack of consensus regarding when drug 

compounding becomes drug manufacturing. Officials from FDA and 

national pharmacy organizations we interviewed generally agreed that 

traditional drug compounding involves a patient-specific prescription for a 

customized medication that is not otherwise commercially available, and 

there was agreement that this type of compounding is part of the practice 

of pharmacy and generally overseen by the states. Further, there was 

agreement that FDA has clear authority to oversee drug manufacturing 

and drug manufacturers. However, there was not agreement on whether 

compounding pharmacies that are engaged in large-scale drug 

FDA officials added that if the agency is required to obtain a 

warrant before gaining access, the agency may be delayed in its efforts to 

curb an outbreak or take enforcement action and the entity may have time 

to clean up its facility or alter its records to avoid enforcement action. FDA 

officials also said that if the agency finds significant issues during an 

inspection of a drug compounder, to determine whether to take action 

against the compounder the agency must first consider its legal authority 

in the particular jurisdiction in which the compounder operates and 

whether any FDA action is likely to be challenged in court. According to 

FDA officials, engaging in this type of analysis may have resulted in a 

long lag time between the inspection and the issuance of a warning letter.

 

19According to FDA officials, the agency typically seeks inspection warrants when 

inspection has been refused completely or when refusals have been encountered in 

limited areas (e.g., when a firm has refused to allow FDA to take photographs or collect 

samples). FDA officials also reported having to obtain warrants to inspect 2 of 31 

compounding pharmacies it inspected in 2013.

2021 U.S.C. § 374(a)(2)(A). 
 

Page 12 GAO-13-702 Drug Compounding

compounding, producing these drugs in anticipation of individual 

prescriptions or without prescriptions, and selling them across state lines, 

are engaged in the practice of pharmacy or are engaged in drug 

manufacturing. As a result, there is a lack of consensus regarding 

whether states should have primary responsibility for regulating these 

entities as pharmacies, or FDA should have primary responsibility to 

regulate them as manufacturers. This lack of consensus on who has 

primary responsibility to regulate entities engaged in these practices and 

differing FDA authority applicable to compounded drugs across the 

country has resulted in gaps in oversight of drug compounding.

Further, according to officials from FDA and most of the organizations we 

spoke with, the line is not clear when anticipatory compounding is part of 

the practice of pharmacy and when anticipatory compounding crosses 

into drug manufacturing. For example, officials from one national 

pharmacy organization said that if a certain number of patients come to a 

pharmacy every month for progesterone suppositories and the pharmacy 

makes enough for a month’s supply in advance based on the history of 

these prescriptions, then a pharmacy’s compounding of the drug in 

advance should be considered drug compounding and not manufacturing. 

However, these officials added that a pharmacy that makes 10,000 sterile 

compounded injectables in advance of a prescription and ships them 

across 18 states may be engaged in manufacturing.

Noting this lack of clarity regarding when drug compounding becomes 

manufacturing, FDA has been working on a proposal that would create a 

new category of “nontraditional compounding,” which would be subject to 

FDA oversight. According to congressional testimony and public 

statements,21

 

21For example, Statement of Janet Woodcock, M.D., Director, Center for Drug Evaluation 

and Research, FDA, before the Senate Committee on Health, Education, Labor, and 

Pensions, 113th Cong., May 9, 2013.

FDA’s new category of “nontraditional drug compounders” 

would fall between traditional drug compounding and drug manufacturing. 

FDA officials said they believe this new category would subject entities 

with a higher potential to adversely affect a large number of patients to 

appropriate and effective FDA regulation and oversight. FDA’s proposal 

describes an entity as engaging in nontraditional compounding if it 

produces sterile compounded products in advance of or without an 

individual patient prescription, and ships these sterile compounded 

products across state lines. Under FDA’s proposal, state pharmacy 
 

Page 13 GAO-13-702 Drug Compounding

regulatory bodies would continue to have primary responsibility to 

oversee traditional drug compounding and FDA would have express 

statutory authority to oversee this new category of nontraditional drug 

compounding.22

Some national pharmacy organizations said that the creation of a new 

category of nontraditional drug compounding is not necessary because 

they believe drug compounding and drug manufacturing are already 

distinct. For example, officials from one national pharmacy organization 

we interviewed said the establishment of a new category of nontraditional 

drug compounding could create more confusion between drug 

compounding and manufacturing, unless this new category is carefully 

crafted. These officials said that states should regulate drug compounding 

and FDA should regulate drug manufacturing, and that once an entity 

crosses the line between drug compounding and manufacturing, there 

should be a seamless handoff from the state to FDA. However, other 

organizations we spoke with generally agreed with FDA’s proposed tiered 

system and said that entities in this new category should be regulated by 

FDA, not by state pharmacy regulatory bodies.

FDA lacks reliable information on entities that compound drugs, the types 

of drugs being compounded, and adverse events related to compounded 

drugs. Until 2013, FDA limited its inspections of compounding pharmacies 

to those conducted in response to complaints or adverse events, called 

“for cause” inspections; however, the agency has recently conducted 

inspections of compounding pharmacies that were known to produce 

“high-risk” sterile compounded drugs, and identified serious problems.

 

22On June 19, 2013, the Senate Committee on Health, Education, Labor and Pensions 

reported out of committee a bill that would create a new category of “compounding 

manufacturer,” which is similar in some respects to FDA’s proposed category of 

“nontraditional drug compounder.” Pharmaceutical Compounding Quality and 

Accountability Act, S. 959, 113th Cong. (1st Sess. 2013). In addition, on May 23, 2013, a 

bill was introduced in the House of Representatives, H.R. 2186, to strengthen federal 

oversight of drug compounding. VALID Compounding Act, H.R. 2186, 113th Cong. 

(1st. Sess. 2013).

FDA Lacks Reliable 

and Timely Data on 

Compounding 

Pharmacies, but Has 

Found Problems 

through Its Limited 

Oversight 
 

Page 14 GAO-13-702 Drug Compounding

FDA officials, including the FDA Commissioner, have stated that, under 

the FDCA, compounding pharmacies are generally not required to 

register with FDA or list their products, and therefore FDA does not know 

who they are and what they are compounding.23

Officials with some of the organizations we interviewed said there has 

been confusion regarding the extent to which FDA oversees the 

compounding pharmacies that registered with FDA as drug 

manufacturers. Although drug manufacturers are required to register with 

FDA by providing company information such as name, location, and the 

drugs the company manufactures, compounding pharmacies meeting the 

FDCA’s registration exemption are not required to register. However, 

according to FDA officials, neither the law nor the agency precludes those 

compounding pharmacies that are exempt from registration from 

voluntarily doing so, and some compounding pharmacies have registered 

with FDA as manufacturers and marketed themselves as “FDAregistered.” FDA officials told us that registering as a manufacturer does 

not necessarily result in the application of regulatory requirements that 

apply to manufacturers or in FDA inspection for compliance with these 

requirements. For example, a compounding pharmacy may voluntarily 

register with FDA; however, this registration does not by itself give FDA 

authority to require the pharmacy to comply with FDA’s good 

manufacturing practices and other requirements that apply to drug 

manufacturers. Nonetheless, these pharmacies appear as registered 

manufacturers in FDA’s registration database, the Drug Registration and 

Listing System.

As a result, FDA has 

stated that one of the reasons it has not routinely inspected compounding 

pharmacies is because the agency does not know who they are.

When entities that compound drugs on a large scale register with FDA as 

manufacturers and market themselves as “FDA-registered,” it may 

erroneously convey an endorsement by FDA. As a result, some state 

officials and purchasers may incorrectly assume FDA inspects the entities 

or has reviewed and approved their compounded drugs. Officials from 

one of the national pharmacy organizations told us that they recently 

 

23Pharmacies are not required to register with FDA if they follow any applicable local laws 

regulating the practice of pharmacy and medicine, regularly engage in dispensing drugs 

upon a prescription from a licensed practitioner, and do not manufacture, prepare, or 

compound drugs for sale other than during the regular course of their business of 

dispensing or selling drugs at retail. 21 U.S.C. § 360(g)(1).

FDA Has Not Collected 

Reliable and Timely Data 

on Compounded Drugs 

and the Entities That 

Prepare Them
 

Page 15 GAO-13-702 Drug Compounding

learned that a pharmacy can be registered with FDA as a drug 

establishment as well as with the state as a pharmacy. They added that 

healthcare professionals and the public may assume that if an entity 

registers with FDA then that means that FDA is in some way regulating 

that entity. In addition, NABP officials noted that they were aware of some 

entities engaged in drug compounding whose drug compounding 

activities are not subject to state oversight because they are registered as 

manufacturers with FDA and the states assume FDA is overseeing these 

activities. Yet, if a compounding pharmacy is voluntarily registered with 

FDA, the agency would not inspect it for compliance with good 

manufacturing practices because it does not manufacture FDA-approved 

drugs.

Further, FDA lacks reliable data to make decisions to prioritize its 

inspection workload and other follow-up and enforcement actions.24

Under standards for internal control in the federal government, relevant, 

reliable, and timely information should be available for external reporting 

purposes and management decision making. According to FDA officials, 

although the agency’s FACTS database has a code for inspections of 

compounding facilities, some compounding pharmacies could be 

inspected and coded as either manufacturers of human drugs or 

manufacturers of veterinary drugs, and the FACTS database would not 

identify them as inspections of compounding pharmacies. In addition, 

while FDA can manually look up the results of an individual inspection, 

the agency does not have ready access to all of the final classification of 

inspections for those compounding pharmacies it can identify in its 

FACTS database; in these instances, FACTS does not indicate the 

agency’s final determination whether an official action was indicated, 

voluntary action was indicated, or if no action was indicated from the 

inspection results.25

 

24We have previously reported on weaknesses in the data FDA uses to prioritize its 

inspection workload, including FACTS. See, for example, GAO, Drug Safety: Better Data 

Management and More Inspections Are Needed to Strengthen FDA’s Foreign Drug 

Inspection Program, 

According to FDA officials, some of the final 

GAO-08-970 (Washington, D.C.: Sept. 22, 2008). 

25FDA classifies an inspection as “official action indicated” if objectionable conditions were 

found that warrant regulatory action by the agency. A classification of “voluntary action 

indicated” means that objectionable conditions were identified but any corrective actions 

are left to the establishment to take voluntarily. A classification of “no action indicated” 

means that no objectionable conditions or practices were found during the inspection 

(i.e., conditions or practices that violate current good manufacturing practices), or if the 

significance of the documented objectionable conditions found does not justify further FDA 

action. 
 

Page 16 GAO-13-702 Drug Compounding

decisions are in hard copy, and the database includes recommendations 

from the district office inspectors, which may differ from the final 

inspection classifications.26

In addition, pharmacies are generally not required to report to FDA 

adverse events regarding compounded drugs they have produced, unlike 

drug manufacturers who are required to report to FDA if they become 

aware of adverse events associated with their products.

Without reliable, timely data on all inspections 

conducted and the actions required and taken following those 

inspections, FDA lacks ready access to key data to inform its decision 

making on its oversight priorities and to take appropriate action when 

problems are identified.

27 Therefore, 

adverse event data about compounded drugs consists of voluntary 

reports, and FDA officials said that the agency is only aware that an 

adverse event involves a compounded drug if the individual voluntarily 

reporting the adverse event specifies that a compounded drug was 

involved in the event. While FDA’s adverse event data associated with 

compounded drugs is limited, a recent report by the Pew Charitable 

Trusts identified 20 pharmacy compounding errors associated with 1,022 

adverse events, including 75 deaths, since 2001.28

 

26According to FDA officials, the agency does not have ready access to all of the final 

inspection classifications as some of the records are in hard copy and it would be difficult 

and time consuming to review the inspection reports and any associated documentation to 

evaluate and determine why certain final decisions were made or not made. Agency 

officials told us that reasons why a final decision was not entered into its FACTS database 

include, but are not limited to, the difficulty of the agency to come to a final classification 

determination on an inspection due to the complexity of legal issues associated with the 

regulation of compounded drugs and compounding pharmacies or failure to enter the 

data.

According to this 

report, contamination of sterile products was the most common 

compounding error, though some incidents were the result of 

27Generally, if a manufacturer receives drug- or certain device-related adverse event 

reports, it must send them to FDA. Health care professionals and consumers can 

voluntarily file adverse event reports with FDA and may also report these events to the 

products’ manufacturers. User facilities (e.g., hospitals and nursing homes) must report 

certain device-related—but not drug-related—adverse events to FDA as well. 21 C.F.R. 

§§ 314.80(c), 803.30, 803.50.

28The Pew Charitable Trusts is an independent, nonprofit research and public policy 

organization. Pew Charitable Trusts, American Society of Health-System Pharmacists, 

American Hospital Association, Pharmacy Sterile Compounding Summit: Summary of a 

Stakeholder Meeting (Washington D.C.: Apr. 15, 2013).
 

Page 17 GAO-13-702 Drug Compounding

pharmacists’ and technicians’ miscalculations and mistakes in filling 

prescriptions.

Until 2013, FDA limited its inspections of compounding pharmacies to 

those conducted in response to complaints or adverse events, called “for 

cause” inspections;29 however, the agency has recently conducted 

inspections of compounding pharmacies that FDA identified as known to 

produce “high-risk” sterile compounded drugs. From its available data, 

FDA identified 194 “for cause” inspections of compounding pharmacies 

the agency conducted from February 8, 2002, through May 11, 2012, 

under its pharmacy compounding assignment code for human drugs.30

While FDA policy requires that the final inspection classification (which 

states whether official action, voluntary action, or no action was indicated 

based on the inspection findings) be entered into the agency’s FACTS 

database, FDA officials said they could not readily provide the final 

Of 

these 194 inspections, FDA issued 63 form 483 inspection observation 

reports outlining significant objectionable conditions identified during the 

inspections. FDA subsequently issued at least 31 warning letters to 

pharmacies as a result of these inspections for problems such as 

bacterial and fungal contamination found in sterile clean rooms and in 

finished product samples, improper hygiene and garbing procedures 

(e.g., putting on gowns, gloves, and shoe covers), failure to conduct 

appropriate laboratory testing on drug products, and inadequate 

ventilation. However, FDA has not taken any enforcement actions against 

the 31 entities where the agency found problems significant enough to 

send warning letters, according to FDA officials. Further, we found that 19 

of the 194 compounding pharmacies were registered with FDA as drug 

manufacturers.

 

29FDA’s inspection plan for fiscal year 2011 called for five full-time equivalent staff to 

inspect compounding pharmacies, and its plan for fiscal year 2012 called for two full-time 

equivalent investigator staff for these inspections.

30FDA officials noted that this is likely an incomplete list of inspections of compounding 

pharmacies. That is, they said that the agency could have conducted additional 

inspections of compounding pharmacies; but they could only identify 194 of them because 

of limitations in FDA’s inspections database. According to FDA officials, additional 

inspections may have been coded as investigations rather than inspections (although they 

involved inspectional activity as part of the investigation) and some inspections of 

compounding pharmacies could have been coded as inspections of human drug 

manufacturers.

Oversight of Drug 

Compounders Has Been 

Limited, but FDA Has 

Recently Increased Its 

Efforts 
 

Page 18 GAO-13-702 Drug Compounding

inspection classification for the 194 inspections of compounding 

pharmacies. The officials said that in some cases the database included 

FDA district officials’ recommendations for inspection classification rather 

than the final inspection classification. As a result, we could not ascertain 

how many of the 194 inspections of compounding pharmacies found 

problems that were significant enough for FDA to determine that official 

action was indicated.

More recently, FDA began inspecting compounding pharmacies in 

February 2013 that, according to the agency, were known to produce 

“high-risk” sterile compounded drugs.31 These inspections were not the 

for-cause inspections that FDA has typically done in the past when 

inspecting compounding pharmacies. Rather, FDA’s objective was to 

determine whether certain pharmacies that were known to have produced 

high-risk sterile drug products in the past posed a significant threat to 

public health from poor production practices. According to FDA officials, 

the agency identified 31 compounding pharmacies to inspect using 

criteria that included whether a warning letter had been issued to the 

pharmacy in the past 10 years, whether the pharmacy compounded 

sterile injectable drugs, whether there were adverse drug events reported, 

or whether there were complaints received from the FDA district office or 

others. FDA officials said they also reviewed related congressional 

committee reports that mentioned specific pharmacies and reviewed 

pharmacy websites. In summarizing these efforts, FDA reported that 

pharmacies meeting at least two of FDA’s criteria were included in the 

inspections.32

As of April 29, 2013, FDA had issued form 483 inspection observation 

reports to 30 of the 31 compounding pharmacies it inspected as part of its 

 

31For FDA’s summary describing these inspections, see Food and Drug Administration, 

Summary: 2013 FDA Pharmacy Inspection Assignment, accessed April 30, 2013,

http://www.fda.gov/Drugs/GuidanceComplianceRegulatoryInformation/PharmacyCompoun

ding/ucm347722.htm. FDA officials told us that to conduct these inspections of 

compounding pharmacies the agency had to take inspectors off other assignments.

32According to FDA officials, the agency used a risk-based model to identify the 

pharmacies and 15 of the 31 pharmacies had at least one reported death and, thus, were 

included in FDA’s inspections regardless of whether they met any of the other criteria.
 

Page 19 GAO-13-702 Drug Compounding

recent inspections.33

As of May 21, 2013, 7 of the 31 compounding pharmacies had voluntarily 

recalled some or all of their sterile compounded products as a result of 

observations from these recent FDA inspections.

FDA’s observations included inappropriate or 

inadequate, or both, clothing for sterile processing, lack of appropriate air 

filtration systems, insufficient microbiological testing, and other practices 

that create risk of contamination.

34

• FDA sampled a compounded sterile injectable solution during one of 

its inspections in March 2013 and found bacteria in the product, which 

resulted in the compounding pharmacy immediately announcing a 

nationwide recall of all of its sterile compounded products, which 

included over 50 sterile drug products.

For example:

• Another compounding pharmacy recalled its sterile drug products that 

had not yet reached the expiration date listed on the product because 

of a lack of sterility assurance. This recall included approximately 

95 dosage units of various sterile compounded drugs that the 

pharmacy supplied to the offices of licensed medical professionals 

located within its state; however, some patients that received products 

from those medical professionals may live in other states.

Further, according to our analysis, 10 of the 31 high-risk compounding 

pharmacies that FDA inspected were also registered in FDA’s drug 

manufacturer database. Even though these compounding pharmacies 

were registered with FDA, agency officials said the agency does not 

routinely inspect these pharmacies despite their registration because 

registration alone does not trigger a routine inspection. Additionally, 8 of 

the 10 were individual facilities of two different larger compounding 

 

33According to FDA officials, 1 of the 31 pharmacies the agency inspected did not receive 

an FDA form 483, and this pharmacy was not compounding sterile drugs. Four of the 31 

pharmacies were individual facilities of one pharmacy firm, and 4 others were individual 

facilities of another firm; however, FDA counted each facility as a separate compounding 

pharmacy.

34In addition, as of May 30, 2013, four other compounding pharmacies that were not part 

of the 31 pharmacies inspected by FDA initiated voluntary recalls of their sterile 

compounded products because of concerns of a lack of sterility assurance. FDA identified 

bacterial and fungal growth in samples of a sterile compounded drug in a subsequent 

inspection of one of these compounding pharmacies.
 

Page 20 GAO-13-702 Drug Compounding

pharmacies, both of which had websites advertising they were FDAregistered.

The four states we reviewed—California, Connecticut, Florida, and 

Iowa—have each recently taken actions, such as working with national 

pharmacy organizations, to improve their oversight of drug compounding. 

In addition, national pharmacy organizations have undertaken efforts to 

help states oversee drug compounding. However, some states may lack 

the resources to provide the necessary oversight of drug compounding.

All four of the states we reviewed recently took steps to potentially 

strengthen their oversight of drug compounding. These steps included 

developing an inspection program for sterile drug compounders that 

dispense drugs in the state, but are located outside of the state, and 

drafting new legislation to require the board of pharmacy to conduct onsite inspections prior to licensing a pharmacy. Examples of actions taken 

by each of the four states we reviewed follow:

California: On May 29, 2013, the California Senate passed legislation that 

would prohibit any pharmacy from compounding or dispensing, and any 

nonresident pharmacy from compounding for shipping into the state, 

sterile compounded drug products unless the pharmacy has obtained a 

sterile compounding pharmacy license from the California Board of 

Pharmacy; require inspection of resident and nonresident pharmacies by 

the board prior to licensure; require resident and nonresident pharmacies 

to report adverse events for compounded drugs to both the California 

State Board of Pharmacy and MedWatch, FDA’s adverse event reporting 

system; and require resident and nonresident pharmacies to submit a list 

of all sterile medications compounded by the pharmacy during the prior 

12 months before obtaining an annual renewal of the sterile compounding 

license, among other requirements. Currently, California law requires that 

a pharmacy that compounds sterile injectable drug products in California, 

or that ships sterile injectable products into California, obtain a special 

license issued by the board; however, the law exempts from this licensure 

requirement certain pharmacies that have current accreditation from a 

States and National 

Organizations Have 

Taken Various Actions 

to Strengthen 

Oversight of Drug 

Compounding 

The Four States Reviewed 

Have Taken Actions, 

Including Increased 

Inspections, to Strengthen 

Oversight of Drug 

Compounding 
 

Page 21 GAO-13-702 Drug Compounding

private accreditation agency approved by the board.35

Connecticut: An official from Connecticut’s Drug Control Division—which 

conducts inspections of pharmacies in the state and houses the 

Commission of Pharmacy Board Administrator, which oversees pharmacy 

licensing—told us that, as of April 2013, the state was working to tighten 

its regulations and implement inspection practices regarding in-state 

sterile drug compounders. For example, the state plans to begin 

conducting more thorough pharmacy inspections in which the inspectors 

consider additional attributes, such as compliance with USP standards on 

sterile compounding, the physical environment where the facility is 

located, and the number of sales representatives employed by the 

pharmacy. In addition, the Drug Control Division is working to propose 

new regulations to allow the state to better track and regulate the sale of 

compounded sterile medications produced by resident and nonresident 

California 

pharmacies that obtain licensure by the board are subject to prelicensure 

inspections, as well as annual inspections prior to renewal of the license. 

Nonresident pharmacies must provide a copy of a recent inspection 

report issued by the pharmacy’s licensing agency, or a recent report from 

a private accrediting agency approved by the board, documenting the 

pharmacy’s compliance with board regulations regarding the 

compounding of injectable sterile drug products. In describing the board’s 

support of the proposed legislation, a California State Board of Pharmacy 

official told us that the board believed it important that all California and 

nonresident pharmacies compounding sterile injectable drugs be subject 

to state inspections, including those with an accreditation. As of June 14, 

2013, the legislation was pending before a California State Assembly 

committee.

 

35Resident pharmacies operated by entities that are licensed by either the board or the 

California Department of Health and nonresident pharmacies operated by entities that are 

licensed as a hospital, home health agency, or a skilled nursing facility are eligible for 

such exemption. Cal. Bus. & Prof. Code §§ 4127.1, 4127.2. In contrast to current law, 

which imposes special licensure requirements only on pharmacies compounding 

injectable sterile drugs, the proposed legislation would require pharmacies compounding 

all types of sterile drugs to meet such requirements.
 

Page 22 GAO-13-702 Drug Compounding

sterile drug compounders. However, the details of these proposed 

regulations were not available as of June 2013.36

Florida: On November 20, 2012, the Florida Board of Pharmacy issued an 

emergency rule requiring all resident pharmacies and nonresident 

pharmacies that ship drugs to Florida to immediately notify the board of 

their compounding activities.37 More than half (55 percent) of the 8,193 

responding pharmacies reported that they compound nonsterile products, 

such as ointments or tablets; and 12 percent reported that they 

compound sterile products, such as injectable and ophthalmic solutions. 

Florida found that about one-third (32 percent) of the 946 pharmacies that 

perform sterile compounding were nonresident pharmacies.38

 

36In Connecticut, pharmacy licensure and pharmacy inspections are handled separately. 

The state’s Commission of Pharmacy, which is administered by the Department of 

Consumer Protection, is responsible for approval of new licenses. The commission also 

adjudicates cases involving pharmacists, pharmacies, and pharmacy technicians brought 

before it. The Department of Consumer Protection’s Licensing Division handles the 

clerical aspects of licensing pharmacists and pharmacies while the state’s Department of 

Consumer Protection, Drug Control Division, conducts pharmacy inspections and 

implements enforcement actions. Connecticut has 10 drug control agents who conduct 

pharmacy inspections, all of whom are licensed pharmacists.

One goal of 

Florida’s emergency rule was to determine the scope of sterile and 

nonsterile compounding within Florida’s resident and nonresident 

licensed pharmacies. According to Florida Board of Pharmacy officials, 

prior to the emergency rule, the board did not know how many 

pharmacies compounded drugs, how many nonresident pharmacies 

shipped compounded drugs into the state, or whether they compounded 

nonsterile or sterile drugs. According to these officials, the board intends 

to use this newly acquired information to improve the board’s oversight 

activities, such as to identify and inspect compounding pharmacies. As of 

May 2013, the Florida Board of Pharmacy was considering whether to 

37Specifically, Florida’s emergency rule required resident pharmacies with state pharmacy 

permits and nonresident pharmacies registered with the state to immediately notify the 

board of their sterile and nonsterile compounding activities, the types of drugs they 

compound, and whether they compound drugs in bulk. In addition, the emergency rule 

required Florida’s board of pharmacy to use the information on compounding activities to 

place a high priority on inspecting high-risk pharmacies such as those that compound 

sterile drugs. The emergency rule also required all nonresident registered pharmacies to 

provide a copy of their last two inspection reports as provided by the state in which the 

pharmacies are physically located and licensed.

38Florida Department of Health, Division of Medical Quality Assurance, Florida Board of 

Pharmacy Compounding Survey Report (Tallahassee, FL: Jan. 23, 2013).
 

Page 23 GAO-13-702 Drug Compounding

require pharmacies to complete an updated survey biennially in order to 

renew their pharmacy licenses.

Iowa: Iowa is inspecting drug compounders that are licensed by the state 

as nonresident pharmacies and dispensing compounded drugs in Iowa. 

Iowa established a consultancy services agreement with NABP in 

December 2012, and inspectors from NABP began inspecting the 581 

nonresident pharmacies identified by the state at that time. The results of 

these inspections are expected to reveal whether the selected 

pharmacies are compounding drugs in compliance with state regulations. 

According to Iowa Board of Pharmacy officials, the state does not have 

information on the extent that Iowa’s licensed nonresident pharmacies 

compound drugs, how many nonresident pharmacies ship compounded 

drugs into the state, or whether they compound nonsterile or sterile drugs. 

However, NABP’s inspections have begun to provide some of this 

information. As of April 2013, Iowa’s Board of Pharmacy had taken six 

formal disciplinary actions against five out-of-state compounding 

pharmacies following NABP inspections and, according to an Iowa Board 

of Pharmacy official, the board anticipates more disciplinary actions 

during the remainder of 2013 and early 2014. By the end of 2013 or early 

in 2014, an Iowa Board of Pharmacy official anticipates that NABP 

inspectors would visit all nonresident pharmacies licensed by the state.

At the national level, pharmacy organizations have undertaken a number 

of efforts to help states oversee drug compounding. For example, national 

pharmacy organizations have developed standards for compounded 

drugs that could be adopted by states. The following are examples of 

efforts undertaken by national pharmacy organizations.

The National Association of Boards of Pharmacy (NABP): NABP has 

initiated the Compounding Action Plan to identify and inspect 

compounding pharmacies. It includes continued collaboration on the Iowa 

nonresident inspection program, discussed above, and the sharing of 

inspection results and related actions. Through this plan, NABP intends to 

collect data on the number of compounding pharmacies, including their 

scope of operations, in all states, and inspect these pharmacies. NABP 

officials said they believe that many of the 581 nonresident pharmacies 

licensed and identified by the Iowa Board of Pharmacy also hold licenses 

with many, if not all, of the other states requiring nonresident licensure. 

Using the Iowa nonresident licensed pharmacy list as a starting point, 

NABP sent Iowa’s list to each state to confirm information regarding these 

pharmacies, such as whether the pharmacy has been disciplined, 

States May Leverage 

National Organizations’ 

Efforts to Enhance 

Oversight of Drug 

Compounding 
 

Page 24 GAO-13-702 Drug Compounding

whether it is engaged in sterile compounding, or whether it is engaged in 

“nontraditional” compounding activities. In addition, NABP asked all states 

to identify any known or suspected compounding pharmacies in their 

state that are not on the Iowa nonresident pharmacy list. As a result, 

NABP officials told us that NABP added some additional pharmacies to 

Iowa’s original inspection list. As of June 2013, NABP had inspected 215 

pharmacies.39 In addition to its Compounding Action Plan, NABP created 

and continues to maintain a Model State Pharmacy Act and Model Rules 

for states to use when developing new pharmacy laws and regulations, 

including rules specific to sterile compounding. According to NABP 

officials, each state has adopted aspects of NABP’s model act and model 

rules.40

The Pharmacy Compounding Accreditation Board (PCAB): In 2006, eight 

national pharmacy organizations established the PCAB, a voluntary 

accrediting organization for sterile and nonsterile drug compounders.41

 

39NABP will also assist the New Jersey Division of Consumer Affairs with inspections of 

New Jersey pharmacies engaged in the practice of compounding under a recently 

reached agreement with the New Jersey Division of Consumer Affairs and the state’s 

Attorney General. New Jersey licenses approximately 40 retail pharmacies that perform 

sterile compounding and 109 hospital pharmacies that may compound sterile products. 

NABP inspectors will assist the division in performing field inspections at compounding 

pharmacies, detailed audits of their records, and in-depth analysis of inspection findings. 

In addition, NABP inspectors will assist with investigations into complaints about 

compounding pharmacies, and in bringing charges against any found to be noncompliant.

According to an organization official, PCAB’s national standards are 

based on the consensus of industry experts of those elements that should 

exist in a pharmacy that adheres to high quality standards. PCAB 

accreditation indicates that the staff involved in compounding have proper 

and ongoing training; that the pharmacy uses active pharmaceutical 

40NABP’s Model State Pharmacy Act and Model Rules (Model Act) provide state boards 

of pharmacy with model language that may be used when developing state laws or board 

rules. The Model Act includes sections on the boards of pharmacy, licensing (pharmacists, 

technicians, and facilities), and discipline. NABP last updated the Model State Pharmacy 

Act and Model Rules in August 2012.

41The following national pharmacy organizations established PCAB and, with the 

exception of the National Association of Boards of Pharmacy, currently make up PCAB’s 

Board of Directors: American College of Apothecaries, National Community Pharmacists 

Association, American Pharmacists Association, National Alliance of State Pharmacy 

Associations, International Academy of Compounding Pharmacists, National Home 

Infusion Association, National Association of Boards of Pharmacy, and the United States 

Pharmacopeial Convention.
 

Page 25 GAO-13-702 Drug Compounding

ingredients and inactive materials from appropriate suppliers; that all 

compounding procedures are fully documented and carried out in 

conformance with established formulas; and USP standards for 

compounding. According to a PCAB official, as of June 26, 2013, 

176 drug compounding pharmacies received PCAB accreditation, and 

124 additional drug compounding pharmacies have applied for PCAB 

accreditation.42

Some states may lack the fiscal or staff resources to provide the 

necessary oversight of drug compounding. A number of officials from 

state boards of pharmacy attending a December 2012 meeting conducted 

by FDA expressed confidence that their states had adequate resources to

oversee drug compounders, but were concerned about resources in other 

states. They explained that, until recently, they depended on the states 

where the pharmacies were located to license and regulate those 

pharmacies. However, many state budgets have been cut and it is 

uncertain whether all states have the resources or qualified staff to 

inspect and otherwise appropriately oversee their licensed pharmacies. 

The effect of limited state resources may reach across state lines, and it 

may not be correct to assume that a pharmacy licensed by another state 

is being regulated adequately.

In addition, differences in pharmacy inspection practices among states 

may affect oversight of drug compounding in other states. For example, 

each of the four states we reviewed require licensure or registration of 

nonresident pharmacies that provide pharmacy services to users in the 

state, and they require nonresident pharmacies applying for a license or 

registration to have a current license, permit, or registration issued by the 

regulatory authority of their home state. The states in our review also 

have generally relied on the home states of the nonresident pharmacies 

to inspect these pharmacies on a regular basis. However, state officials 

and officials from national pharmacy organizations we interviewed told us 

that the frequency of pharmacy inspections and the qualifications of the 

pharmacy inspectors vary widely among states, and it is uncertain 

whether all nonresident pharmacies receive adequate oversight from their 

home states. Of the four states in our review, one required annual 

 

42According to a PCAB official, as of June 24, 2013, 176 PCAB-accredited pharmacies 

were located in 41 states and no state or other entity required PCAB accreditation for a 

pharmacy to compound drugs.

Resource Constraints and 

Other Factors May Affect 

States’ Ability to Oversee 

Drug Compounding
 

Page 26 GAO-13-702 Drug Compounding

inspections of all pharmacies located in the state and one required annual 

inspections of all sterile drug compounding pharmacies located in the 

state, while another required routine inspections of retail pharmacies in 

the state once every 4 years. In addition, three of the four states required 

all pharmacy inspectors to have a license to practice pharmacy in that 

state, while one state reported having some inspectors without 

pharmacist licenses.

Officials representing several national pharmacy organizations that we 

interviewed also expressed concerns regarding whether states have 

enough resources to regulate and inspect pharmacies on a timely basis. 

Instead, some states inspect pharmacies only in response to a problem 

they become aware of through a complaint or adverse drug event. Some 

of these officials also expressed concern regarding FDA’s resources to 

oversee drug compounding. For example, officials from NABP told us that 

both FDA and the state boards of pharmacy need more resources for the 

oversight of drug compounding. Recognizing the need for additional 

resources to oversee drug compounders, the bill that the California 

legislature is considering—a bill that would require nonresident 

pharmacies shipping sterile compounded drugs into the state to have an 

on-site inspection by the California Board of Pharmacy prior to 

licensure—would also require those pharmacies to pay for inspectionrelated travel expenses.

To ensure that compounding pharmacies receive adequate oversight, it is 

essential to have clear roles for FDA and states regarding the regulation 

and oversight of drug compounding. The inconsistent federal circuit court 

decisions complicate FDA’s ability to oversee drug compounding by 

requiring FDA to approach the regulation of drug compounding differently 

in different parts of the country. In addition, state approaches to the 

oversight of pharmacies, including compounding pharmacies, vary 

depending upon each state’s regulations and the resources each state 

devotes to licensing and inspecting its pharmacies. Taken together, the 

different regulatory approaches FDA must take and the variation in how 

states oversee drug compounding, create gaps in oversight, which could 

lead to inadequate assurance that public health is protected.

To adequately carry out the oversight of compounded drugs, FDA must 

have data systems in place to produce timely, reliable information on 

inspections, the findings of those inspections, and enforcement actions 

taken related to compounded drugs. Without reliable, timely data, the 

agency will not have the information needed to intercede and protect 

Conclusions 
 

Page 27 GAO-13-702 Drug Compounding

Americans from unnecessary harm when problems are identified. Recent 

FDA inspections of 31 entities that produce compounded drugs and the 

subsequent drug recalls highlight the potential risk to public health of 

failing to oversee these types of entities.

At the same time that FDA lacks complete information on inspections and 

enforcement actions taken related to compounded drugs, entities that 

compound drugs may register as manufacturers in the agency’s 

registration database, and some advertise themselves as FDA-registered. 

As a result, states and purchasers may incorrectly assume that FDA has 

approved the products and inspected the facilities for compliance with 

good manufacturing practices.

To help ensure appropriate oversight of the safety of products from the 

entities that prepare and distribute compounded drugs that have a high 

potential to adversely affect public health, Congress should consider 

clarifying FDA’s authority to regulate entities that compound drugs.

We recommend that the Secretary of Health and Human Services direct 

the Commissioner of the FDA to

• take steps to consistently collect reliable and timely information in 

FDA’s existing databases on inspections and enforcement actions 

associated with compounded drugs, and

• clearly differentiate in FDA’s database, those manufacturers of FDAapproved drugs that FDA inspects for compliance with good 

manufacturing practices from those entities compounding drugs that 

are not FDA-approved and that FDA does not routinely inspect.

We provided a draft of this report to HHS, which oversees FDA, for 

comment. HHS provided written comments, which are reprinted in 

appendix III, and technical comments, which we incorporated as 

appropriate. HHS stated that our report accurately details the limitations 

associated with FDA’s current authority to oversee drug compounding. 

HHS’s comments also support the Matter for Congressional 

Consideration that Congress should consider clarifying FDA’s authority to 

oversee entities that compound drugs.

Matter for 

Congressional 

Consideration 

Recommendations for 

Executive Action

Agency Comments 

and Our Evaluation
 

Page 28 GAO-13-702 Drug Compounding

HHS neither agreed nor disagreed with our recommendations. Regarding 

our first recommendation to direct FDA to consistently collect reliable and 

timely information in FDA’s existing databases on inspections and 

enforcement actions associated with compounded drugs, HHS stated that 

although FDA’s FACTS database can be improved to better aggregate 

data and to facilitate evaluation of compounding pharmacy activities, 

these deficiencies do not materially impact FDA’s ability to protect the 

public from harm when problems are identified. We understand that FDA 

has the ability to access the data associated with compounded drugs by 

searching under a company name or requesting information across FDA 

centers and offices; however, as our report notes, FDA lacks ready 

access to all of the data and lacks the ability to run queries or aggregate 

the data. For example, when we requested the final inspection 

classifications for 194 inspections of compounding pharmacies, FDA 

could not provide this information because, according to FDA officials, the 

FACTS database does not contain all of the final decisions and obtaining 

all of the final inspection classifications would require time-consuming 

manual searches of information maintained in hard copy. As a result, we 

could not ascertain how many of these inspections found problems that 

were significant enough for FDA to determine that official action was 

indicated. Therefore, we continue to believe that FDA should take steps 

to consistently collect reliable and timely information in its databases on 

inspections and enforcement actions associated with compounded drugs. 

Doing so would provide the agency with ready access to key data to 

inform its decision making on its oversight priorities and allow it to take 

appropriate action when problems are identified. In its comments, HHS 

stated that FDA will take steps to further improve its databases to ensure 

that inspections and actions regarding compounding going forward are 

coded consistently and are more readily identifiable through electronic 

searches, and that the final classification for inspections of drug 

compounders are entered into the FACTS database. These steps are 

consistent with our recommendation.

Regarding our second recommendation, HHS stated that FDA will 

consider whether it would be possible or appropriate to differentiate in its 

database those compounding pharmacies that register voluntarily from 

conventional manufacturers of FDA-approved drugs that are required to 

register. These conventional manufacturers are already subject to routine 

inspections by FDA and are required to list the FDA-approved products 

they manufacture. Therefore, these entities should already be known to 

FDA. HHS also commented that FDA will provide information to the public 

about what it means—and does not mean—to voluntarily register with 

FDA. HHS further stated that FDA has recommended that Congress 
 

Page 29 GAO-13-702 Drug Compounding

require pharmacies engaged in nontraditional compounding in the United 

States to register with FDA and list the drugs they are compounding, all of 

which is consistent with our recommendation.

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies of this report to the 

Secretary of Health and Human Services, appropriate congressional 

committees, and other interested parties. In addition, the report will be 

available at no charge on the GAO Web site at http://www.gao.gov. 

If you or your staffs have any questions about this report, please contact 

me at (202) 512-7114 or crossem@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs are on the last page 

of this report. GAO staff who made major contributions to this report are 

listed in appendix IV. 

Marcia Crosse

Director, Health Care
Appendix I: Information on Selection Criteria 

for Four States

Page 30 GAO-13-702 Drug Compounding

To identify actions planned or taken by states, we interviewed 

representatives of the state pharmacy regulatory bodies from four states: 

California, Connecticut, Florida, and Iowa. We chose these states to 

provide insight into how a range of states approach the oversight of drug 

compounding; however, the approaches and experiences of these states 

are not generalizable to all 50 states.

We selected these states to reflect a range of characteristics, including 

census region, population, number of licensed pharmacies, and variation 

in compounding regulations. Table 1 lists select data for each selected 

state. 

Appendix I: Information on Selection Criteria 

for Four States
Appendix I: Information on Selection Criteria 

for Four States

Page 31 GAO-13-702 Drug Compounding

Table 1: Characteristics Considered in Selecting Four States for Inclusion in Review of State Oversight of Compounding 

Pharmacies

State 

Census 

region

2010 

population 

(in millions) a

Number of 

compliance 

officers/ inspectors b

Number of

state licensed 

pharmacies

Number of 

pharmacy 

license 

categoriesc

Anticipatory 

compounding 

requirements

California

d

West, Pacific 37.3 37 7,352

(of which 482 are 

nonresident)

e 6 

e

May compound in advance 

of receipt of a patientspecific prescription based 

on a documented history of 

prescriptions for the 

individual patients in that 

patient population, but only 

in amounts necessary to 

ensure continuity of care for 

that patient population.

Connecticut Northeast, 

New England

3.6 10

(8 inspectors and 

2 supervisors)

1,301

(of which 624 are 

nonresident) e e

6 May compound in 

anticipation of prescriptions 

based on routine, regularlyobserved prescribing 

patterns.

Florida South, South 

Atlantic

18.8 20f 8,050

(of which 754 are 

nonresident)

16

f

May compound in 

anticipation of prescriptions 

based on routine regularlyobserved prescribing 

patterns.

Iowa Midwest, 

West, North 

Central

3.0 7 1,510

(of which 567 are 

nonresident)

f 4 

f,g

May compound drugs prior 

to receiving a valid 

prescription based on a 

history of receiving valid 

prescriptions generated 

solely within an established 

pharmacist/patient/

prescriber relationship.

Source: GAO analysis of U.S. Census Bureau, the National Association of Boards of Pharmacy, and state pharmacy law data.

a

U.S. Census Bureau, Census Regions.

b

U.S. Census Bureau, 2010 state demographic profiles.

c

The National Association of Boards of Pharmacy 2013 Survey of Pharmacy Law.

d

Analysis of state pharmacy laws and regulations.

e

As of April 2013.

f

As of May 2013.

g

The number of licensed nonresident pharmacies varies over time as new pharmacies are licensed by 

the state and as licensed pharmacies go out of business or otherwise discontinue their licenses.
Appendix II: History of the Food and Drug 

Administration’s (FDA) Authority over Drug 

Compounding and Approach to Oversight

Page 32 GAO-13-702 Drug Compounding

Amendments to the Federal Food, Drug, and Cosmetic Act (FDCA) 

enacted in 1997, and a series of federal court decisions regarding the 

validity of those amendments, have resulted in several significant shifts in 

FDA’s authority and approach to the regulation of drug compounding over 

the last two decades. Differences in these court decisions have resulted 

in inconsistent FDA authority to oversee drug compounding, which, 

according to the agency, has prompted it to apply three different 

regulatory approaches to compounded drugs depending upon the federal 

court jurisdiction in which the drugs are compounded. This appendix 

describes these legal developments.

In 1992, FDA issued a compliance policy guide that articulated the 

agency’s approach to applying the FDCA’s new drug, adulteration, and 

misbranding provisions to compounded drugs.1 FDA noted its 

longstanding policy of deferring to state regulation of pharmacies 

engaged in traditional compounding activities, but that it was issuing the 

compliance policy guide to identify those circumstances under which the 

agency believed establishments with retail pharmacy licenses were 

engaged in “manufacturing, distributing, and promoting unapproved new 

drugs” in a manner outside the traditional pharmacy practice of 

compounding.2 According to the 1992 compliance policy guide, the 

agency might exercise its enforcement discretion to take action against 

such establishments for violations of the FDCA’s new drug approval, 

adulteration, and misbranding provisions.

 

1

FDA, Compliance Policy Guides, § 460.200 Manufacture, Distribution, and Promotion of 

Adulterated, Misbranded, or Unapproved New Drugs for Human Use by State-Licensed 

Pharmacies (Mar. 16, 1992).

2

The compliance policy guide describes such traditional compounding to include 

compounding of “reasonable quantities of drugs upon receipt of a valid prescription for an 

individually identified patient from a licensed practitioner.” 

Appendix II: History of the Food and Drug 

Administration’s (FDA) Authority over Drug 

Compounding and Approach to Oversight

1992-1997: 

Administrative 

Framework 

Established for Drug 

Compounding 

Oversight 
Appendix II: History of the Food and Drug 

Administration’s (FDA) Authority over Drug 

Compounding and Approach to Oversight

Page 33 GAO-13-702 Drug Compounding

In 1997, Congress passed and the President signed into law the Food 

and Drug Administration Modernization Act of 1997 (FDAMA) that, among 

other things, amended the FDCA to expressly permit drug compounding 

under certain conditions and to exempt compounded drugs meeting these 

conditions from certain provisions of the FDCA. In particular, under 

section 503A of the FDCA, as enacted by FDAMA, compounded drugs 

meeting these conditions were expressly exempt from the requirement 

that a drug be manufactured in conformity with current good 

manufacturing practice; that a drug’s labeling carry adequate directions 

for use; and that the drug is the subject of an approved new drug 

application. To qualify for these exemptions, the pharmacist, physician, or 

pharmacy compounding the drug had to meet certain criteria, including 

refraining from advertising, promoting, or soliciting prescriptions for the 

compounding of any drug.

Shortly after FDAMA’s enactment, a group of seven pharmacies 

challenged section 503A’s advertising, promotion, and solicitation 

restrictions in federal district court, alleging that these restrictions violated 

the Free Speech Clause of the First Amendment. Agreeing with the 

plaintiffs, the U.S. District Court for the District of Nevada invalidated 

section 503A’s advertising, promotion, and solicitation restrictions, 

severing these restrictions from the remainder of section 503A.3 In 2001, 

the U.S. Court of Appeals for the Ninth Circuit affirmed the district court’s 

First Amendment holding; however, the Ninth Circuit took the view that 

Congress would not have enacted section 503A without the advertising, 

promotion, and solicitation provisions and, therefore, the law’s 

advertising, promotion, and solicitation provisions were not severable. As 

a result, it held that section 503A, in its entirety, was invalid.4 In April 

2002, the United States Supreme Court in Thompson v. Western States 

Medical Center affirmed the Ninth Circuit’s ruling invalidating section 

503A’s advertising, promotion, and solicitation provisions.5

 

3

W. States Med. Ctr. v. Shalala, 69 F. Supp. 2d 1288 (D. Nev. Sept. 16, 1999).

Because 

neither the government nor the pharmacies appealed the Ninth Circuit’s 

4

W. States Med. Ctr. v. Shalala, 238 F.3d 1090 (9th Cir. Feb. 6, 2001).

5

Thompson v. W. States Med. Ctr., 535 U.S. 357 (2002).

1997-2001: Statutory 

Framework 

Established for Drug 

Compounding 

Oversight 

1999-2002: Judicial 

Developments in the 

Ninth Circuit
Appendix II: History of the Food and Drug 

Administration’s (FDA) Authority over Drug 

Compounding and Approach to Oversight

Page 34 GAO-13-702 Drug Compounding

severability ruling, the Supreme Court declined to address the validity of 

the remaining nonadvertising portions of section 503A.6

One month after the Supreme Court’s ruling in Western States, FDA 

revised its longstanding 1992 Compliance Policy Guide on pharmacy 

compounding to provide “immediate guidance on what types of 

compounding might be subject to enforcement action under current law.”7

In that guidance, FDA took the position based on the Ninth Circuit’s and 

Supreme Court’s Western States Medical Center decisions, that “all of 

section 503A is now invalid.” Accordingly, the agency determined it was 

necessary to issue guidance outlining the factors the agency would 

consider in taking enforcement action against a compounding pharmacy 

for violations of the FDCA. In particular, the agency stated that it would 

continue to defer to state pharmacy authorities for “less significant” 

violations of the FDCA but that when a pharmacy’s activities resemble 

those of a drug manufacturer it would consider enforcement action. The 

compliance policy guide provides a nonexhaustive list of such activities. 

The compliance policy guide reflected FDA’s view that, even if a 

compounding pharmacy has not engaged in these activities, the drugs it 

compounded would be subject to all of the FDCA’s requirements that 

apply to manufactured drugs; in the compliance policy guide FDA simply 

outlined those circumstances under which the agency would actually 

enforce these requirements against a compounding pharmacy.

Four years later, in 2006, a group of 10 pharmacies challenged FDA’s 

authority to regulate compounded drugs. In that case, FDA asserted that 

compounded drugs fall within the FDCA’s definition of “new drug” and, 

therefore, are subject to those provisions of the act that apply to such 

drugs.8

 

6

Id. at 360.

The U.S. District Court for the Western District of Texas disagreed 

with the agency, holding that compounded drugs when created for an 

7

FDA, Compliance Policy Guide § 460.200 Pharmacy Compounding (May 29, 2002).

8

Section 201(p) of the FDCA defines “new drug” as “Any drug ... the composition of which 

is such that such drug is not generally recognized, among experts qualified by scientific 

training and experience to evaluate the safety and effectiveness of drugs, as safe and 

effective for use under the conditions prescribed, recommended, or suggested in the 

labeling thereof.” 21 U.S.C. § 321(p).

2002: Revised 

Administrative 

Framework for Drug 

Compounding 

Oversight 

2006-2008: Judicial 

Developments in the 

Fifth Circuit
Appendix II: History of the Food and Drug 

Administration’s (FDA) Authority over Drug 

Compounding and Approach to Oversight

Page 35 GAO-13-702 Drug Compounding

individual patient pursuant to a prescription from a licensed practitioner 

“are implicitly exempt” from the FDCA’s new drug definition and the new 

drug approval process.9 On appeal, the U.S. Court of Appeals for the Fifth 

Circuit reversed the district court’s determination and held that 

compounded drugs are “new drugs” under the FDCA.10 The court 

reasoned that Congress would not have enacted FDAMA’s provisions 

exempting compounded drugs from certain of the FDCA’s “new drug” 

requirements had these provisions not applied to compounded drugs in 

the first instance.11 To reach this conclusion, the Fifth Circuit considered 

the severability of section 503A’s nonadvertising provisions.12

Disagreeing with the Ninth Circuit’s Western States reasoning that 

Congress would not have enacted section 503A without the advertising 

provisions, the Fifth Circuit found that the FDCA contained a severability 

provision and that this provision applied to section 503A. Finding no 

strong evidence that Congress would not have enacted section 503A 

without the advertising provisions, the court ruled that the law’s 

nonadvertising provisions were severable from its unconstitutional 

provisions.13 The result of the Fifth Circuit’s decision is that—at least in 

the Fifth Circuit—compounded drugs are, in fact, “new drugs” under the 

FDCA; however, these drugs are expressly exempt from certain 

requirements that apply to “new drugs”—namely, compliance with current 

good manufacturing practice, certain labeling requirements, and new drug 

approval requirements—if they comply with the nonadvertising conditions 

set forth in section 503A.14

 

9

Med. Ctr. Pharmacy v. Gonzales, 451 F. Supp. 2d 854, 863, 865 (D.W.D. Tex. Aug. 30, 

2006).

10The Fifth Circuit vacated the district court’s judgment and remanded the case to the 

district court for further proceedings. Med. Ctr. Pharmacy v. Mukasey, 536 F.3d 383, 409 

(5th Cir. Jul. 18, 2008).

11Id. at 400 (“In 1997, Congress enacted FDAMA as an amendment to the FDCA. That 

amendment provides considerable evidence that Congress sought to address pharmacy 

compounding directly and that it did so with the assumption that the ‘new drug’ provision 

applies to drugs created through pharmacy compounding.”) 

12Id. at 401 (“[T]o rely on FDAMA in construing the ‘new drug’ definition, we first must 

address FDAMA’s validity.”). 

13Id. at 402, 404-05.

14Id. at 405.
Appendix II: History of the Food and Drug 

Administration’s (FDA) Authority over Drug 

Compounding and Approach to Oversight

Page 36 GAO-13-702 Drug Compounding

The Ninth Circuit Court of Appeals’ 2001 Western States decision 

invalidating all of section 503A and the Fifth Circuit Court of Appeals’ 

2008 Medical Center Pharmacy decision holding that all of section 503A 

other than the advertising, promotion, and solicitation restrictions is valid 

are directly at odds. As a result of these decisions, section 503A is invalid 

in those states in the Ninth Circuit (Alaska, Arizona, California, Hawaii, 

Idaho, Montana, Nevada, Oregon, and Washington) and in full force and 

effect in those states in the Fifth Circuit (Louisiana, Mississippi, and 

Texas). FDA officials described the agency’s approach to regulating 

compounded drugs under this incongruous legal landscape as follows:

• In the Ninth Circuit, the agency takes the approach that all 

compounded drugs are “new drugs” under the FDCA, and the agency 

determines whether to consider taking enforcement action against a 

compounding pharmacy based on whether the pharmacy engages in 

any of the activities outlined in the agency’s 2002 compliance policy 

guide on drug compounding. Even if a compounding pharmacy has 

not engaged in the activities outlined in the compliance policy guide, 

the drugs it compounds are, as a legal matter, subject to all of the 

FDCA requirements that apply to “new drugs”; the compliance policy 

guide simply outlines those circumstances under which the agency 

will consider enforcing these requirements against a compounding 

pharmacy.15

• In the Fifth Circuit, FDA determines whether a compounded drug 

meets section 503A’s exemption from certain FDCA requirements that 

would preclude the agency from taking enforcement action against a 

drug compounder for noncompliance with these requirements.

• For compounding pharmacies outside of the Fifth and Ninth Circuits, 

which is the majority of the country, the agency applies the criteria in 

both section 503A and its 2002 compliance policy guide to determine 

whether to take enforcement action. 

Table 2 identifies the criteria that a compounded drug must meet to 

qualify for the exemption under section 503A of the FDCA from certain of 

the law’s requirements and the criteria in FDA’s 2002 compliance policy 

 

15The Ninth Circuit Court of Appeals decision also applies to FDA’s authority over certain 

compounding pharmacies located in Colorado, New Jersey, Tennessee, Texas, and 

Wisconsin, as these pharmacies were party to the Western States lawsuit.

2008-Present: FDA’s 

Different Oversight 

Approaches 

Following a Circuit 

Split
Appendix II: History of the Food and Drug 

Administration’s (FDA) Authority over Drug 

Compounding and Approach to Oversight

Page 37 GAO-13-702 Drug Compounding

guide, which the agency considers in determining whether to take 

enforcement action against an entity engaged in drug compounding.

Table 2: Comparison of the Food and Drug Administration’s (FDA) Authority and Oversight of Drug Compounding under 

Section 503A of the Federal Food, Drug, and Cosmetic Act (FDCA) and FDA’s 2002 Compliance Policy Guide

Section 503A:

A drug compounded according to each of the criteria is 

exempt from three key requirements under the FDCA.

2002 Compliance Policy Guide:

In determining whether to initiate enforcement action

against a compounding pharmacy, FDA considers whether 

the compounding pharmacy has engaged in any of these 

activities. a

Compounds for an identified individual patient based on the receipt 

of a valid prescription order or a notation, approved by the 

prescribing practitioner, on the prescription order that a compounded 

drug is necessary for the patient. If compounding occurs in 

anticipation of a prescription, it is based on a history of valid 

prescription orders for the compounding of the drug product, which 

orders have been generated solely within an established relationship 

between the pharmacy and the prescriber or patient.

b,c,d

Compounding in anticipation of receiving prescriptions, except 

in very limited quantities in relation to the amounts of drugs 

compounded after receiving valid prescriptions.

Does not compound a drug product that appears on a list published 

by the Secretary of drug products withdrawn or removed from the 

market because such drug product or their components have been 

found to be unsafe or not effective

Compounding drugs withdrawn or removed from the market for 

safety reasons

Compounds using ingredients (other than bulk drug substances) that 

comply with an applicable monograph

Receiving, storing, or using drug components not meeting 

official compendia requirements 

Compounds using bulk drug substances that comply with an 

applicable compendia monograph if one exists; if one does not exist, 

uses bulk drug substances that are components of FDA-approved 

drugs or that appear on a list developed by the agency

Compounding finished drugs from certain bulk active 

ingredients that are not components of FDA approved drugs 

without an investigational new drug application e

Compounds with bulk drug substances that were made in an FDAregistered facility, each of which is accompanied by valid certificates 

of analysis

Receiving, storing, or using drugs substances without obtaining 

assurance they were made in an FDA-registered facility

Compounds in a state that has entered into a memorandum of 

understanding with the Secretary that addresses the distribution of 

inordinate amounts of compounded drug products interstate and 

provides for appropriate investigation by a state agency of 

complaints relating to compounded drug products distributed outside 

of the state; in the alternative, less than 5 percent of the 

compounding individual’s or entity’s total prescription orders are for 

compounded products distributed out of the state

Compounding drugs for third parties who resell to individual 

patients or at wholesale to other persons or entities or using 

commercial scale manufacturing or testing equipment for 

compounding drug products

Does not compound regularly or in inordinate amounts (as defined 

by the Secretary) any drug products that are essentially copies of a 

commercially-available drug product

Compounding drugs that are commercially available or that are 

essentially copies of commercially-available FDA-approved 

drug products, except in certain limited circumstances. f

Does not compound any drug that is identified by the Secretary by 

regulation as a drug that presents demonstrable difficulties for 

compounding that reasonably demonstrate an adverse effect on the 

safety or effectiveness of that drug

No comparable criterion
Appendix II: History of the Food and Drug 

Administration’s (FDA) Authority over Drug 

Compounding and Approach to Oversight

Page 38 GAO-13-702 Drug Compounding

Section 503A:

A drug compounded according to each of the criteria is 

exempt from three key requirements under the FDCA.

2002 Compliance Policy Guide:

In determining whether to initiate enforcement action

against a compounding pharmacy, FDA considers whether 

the compounding pharmacy has engaged in any of these 

activities. a

The compounding is performed by a licensed pharmacist in a state 

licensed pharmacy or by a licensed physician.

b,c,d

Failing to operate in conformance with applicable state 

pharmacy laws

Source: GAO analysis.

Notes: Data are from section 503A of the Federal Food, Drug, and Cosmetic Act and FDA’s 2002 

compliance policy guide on drug compounding.

Section 503A’s advertising, promotion, and solicitation restrictions are not presented here, as the 

United States Supreme Court declared these provisions unconstitutional. Thompson v. W. States 

Med. Ctr., 535 U.S. 357 (2002).

a

FDA applies these criteria to drugs compounded in states other than those in the Ninth Circuit, where 

section 503A is invalid, to determine whether these drugs are exempt from certain FDCA 

requirements.

b

FDA applies these criteria in states outside of the Fifth Circuit to determine whether to initiate 

enforcement action against a compounding pharmacy in such a state.

c

For compounding pharmacies outside of the Fifth and Ninth Circuits, FDA applies the criteria in both 

section 503A and the 2002 compliance policy guide to determine whether to take enforcement action.

d

In addition to the specific factors outlined in the 2002 compliance policy guide, according to FDA, the 

agency also considers whether a licensed practitioner has extemporaneously compounded a drug 

upon receipt of a valid prescription for an individually identified patient in considering whether to take 

enforcement action. 

e

FDA issued a proposed rule on January 7, 1999, containing a list of bulk drug substances that the 

agency proposed to permit for use in drug compounding. 64 Fed. Reg. 996 (Jan. 7, 1999). According 

to FDA, the agency never issued a final rule because of the Ninth Circuit’s and Supreme Court’s 

Western States decisions. Since the Fifth Circuit Court of Appeals’ 2008 Medical Center Pharmacy

decision, the agency has considered whether to maintain such a list.

f

The term “essentially a copy of a commercially-available drug product” does not include a drug 

product in which there is a change, made for an identified individual patient, which produces for that 

patient a significant difference, as determined by the prescribing practitioner, between the 

compounded drug and the comparable commercially available drug product.
Appendix III: Comments from the Department 

of Health and Human Services

Page 39 GAO-13-702 Drug Compounding

Appendix III: Comments from the 

Department of Health and Human Services
Appendix III: Comments from the Department 

of Health and Human Services

Page 40 GAO-13-702 Drug Compounding
Appendix III: Comments from the Department 

of Health and Human Services

Page 41 GAO-13-702 Drug Compounding
Appendix III: Comments from the Department 

of Health and Human Services

Page 42 GAO-13-702 Drug Compounding
Appendix III: Comments from the Department 

of Health and Human Services

Page 43 GAO-13-702 Drug Compounding
Appendix III: Comments from the Department 

of Health and Human Services

Page 44 GAO-13-702 Drug Compounding
Appendix IV: GAO Contact and Staff 

Acknowledgments

Page 45 GAO-13-702 Drug Compounding

Marcia Crosse, (202) 512-7114 or crossem@gao.gov

In addition to the contact named above, Kim Yamane, Assistant Director; 

Matthew Byer; Sandra George; Drew Long; and Lisa A. Lusk made key 

contributions to this report.

Appendix IV: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 

(291105)
The Government Accountability Office, the audit, evaluation, and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and 

policies; and provides analyses, recommendations, and other assistance 

to help Congress make informed oversight, policy, and funding decisions. 

GAO’s commitment to good government is reflected in its core values of 

accountability, integrity, and reliability.

The fastest and easiest way to obtain copies of GAO documents at no 

cost is through GAO’s website (http://www.gao.gov). Each weekday 

afternoon, GAO posts on its website newly released reports, testimony, 

and correspondence. To have GAO e-mail you a list of newly posted 

products, go to http://www.gao.gov and select “E-mail Updates.”

The price of each GAO publication reflects GAO’s actual cost of 

production and distribution and depends on the number of pages in the 

publication and whether the publication is printed in color or black and 

white. Pricing and ordering information is posted on GAO’s website, 

http://www.gao.gov/ordering.htm. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or 

TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card, 

MasterCard, Visa, check, or money order. Call for additional information. 

Connect with GAO on Facebook, Flickr, Twitter, and YouTube. 

Subscribe to our RSS Feeds or E-mail Updates. Listen to our Podcasts. 

Visit GAO on the web at www.gao.gov. 

Contact:

Website: http://www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470

Katherine Siggerud, Managing Director, siggerudk@gao.gov, (202) 512-

4400, U.S. Government Accountability Office, 441 G Street NW, Room 

7125, Washington, DC 20548

Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, DC 20548

GAO’s Mission

Obtaining Copies of 

GAO Reports and 

Testimony 

Order by Phone

Connect with GAO

To Report Fraud, 

Waste, and Abuse in 

Federal Programs

Congressional 

Relations 

Public Affairs

Please Print on Recycled Paper.