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 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. 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. The exact number of pharmacies that compound drugs is also unknown. In 2013, the International Academy of Compounding Pharmacists provided the following estimates: 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. 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. 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.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 According they require compliance with USP’s chapter on sterile compounding, according to the NABP’s 2013 survey of pharmacy law. 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. 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. 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 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. 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. FDA’s FACTS database contains information on these inspections, 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. The FDCA exempts from these registration and listing requirements those pharmacies that meet certain requirements. 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. .. 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. 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. 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. 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.