Drug compounding is a process by which a pharmacist or physician combines, mixes, or alters various drug ingredients to create a drug to meet the unique needs of an individual patient. Compounded drugs include both nonsterile products (e.g., capsules and ointments) and sterile products (e.g., injectable and ophthalmic products). In situations where a product approved by the Food and Drug Administration (FDA) would not be medically appropriate to treat a patient, a pharmacist or physician may formulate and dispense or administer a compounded drug product. For example, a patient with an allergy may need a medication without a certain dye, or an elderly person with a limited ability to swallow may need a medication in liquid form that is not commercially available. The Federal Food, Drug, and Cosmetic Act (FFDCA) authorizes FDA to regulate the manufacturing and sale of drugs in the United States, including compounded drugs. Generally, a new drug may not be sold unless the FDA, through its drug approval process, has determined that the drug is safe and effective for its intended use. The FFDCA defines a new drug to be a drug "the composition of which is such that such drug is not generally recognized ... as safe and effective for use under the conditions prescribed, recommended, or suggested in the labeling thereof." Although compounded drugs are considered new drugs, it would not be practicable for pharmacies to obtain approval for each drug compounded for an individual patient. Thus, compounded drugs are not evaluated by FDA prior to marketing for safety or effectiveness and until the 1990s, responsibility for overseeing and regulating drug compounding has generally been left to the states. Historically, drug compounding has been overseen at the state level by state regulatory bodies such as boards of pharmacy or medicine. During the 1990s, the number of entities engaging in drug compounding increased, as did concern that compounding pharmacies were functioning like drug manufacturers, producing large quantities of compounded drugs not captured by the FDA drug approval process. To address the growing number of compounding entities, in 1992, the FDA issued a Compliance Policy Guide (CPG) for compounding to "delineate FDA's enforcement policy on pharmacy compounding." The CPG remained in effect until 1997 when Congress provided statutory authority for portions of it through the FDA Modernization Act (FDAMA, P.L. 105-115 ). Among other things, FDAMA added new FFDCA Section 503A, "Pharmacy Compounding," designed to clarify FDA's authority to regulate compounded drugs. FFDCA Section 503A, as created in 1997, set forth the conditions that must be met for a compounded drug to be exempt from three statutory requirements: (1) the new drug approval process, (2) labeling with adequate directions for use, and (3) current good manufacturing practice (CGMP) requirements. Among these conditions is that the drug must be compounded by a licensed pharmacist in a state-licensed pharmacy or federal facility, or by a licensed physician, based on the receipt of a valid prescription for an identified patient. In addition, drug compounding may be performed in limited quantities before the receipt of a valid prescription order if there is a history of receiving orders solely within an established relationship between the pharmacist or physician and the patient or other licensed prescriber. Moreover, S ection 503A included a provision that a drug could be compounded only if a physician or pharmacist d id not advertise or promote the compounding of any particular drug, class, or type of drug . The advertising provisions were challenged by several compounding pharmacies, and, in 2002, the provisions were found by the Supreme Court to be unconstitutional. However, the Supreme Court did not address a lower court's conclusion that the advertising prohibition was not severable from the rest of Section 503A and that the entire section was, therefore, invalid. FDA interpreted the Supreme Court's 2002 ruling as invalidating Section 503A in its entirety and issued guidance that it would exercise its enforcement discretion to exempt small pharmacies that only manufactured drugs for individual patients. However, in 2008 another federal appellate court disagreed with FDA's interpretation of the legal effect of the 2002 ruling, holding that Section 503A was severable from the rest of the section and leaving much of it in force. As a result, FDA considered the remaining provisions of Section 503A effective, but only in the states where the 2008 ruling had effect, resulting in a fractured and confusing legal landscape for pharmacy compounding. In 2012, the interstate distribution of contaminated compounded drug products led to an outbreak of fungal meningitis, resulting in more than 60 deaths and 750 cases of infection. The entity responsible for compounding and shipping the contaminated drugs, the New England Compounding Center (NECC), had been the subject of prior complaints and had been investigated by both FDA and the Massachusetts state board of pharmacy. However, because, in part, of the uncertainty over the validity of Section 503A, it was not clear who had authority over compounding pharmacies (the state or FDA), and the NECC continued to operate. The NECC outbreak was not an isolated incident, and FDA studies had found quality problems with drugs compounded by other pharmacies, including sub- and super-potent drugs and contamination. According to one report, from 1990 to 2005, FDA became aware of almost 240 serious illnesses and deaths associated with improperly compounded products, with the actual number likely being greater since pharmacies are not required to report adverse events to FDA. A 2014 report published by the Pew Charitable Trusts identified more than 25 reported compounding errors or potential errors linked to 1,049 adverse events between 2001 and 2013. Following the NECC event and numerous other reports of problems resulting from compounded drugs, Congress passed the Compounding Quality Act (CQA) as Title I of the Drug Quality and Security Act (DQSA; P.L. 113-54 ). The CQA removed the advertising provisions that the Courts had determined were unconstitutional, clarifying FDA's authority to regulate pharmacy compounding practice under FFDCA Section 503A. The CQA also added a new FFDCA Section 503B and created a new category of drug compounders called outsourcing facilities , a term that describes entities that compound sterile drugs in circumstances that go beyond what 503A compounding pharmacies are allowed to do (e.g., compounding drugs in large volumes without obtaining patient-specific prescriptions). Unlike 503A compounding pharmacies, registered outsourcing facilities must comply with CGMPs and are subject to certain registration, reporting, and inspection requirements. The differences between these two types of compounding entities are discussed in more detail below and are summarized in Table A-1 . Since the enactment of the CQA, FDA has issued numerous draft and final guidance documents, proposed and final rules, and a draft memorandum of understanding (MOU) to implement the compounding provisions. The agency has communicated with stakeholders and state regulators via annual listening sessions, notice-and-comment guidance development, intergovernmental meetings, and information posted to FDA's website, among other things. Some states have found FDA communication to be helpful, while others have reported several communication challenges. In addition to the issues raised by some states, other stakeholders (e.g., pharmacist and physician groups) have expressed concern with FDA guidance and interpretation of certain compounding-related statutory provisions. In response to these concerns, some Members of Congress have sent letters to FDA, and appropriators have included directives to the agency in report language. In addition, legislation has been introduced that would amend certain compounding provisions in the FFDCA. This report provides an overview of the requirements for compounding pharmacies under FFDCA Section 503A and the requirements for outsourcing facilities under Section 503B. It also discusses FDA activities related to implementation of the compounding provisions, the issues that have been raised by stakeholders, and considerations for policymakers. Historically, pharmacy compounding has been regulated by state entities (e.g., state boards of pharmacy), and the frequency of inspections and level of oversight by state regulators has varied. In response to concerns surrounding the practice of large-scale compounding that resembled drug manufacturing, in 1992, FDA issued guidance explaining the types of compounding that may be subject to enforcement action by the agency. Congress provided statutory authority for portions of the guidance in FFDCA Section 503A. FFDCA Section 503A describes the conditions that must be satisfied for a compounded drug to be exempt from three sections of the FFDCA: Section 501(a)(2)(B) concerning compliance with CGMP requirements, Section 502(f)(1) concerning the labeling of drugs with adequate directions for use, and Section 505 concerning drug approval under a new drug application (NDA) or abbreviated new drug application (ANDA). If a drug is not compounded in accordance with the conditions set forth in Section 503A, it does not qualify for these exemptions and is subject to the same requirements as conventional manufacturers, including CGMP, labeling with adequate directions for use, and new drug approval requirements. Pursuant to Section 503A, a drug product is exempt from the above requirements if it is compounded by a licensed pharmacist in a state-licensed pharmacy or federal facility, or by a licensed physician, for an identified patient based on the receipt of a valid prescription, or in limited quantities before the receipt of a prescription for an identified patient. In these cases, the compounding must be based on a history of the licensed pharmacist or physician receiving prescription orders for the compounding of the product, and the orders must have been "generated solely within an established relationship" between the licensed pharmacist or physician and either such patient for whom the prescription will be provided or the practitioner who will write the prescription.