Over several congresses, policymakers have been interested in drug compounding and pharmaceutical supply chain security and have worked to craft legislation to enhance the Food and Drug Administration (FDA) ability to protect the public. On September 25, 2013, the leadership of the Senate Committee on Health, Education, Labor, and Pensions and the House Committee on Energy and Commerce announced an agreement on a bill to cover both topics. The House passed H.R. 3204 , the Drug Quality and Security Act, which now awaits Senate action. Title I is the proposed Compounding Quality Act. Title II is the proposed Drug Supply Chain Security Act. This report provides an overview of the provisions in H.R. 3204 , as passed by the House. This report does not discuss policy implications of the potential passage and implementation of provisions in the bill. Under current law, the Federal Food, Drug, and Cosmetic Act (FFDCA, 21 USC 301 et seq. ), the federal government regulates drug manufacturing and sales within the United States. However, the FFDCA provides specific conditions in which a drug may be compounded—primarily that the compounding is done by a pharmacist or physician based on a prescription for an individual patient—for which several FFDCA requirements of manufacturers do not apply. Such compounding is regulated by the states within their authority over the practice of pharmacy. There are, however, entities that perform activities that do not fit within this limited sphere of compounding. Federal regulators, the pharmacy and manufacturing industries, state authorities, and various courts have had differing opinions on who has jurisdiction—FDA or the states—over those activities. Title I of H.R. 3204 , the proposed Compounding Quality Act, attempts to address some of these issues. The act would, among other things: maintain FDA authority to regulate drug compounding that goes beyond the scope of state-regulated practice of pharmacy; establish a new category of compounding entity, termed "outsourcing facility," which would apply to entities that compound sterile drugs, volunteer to register with FDA, and follow practice and reporting requirements; require that the label of a drug from an outsourcing facility state "This is a compounded drug"; dictate user fees to fund outsourcing facility registration and reporting; advisory committee activities; annual reports; the issuing of regulations; and a study by the Government Accountability Office (GAO); and direct enhanced communication among state boards of pharmacy and between those boards and the FDA. To do so, Title I would amend FFDCA Section 503A [21 USC 353a] on pharmacy compounding and add a proposed Section 503B on outsourcing facilities as well as proposed Sections 744J and 744K to give FDA the authority to assess and use outsourcing facility fees. Several provisions in Title I reflect challenges FDA has encountered in implementing FFDCA Section 503A [21 USC 353a], Pharmacy Compounding, in current law. H.R. 3204 would amend that section by removing the provision in current law that restricts a compounder from advertising or promoting a compounded drug. Relatedly, it would also remove the modifier "unsolicited" from the phrase "valid prescription" in referring to what the pharmacy must receive before compounding a drug. H.R. 3204 includes a severability provision indicating that, in the event a provision of the act is declared unconstitutional, the remaining provisions would be unaffected. The remaining provisions in FFDCA Section 503A lay out the circumstances in which a state-regulated pharmacy may compound a drug. Although current law does not use the term, Members of Congress, FDA officials, and others often refer to this as traditional compounding . It involves compounding by a licensed pharmacist or physician in response to a prescription for an individual patient. The section describes what ingredients may be used, what kinds of drugs may not be compounded, required consultation between the HHS Secretary and the National Association of Boards of Pharmacy, and required implementing regulations. For facilities that compound drugs in ways that go beyond the circumstances described by FFDCA Section 503A [21 USC 353a], a proposed Section 503B would allow an entity to voluntarily register as an outsourcing facility . For an outsourcing facility that follows the requirements described in the proposed Section 503B, certain existing requirements that apply to drug manufacturers would be waived. These are: a drug's labeling must provide adequate directions for use or be deemed misbranded (Sec. 502(f)(1)) [21 USC 352]; a manufacturer may sell a drug in the United States only after FDA has approved its new drug application based on evidence of safety and effectiveness and other requirements regarding manufacturing processes, labeling, and reporting (Sec. 505 [21 USC 355]); and supply chain entities (manufacturers, wholesale distributors, dispensers, and repackagers) must comply with activities that would be required by Title II of this Act (proposed Sec. 582). The proposed Section 503B would include requirements that focus on the drug, the outsourcing facility, and the Secretary. A drug that is compounded in a registered outsourcing facility would have to meet the following conditions: may not be made from bulk drug substances unless they comply with limitations specified in this bill on use of bulk drug substances and other ingredients; may not be a drug that has been withdrawn or removed from the market because it was found to be unsafe or not effective; may not be "essentially a copy of one or more approved drugs"; may not be on the Secretary's list of "drugs that present demonstrable difficulties for compounding that are reasonably likely to lead to an adverse effect on the safety or effectiveness of the drug or category of drugs, taking into account the risks and benefits to patients" unless compounding is done "in accordance with all applicable conditions identified on the list ... as conditions that are necessary to prevent" such difficulties; if it is subject to a risk evaluation and mitigation strategy (REMS), the outsourcing facility must demonstrate a plan to use "controls comparable to the controls applicable under the relevant" REMS; may be sold or transferred only by the outsourcing facility that compounded it; must be compounded in an outsourcing facility that has paid fees (as would be established in this Act); must have a label that includes the statement "This is a compounded drug." (or comparable statement); must also contain specified identifying information of the outsourcing facility and the drug to include lot or batch number, established drug name, dosage form and strength, quantity or value, date compounded, expiration date, storage and handling instructions, National Drug Code (if available), "Not for resale" statement, "Office Use Only" statement (if applicable), and a list of active and inactive ingredients; and must have a container "from which individual units of the drug are removed for dispensing or administration" that includes a list of active and inactive ingredients, FDA adverse event reporting information, and directions for use. A registered outsourcing facility must register with the Secretary of Health and Human Services (the Secretary) annually (electronically, unless waived by the Secretary) and indicate whether it intends to compound a drug on the Secretary's list of drug shortages; submit a report to the Secretary twice a year identifying the drugs compounded, including the active ingredient and its source, National Drug Code numbers, and other specified information; be subject to inspection (pursuant to Section 704 [21 USC 374], which applies to manufacturing facilities) according to a risk-based schedule based on factors such as the compliance history of the outsourcing facility, inherent risk of the drugs being compounded, among others; and submit adverse event reports. The Secretary must make outsourcing facility registration information publicly available; and issue regulations regarding the list of drugs presenting demonstrable difficulties for compounding after convening and consulting with an advisory committee (to include specified membership) on compounding; regularly review the lists and update as necessary. The proposed Section 503B would include definitions of compounding, essentially a copy of an approved drug, approved drug, outsourcing facility, and sterile drug. Title I would amend the FFDCA sections involving prohibited acts (Sec. 301 [21 USC 331]) and misbranded drugs (Sec. 502 [21 USC 352]) to include specified actions regarding compounded drugs. It also would direct the Secretary to promulgate implementing regulations. H.R. 3204 would amend the FFDCA to add sections (744J and 744K) addressing user fees. The bill would require the Secretary to collect an annual establishment fee from each outsourcing facility that chooses to register as well as reinspection fees when applicable. The bill specifies the process the Secretary would follow to establish fee amounts, an inflation adjustment factor, an adjustment factor and exceptions for certain small businesses, the crediting and availability of fees, fee collection and the effect of failure to pay fees (which would include deeming a product misbranded and therefore prohibiting its sale). The bill would also require the Secretary to report annually to Congress describing fees collected, entities paying fees, hiring of new staff, use of fees to support outsourcing facility inspections, and the number of inspections and reinspections performed. The Secretary could use those fees "solely to pay for the costs of oversight of outsourcing facilities," and the user fee funds would have to be used "to supplement and not supplant" other available federal funds. A section of H.R. 3204 titled "Enhanced Communication" would direct the Secretary to receive information from state boards of pharmacy regarding (1) actions taken regarding compounding pharmacies (warning letters, sanctions or penalties, suspension or revocation of state license or registration, or recall of a compounded drug) or (2) "concerns that a compounding pharmacy may be acting contrary to [FFDCA] section 503A [21 USC 353a]."