Regulatory Gaps in Drug Compounding: Implications for Patient Safety, Innovation, and Fraud

Drug compounding is the practice of mixing, combining, or altering drug ingredients to create a product that meets the medical needs of a patient whose needs cannot otherwise be met with commercially-available products. Although drug compounding fills a critical need for many patients, it has also given rise to significant drug safety concerns, fraud, and anticompetitive practices. Every year, many patients experience harmful side effects and even death from compounded drugs that are contaminated or made in excessive potency because of pharmacist error. The ability of pharmacies to make and dispense drugs outside of the typical channels has also given rise to extensive fraud. In addition, some rogue pharmacies earn significant profits by mass-producing compounded drugs that are essentially copies of commercially-available drugs. Many of the drug safety problems, fraudulent practices, and anti-competitive behaviors are facilitated by regulatory gaps in the oversight of drug compounding. Traditional drug manufacturers must prove that their drugs are safe and effective and manufactured in accordance with current good manufacturing practices (CGMPs) in order to obtain FDA approval. In contrast, compounders need not obtain FDA approval for their drugs before selling them, and most compounders do not have to produce drugs in accordance with CGMPs. Moreover, traditional drug manufacturing facilities are subject to routine inspection by the FDA to ensure they are in compliance with CGMPs and that there are no other safety or quality concerns. In contrast, most compounders are not primarily overseen by the FDA but by state boards of pharmacy that are less consistent in their oversight — fewer than half of the states even conduct routine inspections of compounding pharmacies. Finally, whereas traditional manufacturers are required to report adverse events involving their drugs to the FDA, most compounders do not have to report adverse events to either the FDA or state regulatory authorities. This Article explains the regulatory gaps in drug compounding that give rise to drug safety problems, fraud, and anti-competitive behavior and proposes various measures that could be taken to close the gaps in order to protect patients, payors, and innovation.