FDA’s Authority to Regulate Drug Compounding: A Legal Analysis

Congressional research reportOct 17, 2012

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FDA’s Authority to Regulate Drug

Compounding: A Legal Analysis

Jennifer Staman

Legislative Attorney

October 17, 2012

Congressional Research Service

7-....

www.crs.gov

R40503

CRS Report for Congress

Prepared for Members and Committees of Congress

FDA’s Authority to Regulate Drug Compounding: A Legal Analysis

Summary

In light of the recent meningitis outbreak, believed to have been caused by a contaminated

compounded steroid injection, the regulation of drug compounding has received significant

attention. Compounding is traditionally defined as a process of combining, mixing, or altering

ingredients in order to create a medication for a particular patient. However, as in the case of the

pharmacy that produced the steroid medication, concerns have been raised about compounding

pharmacies producing drugs on a larger scale, something more akin to drug manufacturing. While

drug compounding has historically been regulated primarily by states through their regulation of

pharmacies, recent questions have been raised about the extent to which the Federal Food, Drug,

and Cosmetic Act (FFDCA) governs this practice, and what authority the U.S. Food and Drug

Administration (FDA) has to regulate a compounded drug as a “new drug,” subject to approval by

the FDA, as well as other requirements.

In 1997, Congress enacted the FDA Modernization Act of 1997 (FDAMA), which was a

comprehensive revision of the FFDCA. Section 127 of FDAMA added Section 503A to the

FFDCA, which excepted compounded drugs from various “new drug” requirements, conditioned

upon the compounded drugs meeting a variety of restrictions. One of the restrictions in Section

503A of the FFDCA was that drug providers were prohibited from soliciting or advertising

particular compounded drugs. These speech restrictions were challenged on First Amendment

grounds and were struck down by the Supreme Court in Thompson v. Western States Medical

Center. Following this decision, there was controversy over the current status of compounded

drugs under the FFDCA and whether the remaining provisions of Section 503A remain good law,

an issue that the Supreme Court did not address in Western States. The two circuits that addressed

this issue took different positions. While the Ninth Circuit in Western States determined that

Section 503A was struck down in its entirety, the Fifth Circuit in Medical Center Pharmacy v.

Mukasey found that the lawful provisions of Section 503A are still in effect. Accordingly, these

cases have created an interesting scenario of non-uniform enforcement throughout the U.S. In the

Fifth Circuit, compounded drugs are specifically exempted from new-drug, adulteration, and

misbranding requirements of the FFDCA if certain criteria are met; while in the Ninth Circuit

(and, according to the FDA, the rest of the United States), compounded drugs are subject to these

requirements, but the FDA may exercise discretion in taking action against an entity that violates

these provisions. This report provides a brief historical overview of the FDA’s regulation of drug

compounding and addresses these conflicting decisions. The report will also address the FDA’s

current authority to regulate compounded drugs under the FFDCA in light of these decisions.

Congressional Research Service

FDA’s Authority to Regulate Drug Compounding: A Legal Analysis

Contents

Background...................................................................................................................................... 1

Thompson v. Western States Medical Center .................................................................................. 3

2002 FDA Compliance Policy Guide .............................................................................................. 5

Medical Center Pharmacy v. Mukasey ............................................................................................ 6

Issues with Current FDA Authority to Regulate Drug Compounding ............................................. 8

Contacts

Author Contact Information........................................................................................................... 11

Congressional Research Service

FDA’s Authority to Regulate Drug Compounding: A Legal Analysis

Background

Under its traditional definition, drug compounding is a process in which a pharmacist combines,

mixes, or alters various drug ingredients to create a medication for an individual patient in

response to a practitioner’s prescription.1 It is generally used to prepare medications that are not

typically commercially available, such as a drug in a lower dosage for a child, or a drug without a

dye or a preservative in response to a patient allergy.2 Compounding is considered a conventional

component of the practice of pharmacy and has historically been regulated at the state level.3

The Federal Food, Drug, and Cosmetic Act (FFDCA), as amended, establishes certain minimum

standards for the manufacturing, marketing, and distribution of drugs, and authorizes the FDA to

ensure that drugs and other products marketed in the United States are safe and effective for their

intended uses.4 The act prohibits any person from introducing a “new drug” into interstate

commerce unless it is approved by the FDA. A “new drug” is defined by the act as “[a]ny drug

(except a new animal drug or an animal feed bearing or containing a new animal drug) the

composition of which is such that such drug is not generally recognized … as safe and effective

for use under the condition prescribed, recommended, or suggested in the labeling thereof.”5 In

order to be determined to be safe and effective, new drugs are subject to a lengthy approval

process, which is supervised by the FDA. The FFDCA also contains requirements preventing

drugs from being adulterated6 or misbranded.7 Until 1997 with the enactment of the FDA

Modernization Act of 1997 (FDAMA, discussed below),8 Congress had not explicitly addressed

whether compounded drugs had to meet these requirements of the FFDCA.9

See Western States Medical Center v. Shalala, 238 F.3d 1090, 1092 (9th Cir. 2001).

Western States Medical Center et al. v. Shalala, 69 F. Supp. 2d 1288, 1292 (D. Nev. 1999). See also Statement of

Steven K. Galson, Acting Director, Center for Drug Evaluation and Research, U.S. Food and Drug Administration,

before the Senate Committee on Health, Education, Labor and Pensions, Hearing on “Federal and State Role in

Pharmacy Compounding and Reconstitution: Exploring the Right Mix to Protect Patients,” (October 23, 2003).

It should be noted that drugs may be compounded for animal use. See, e.g., Medical Center Pharmacy v. Mukasey,

536 F.3d 383, 406-409 (5th Cir. 2008); United States v. Algon Chemical, Inc., 879 F.2d 1154 (3rd Cir. 1989). The

statutes, regulations, and FDA policies governing compounding for animals differ from those governing drug

compounding for humans. This report will only address federal law as it relates to drug compounding for human use.

21 U.S.C. §301 et seq. The FFDCA regulates several other products besides drugs, including certain foods, cosmetics,

and dietary supplements.

21 U.S.C. §321(p). Exceptions are made for certain “grandfathered” drugs used prior to the FFDCA, as well as drugs

intended only for investigational use.

Under the FFDCA, a drug may be deemed adulterated if “the methods used in, or the facilities or controls used for, its

manufacture, processing, packing, or holding do not conform to or are not operated or administered in conformity with

current good manufacturing practice to assure that such drug meets the requirements of this Act … as to safety and has

the identity and strength, and meets the quality and purity characteristics, which it purports or is represented to

possess.” See 21 U.S.C. §351 for a complete definition. FDA regulations set forth various standards for good

manufacturing practices, including standards relating to personnel, facilities, and drug product containers. 21 C.F.R.

§211.1 et seq.

The FDA approves drugs for specific uses that are reflected in their labeling. A drug may be deemed to be misbranded

if, among other possibilities, the labeling is false or misleading or if its labeling does not bear “adequate directions for

use.” 21 U.S.C. §352.

Food and Drug Administration Modernization Act, P.L. 105-115, 111 Stat. 2296 (November 21, 1997).

It should be noted that the FFDCA explicitly addresses compounded drugs in at least two notable areas. First, under

Section 510(g) of the FFDCA, pharmacies are exempt from registering as drug manufacturers under the act if the

pharmacies maintain establishments “in conformance with any applicable local laws regulating the practice of

pharmacy and medicine and which are regularly engaged in dispensing prescription drugs or devices, upon

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FDA’s Authority to Regulate Drug Compounding: A Legal Analysis

For approximately the first 50 years of the FFDCA, pharmacists compounded drugs without

getting FDA approval for these drugs, and regulation of drug compounding was left to the

states.10 The reason for this, in large part, is because it is widely recognized that compounded

drugs could not meet the FFDCA’s drug approval requirements because compounded drugs are

traditionally made in small amounts for an individual patient (e.g., safety and efficacy trials are

impracticable, and compounding pharmacies cannot afford testing for the new drug approval

process to meet the needs of individual patients).11

Thus, the question of whether the FDA could regulate compounded drugs was generally not

disputed until around the early 1990s when the FDA became concerned that some pharmacists

were engaged in large-scale bulk compounding that was, in the FDA’s view, more akin to drug

manufacturing and an attempt to avoid the FFDCA’s new drug requirements.12 In response to

these perceived abuses, the FDA issued a Compliance Policy Guide in 1992 addressing its

position regarding its authority to regulate compounding.13 The FDA declared “that while retail

pharmacies ... are exempted from certain requirements of the [FFDCA], they are not the subject

of any general exemption from the new drug, adulteration, or misbranding provisions” of the

FFDCA.14 While the FDA also indicated that its guidance was not intended to affect a

pharmacist’s traditional role of compounding drugs extemporaneously in reasonable quantities

and pursuant to a valid prescription, the FDA warned that it “may, in the exercise of its

enforcement discretion, initiate federal enforcement actions … when the scope and nature of a

pharmacy’s activity raises the kind of concerns normally associated with a manufacturer.” The

1992 Compliance Policy Guide set forth certain factors the FDA would consider in determining

whether to exercise enforcement discretion against a compounding pharmacy whose activities

raise concerns similar to those of drug manufacturers, including soliciting business to compound

specific drug products, using commercial scale manufacturing or testing equipment to compound

(...continued)

prescriptions of practitioners licensed to administer such drugs or devices to patients under the care of such

practitioners in the course of their professional practice, and which do not manufacture, prepare, propagate, compound,

or process drugs or devices for sale other than in the regular course of their business of dispensing or selling drugs or

devices at retail.” 21 U.S.C. §360(g)(1). In other words, this provision appears to recognize that traditional

compounding by pharmacists is not manufacturing. Richard R. Abood, PHARMACY PRACTICE AND THE LAW, Fifth Ed.

(2008). Second, similar language limits the types of pharmacy records that the FDA may review during an inspection.

See 21 U.S.C. §374.

See Western States, 535 U.S. at 362.

Statement of Steven K. Galson, Acting Director, Center for Drug Evaluation and Research, U.S. Food and Drug

Administration, before the Senate Committee on Health, Education, Labor and Pensions, Hearing on “Federal and State

Role in Pharmacy Compounding and Reconstitution: Exploring the Right Mix to Protect Patients,” (October 23, 2003).

See also Thompson v. Western States, 535 U.S. 357, 369 (2002) (“…it would not make sense to require compounded

drugs created to meet the unique needs of patients to undergo the testing required for the new drug approval process.

Pharmacists do not make enough money from small-scale compounding to make safety and efficacy testing of their

compounded drugs economically feasible, so requiring such testing would force pharmacists to stop providing

compounded drugs.”)

Medical Center Pharmacy, 536 F.3d at 389. The FDA’s concern over the practice of compounding has also been, in

large part, due to certain patient injuries caused by compounded drugs. The Agency has asserted that it knows of more

than 200 adverse events involving 71 compounded products since 1990, including certain instances with “devastating

repercussions.” See, U.S. Food and Drug Administration, The Special Risks of Pharmacy Compounding, available at

http://www.fda.gov/consumer/updates/compounding053107.html.

Compliance Policy Guide No. 7132.16 (March 1992).

Id., as cited in Western States, 535 U.S. at 362. It should also be noted that prior to the enactment of FDAMA, courts

found that compounded drugs were new drugs. See, e.g., Prof’ls & Patients for Customized Care v. Shalala, 56 F.3d

592, 593 n.3 (5th Cir. 1995).

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FDA’s Authority to Regulate Drug Compounding: A Legal Analysis

drug products, and compounding (on a regular basis or in excessive amounts) drug products that

are commercially available in the market place and that are essentially generic copies of

commercially available, FDA-approved drug products.15

In order to “clarify the status of pharmacy compounding under Federal law,”16 Congress added

Section 503A (21 U.S.C. §353a) to the FFDCA as part of the FDA Modernization Act of 1997

(FDAMA), which specifically addressed the FDA’s role in the regulation of drug compounding.

Section 503A of the FFDCA, as added by FDAMA, exempts compounded drugs from FFDCA

requirements regarding drug adulteration, misbranding, and new drug approval, provided that

certain conditions are satisfied.17 Among these requirements, a drug product must be compounded

by a licensed pharmacist or physician for an indentified individual patient based on a valid

prescription.18 The compounded drug must comply with standards of an applicable U.S.

Pharmacopoeia, or made from FDA-approved drug ingredients, meet certain manufacturing

criteria, and the drug compounded must not be one that appears on a list of drugs (published by

the Secretary) of drug products that have been withdrawn or removed from the market because

the product, or components of the product have been found to be unsafe or not effective.19

Further, the drug provider compounding the drug may not “compound regularly or in inordinate

amounts … any drug products that are essentially copies of a commercially available drug

product.”20

Section 503A of the FFDCA also provided that the exemptions from the FFDCA’s new drug and

other requirements only applied to drug products compounded based on a valid prescription that

was not solicited.21 Further, the section states that a drug may be compounded and subject to the

exemptions only if the pharmacy, licensed pharmacist, or licensed physician does not advertise or

promote the compounding of any particular drug.22 In November of 1998, just days after the

provision became effective, several compounding pharmacies challenged the restrictions on

solicitation and advertising as being an impermissible regulation of speech under the First

Amendment.

Thompson v. Western States Medical Center23

In Western States, a group of licensed pharmacies brought an action against the Secretary of

Health and Human Services (HHS) and the Commissioner of the FDA, claiming that FDAMA’s

restrictions on solicitation and advertising violated the pharmacies’ rights to free speech under the

Compliance Guide 7132.16, as cited in Medical Center Pharmacy, 536 F.3d at 391.

Compliance Policy Guide 460.200 (May 2002); see also H.Rept. 105-399 at 94, which addresses section 503A of the

FFDCA (“It is the intent of the conferees to ensure continued availability of compounded drug products as a component

of individualized therapy, while limiting the scope of compounding so as to prevent manufacturing under the guise of

compounding. Section 503A establishes parameters under which compounding is appropriate and lawful.”).

See Section 127 of P.L. 105-115.

21 U.S.C. §353(a)

21 U.S.C. §353a(b)(1).

21 U.S.C. §353a(b)(1)(D).

21 U.S.C. §353a(a).

21 U.S.C. §353a(c).

Thompson v. Western States Medical Center, 535 U.S. 357 (2002).

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FDA’s Authority to Regulate Drug Compounding: A Legal Analysis

First Amendment.24 The district court evaluated whether the provisions were an impermissible

government regulation of commercial speech25 under the factors articulated in Central Hudson

Gas and & Electric v. Pub. Service Comm’n of New York,26 and granted the pharmacies summary

judgment on the basis that the provision was indeed a violation of the First Amendment.

In evaluating whether the other provisions of Section 503A remained intact, the district court

found that there is “no question” that the other sections could be severed27 from the remaining

sections.28 The court explained that the modification of the statute did not prevent it from

operating as law, based on the numerous other requirements that must be met in the production

and distribution of compounded drugs. The Ninth Circuit Court of Appeals affirmed the district

court’s holding that the speech provisions of section 503A were unconstitutional, but also

reversed in part, holding that the compounding provisions were not severable from the rest of the

section.29

In discussing the severability issue, the court explained that the solicitation and advertising

provisions were an essential component in balancing the preservation of compounded drugs

alongside the desire to prevent pharmacists and others from engaging in drug manufacturing. The

court pointed to legislative history that, in its opinion, demonstrated an intent to strike this

balance.30 The court further indicated that the legislative record demonstrated that Congress

meant to exempt compounding pharmacists from FFDCA requirements only in return for a

prohibition on the promotion of specific compounded drugs. The court also dismissed the

applicability of the existing severability clause in the FFDCA31 as not indicative of a presumption

Western States Medical Center, et al. v. Shalala, 69 F. Supp. 2d 1288 (D. Nev. 1999).

The First Amendment to the United States Constitution provides that “Congress shall make no law ... abridging the

freedom of speech, or of the press.... ” Despite its absolute language, it provides no protection to some types of speech

and only limited protection to others. One type of speech to which it applies only limited protection is commercial

speech, which is “speech that proposes a commercial transaction.” Board of Trustees of the State University of New

York v. Fox, 492 U.S. 469, 482 (1989). Commercial speech may be banned if it advertises an illegal product or service,

and, unlike fully protected speech, may be banned if it is unfair or deceptive. For a more general discussion of First

Amendment jurisprudence regarding freedom of speech, see CRS Report 95-815, Freedom of Speech and Press:

Exceptions to the First Amendment, by (name redacted).

447 U.S. 557 (1980). For commercial speech, the Supreme Court has prescribed the four-prong Central Hudson test

to determine its constitutionality. This test asks initially (1) whether the commercial speech at issue is protected by the

First Amendment (that is, whether it concerns a lawful activity and is not misleading) and (2) whether the asserted

governmental interest in restricting it is substantial. “If both inquiries yield positive answers,” then to be constitutional

the restriction must (3) “directly advance[ ] the governmental interest asserted,” and (4) be “not more extensive than is

necessary to serve that interest.” Id. at 566 (1980).

When one section of a law is held unconstitutional, courts are faced with determining whether the remainder of the

statute is “severable,” i.e., it remains valid, or whether the whole statute is nullified. In general, courts examine whether

the statute can fully operate without the unconstitutional provision in the manner that Congress intended. See infra

notes 54-58 and accompanying text.

Western States, 69 F. Supp. 2d at 1309-10.

Western States Medical Center v. Shalala, 238 F.3d 1090 (9th Cir. 2001).

For example, the Ninth Circuit cited a House report explaining that FDAMA was designed to “ensure continued

availability of compounded drug products as a component of individualized drug therapy, while limiting the scope of

compounding so as to prevent manufacturing under the guise of compounding.” H.Rept. 105-399, as cited in Western

States, 238 F.3d at 1097.

Section 901 of the FFDCA provides, “If any provision of this Act [21 U.S.C. §§301 et. seq.] is declared

unconstitutional, or the applicability thereof to any person or circumstances is held invalid, the constitutionality of the

remainder of the Act … and the applicability thereof to other persons and circumstances shall not be affected thereby.”

21 U.S.C. §391.

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FDA’s Authority to Regulate Drug Compounding: A Legal Analysis

that Congress intended for unoffending provisions of FDAMA to remain valid. The court

explained that because Congress approved the severability clause before FDAMA’s passage, there

was no indication of whether the clause was to only apply to the original FFDCA, or to the

FFDCA as amended by FDAMA.

In its brief requesting Supreme Court review on the First Amendment issue, the government

indicated its acquiescence with the court of appeals’ conclusion that, if the solicitation and

advertising provisions in Sections 503A(a) and (c) are unconstitutional, they are not severable

from the other provisions of Section 503A. Accordingly, the government did not seek review of

that holding.32 The Supreme Court later affirmed the lower court rulings that the speech

restrictions were unconstitutional, but because neither party petitioned for certiorari on the

severability issue, the Court articulated that it “had no occasion” to review that portion of the

court of appeals’ decision.33

2002 FDA Compliance Policy Guide

Western States did not address the FDA’s authority to regulate drug compounding in the absence

of the FDAMA provision. Because (at least in part) of the confusion about the extent of the FDA’s

authority to regulate compounding remaining after this decision, the FDA issued a Compliance

Policy Guide in 2002, largely similar to the compliance guide issued in 1992.34 The FDA stated

that because the Supreme Court did not rule on the severability issue, the Court “therefore left in

place” the Ninth Circuit holding that the other provisions of Section 503A were not severable, and

the section was therefore invalid. Accordingly, the FDA determined that it needed to issue

guidance to the compounding industry regarding the factors the agency would consider in

exercising enforcement discretion with regard to pharmacy compounding.

The FDA indicated that it did not intend the Compliance Policy Guide to regulate traditional

compounding practices (i.e., pharmacists who extemporaneously compound reasonable quantities

of drugs upon receipt of a valid prescription for an identified patient). In addition, the FDA noted

that it would continue to defer to the state authorities regarding “less significant violations” of the

FFDCA. However, the FDA explained its concern with pharmacies that were not compounding in

the regular course of business, but were manufacturing large quantities of drug products without a

prescription for them. The FDA explained that when the scope and nature of a pharmacy’s

activities raise the kinds of concerns normally associated with a drug manufacturer and result in

significant violations of the new drug, adulteration, or misbranding provisions of the act, it

determined that it should seriously consider enforcement action. The FDA set out nine acts it

would consider in pursuing an enforcement action:

1. Compounding of drugs in anticipation of receiving prescriptions, except in very

limited quantities in relation to the amounts of drugs compounded after receiving

valid prescriptions

2. Compounding drugs that were withdrawn or removed from the market for safety

reasons

Thompson v. Western States Med. Ctr., 2001 U.S. Briefs 344, 11 (August 24, 2001)

Western States, 535 U.S. at 365.

Food and Drug Administration, Compliance Policy Guides Manual §460.200, Pharmacy Compounding (May 2002),

available at http://www.fda.gov/ora/compliance_ref/cpg/cpgdrg/cpg460-200.html#BACKGROUND.

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FDA’s Authority to Regulate Drug Compounding: A Legal Analysis

3. Compounding finished drugs from bulk active ingredients that are not

components of FDA-approved drugs, without an FDA sanctioned investigational

new drug application

4. Receiving, storing, or using drug substances without first obtaining written

assurance from the supplier that each lot has been made in an FDA-registered

facility

5. Receiving, storing, or using drug components not guaranteed to meet official

compendia requirements

6. Using commercial scale manufacturing or testing equipment for compounding

drug products

7. Compounding drugs for third parties who resell to individual patients or offering

compounded drug products at wholesale to other state licensed persons or other

commercial entities for resale

8. Compounding drug products that are commercially available in the marketplace

or that are essentially copies of commercially available FDA-approved drug

products

9. Failing to operate in conformance with applicable state law regulating the

practice of pharmacy.

The FDA indicated that the list of acts was not exhaustive, and that other factors may be

appropriate to consider in enforcement actions.

Medical Center Pharmacy v. Mukasey

In September 2004, 10 licensed pharmacies specializing in drug compounding brought suit

challenging FDA’s authority to regulate compounded drugs.35 In Medical Center Pharmacy v.

Ashcroft (later changed to Medical Center Pharmacy v. Gonzalez and then Medical Center

Pharmacy v. Mukasey), plaintiffs sought, among other things, a declaration that drugs

compounded by licensed pharmacists were not “new drugs” per se under the FFDCA. The district

court granted summary judgment on the pharmacies’ claim, finding that compounded drugs were

“implicitly exempt” from the new-drug requirements.36 The court, relying on language of the

Supreme Court from Western States, reasoned that if compounded drugs were not exempt from

the new-drug requirements, the drugs would have to undergo the new-drug approval process,

which would be impracticable. The court indicated that the FDA’s 2002 Compliance Policy

Guide, which exempts traditional compounding from the scope of the guidance, and instead

focuses on the regulation of pharmacies that manufacture drugs “under the guise of

compounding,” provided additional support for the position that traditional compounding was not

subject to the new-drug approval requirements. The court also opined that the remainder of

Section 503A was severable following Western States. The court explained that it was not bound

by the Ninth Circuit, and that the severability statute in the FFDCA is “clear and unambiguous.”37

Medical Center Pharmacy, et al. v. Gonzales, et al., 451 F. Supp. 2d 854 (W.D. Tex.)(2006).

Id. at 858.

Id. at 864.

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FDA’s Authority to Regulate Drug Compounding: A Legal Analysis

On appeal, the Fifth Circuit disagreed with the district court, finding that compounded drugs are

“new drugs” and are subject to the drug approval, adulteration, and misbranding requirements.38

However, in light of the fact that the provisions of 503A were severable, the court found that

compounded drugs are subject to a “limited exemption” from the those requirements if the drugs

are compounded in accordance with the non-speech provisions of that section. The court based its

holding in part on the definition of “new drug,” under the FFDCA. Given that a compounded

drug is created by mixing or combining an approved drug with something else to create a

“concoction” that has not been previously approved for use, a compounded drug was, based on

the plain language of the statute, a new drug.39 Further, given that the FFDCA contains certain

exceptions to the new drug definition (e.g., for “grandfathered” drugs), the court found meaning

in the lack of an exemption to the new-drug definition for drugs created by compounding.

The pharmacies in Medical Center Pharmacy had argued that including compounded drugs under

the new drug definition would, in effect, extinguish the practice of traditional compounding. The

court also acknowledged the idea that interpreting the new-drug definition so as to include

compounding did appear inconsistent with the idea that compounding should be able to persist

and not be subject to the rigorous requirements of new drug approval. However, the court pointed

out that these issues can be reconciled. Under the court’s reasoning, even if compounded drugs

are effectively made unlawful by the new drug definition and approval requirements, pharmacists

could still continue compounding because the FDA has the ability exercise enforcement

discretion and can decline enforcement of “minor violations.”40 In other words, the FDA would

be in a position, as it did historically, to use this discretion and not enforce new drug requirements

on compounded drugs. While the court expressed some reluctance to rely on the FDA’s discretion

in its enforcement of drug compounding, the court still found that because the FDA has

demonstrated willingness to accommodate traditional compounding, pharmacies would still be

able to compound drugs even if they were deemed new drugs.

The Fifth Circuit also pointed to the enactment of FDAMA as evidence that Congress intended

that the new-drug provision apply to drugs created by pharmacy compounding.41 However, in

order to rely on FDAMA as justification for why compounded drugs could be considered new

drugs under the FFDCA, the court evaluated whether the statute was still valid in light of the

Western States decision. The court examined the severability clause in the FFDCA and found,

contrary to the Ninth Circuit, that the severability clause applied to Section 503A. The court

explained that if Congress did not want the FFDCA’s severability clause to apply to Section

503A, it would have specifically said so. Further, the court did not see the free speech provisions

as so central to the purpose of FDAMA that Congress would not have passed the statute without

them. The Fifth Circuit also stated that the remaining requirements were sufficient to accomplish

the goal of protecting access to compounded drugs while preventing pharmacies from engaging in

large-scale drug manufacturing.42 The court also disagreed with the Ninth Circuit in finding that

Medical Center Pharmacy v. Mukasey, 536 F.3d 383 (5th Cir. 2008).

Id. at 394-95.

Id. at 398-99.

Id. at 400.

The Fifth Circuit also pointed to the Supreme Court’s evaluation of the advertising provision in Western States:

Several non-speech-related means of drawing a line between compounding and large-scale

manufacturing might be possible here.... It might even be sufficient to rely solely on the nonspeech-related provisions of FDAMA, such as the requirement that compounding only be

conducted in response to a prescription or a history of receiving a prescription, 21 U.S.C. § 353a(a),

and the limitation on the percentage of a pharmacy’s total sales that out-of-state sales of

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FDA’s Authority to Regulate Drug Compounding: A Legal Analysis

the legislative history to FDAMA was “inconclusive” as to whether Congress would not have

enacted FDAMA without the speech provisions of Section 503A.43

Issues with Current FDA Authority to Regulate

Drug Compounding

As discussed above, the Western States and Medical Center Pharmacy cases directly conflict on

the question of whether the non-speech provisions of Section 503A are severable and thus,

whether the remaining sections of the statute are still in effect. Based on these two decisions, the

FDA has determined that it will apply the non-advertising provisions of Section 503A of the

FFDCA to entities that are located within the jurisdiction of the Fifth Circuit (Texas, Louisiana,

and Mississippi) as well as to the plaintiffs that brought the Medical Center case.44 In all other

locations, the FDA will continue to apply the enforcement policy articulated in the 2002

Compliance Policy Guide. In other words, the current situation presents an interesting scenario of

non-uniform enforcement throughout the United States. In the Fifth Circuit, compounded drugs

are specifically exempted from adulteration, misbranding, and new drug provisions of the

FFDCA, subject to meeting certain criteria; while in the Ninth Circuit (and, according to the

FDA, the rest of the United States), compounded drugs are subject to these provisions, but the

FDA may exercise discretion in taking action against a pharmacy that violates them.

The parties in Medical Center Pharmacy did not petition the Supreme Court for review, and thus,

uncertainty remains about the FDA’s authority to regulate compounded drugs as new drugs.

Courts may still evaluate the FDA’s position that compounded drugs are new drugs, or, relatedly,

whether the non-speech provisions of Section 503A of the FFDCA that include an exemption for

these drugs remain intact. If these types of challenges were to occur outside of the Fifth or Ninth

Circuits, a court could rely upon, but would be under no obligation to follow, the Western

States/Medical Center Pharmacy precedent. Unless a future case on these issues reaches the

Supreme Court, the question of how the FDA may regulate compounded drugs may not be settled

unless Congress takes legislative action.

Under the current drug compounding regime outside of the Fifth Circuit, some have expressed

concern that the FDA’s 2002 Compliance Policy Guide creates confusion regarding when FDA

(...continued)

compounded drugs may represent, § 353a(b)(3)(B).... Nowhere in the legislative history of FDAMA

or petitioners’ briefs is there any explanation of why the Government believed forbidding

advertising was a necessary as opposed to merely convenient means of achieving its interests.

Medical Ctr. Pharm. v. Mukasey, 536 F.3d at 404 n.43 (citing Western States, 535 U.S. at 372-73.)

(emphasis added).

See also United States v. Bader, 2009 U.S. Dist. LEXIS 63490 (D. Colo. 2009), where a Tenth Circuit district court

evaluated a motion for reconsideration over whether human growth hormone imported by a pharmacist was a “finished,

consumer-usable” drug that was improperly smuggled and distributed under various federal criminal provisions, and

the FFCDA, or whether it was used as an ingredient in a compounded drug under which the pharmacist may be able to

escape liability. In discussing whether the pharmacist had engaged in drug compounding, because Bader was a party in

the Medical Center Pharmacy case, the court found that the provisions of FDAMA were considered severable. The

court, in granting the motion, found that the trial court would need to determine, among other things, whether the

pharmacist’s conduct violated the terms of FDAMA.

See, e.g., Letter from Alonza E. Cruse, Director, Los Angeles District, U.S. Food and Drug Administration, to Ari S.

Schafer, Civic Center Pharmacy (December 16, 2008), available at http://www.fda.gov/foi/warning_letters/s7071c.pdf.

Congressional Research Service

FDA’s Authority to Regulate Drug Compounding: A Legal Analysis

enforcement authority will be used.45 It has been argued that the FDA Compliance Policy Guide

lacks a clear description of the circumstances under which the agency will take action against

pharmacies.46 The FDA has countered that the guidance gives the agency flexibility in responding

a wide variety of situations involving public health and safety issues.47

The FDA’s authority to regulate compounded drugs is set forth in a guidance document. In

contrast to agency rules, which have the force and effect of law, guidance documents are merely

considered to be a general statement of policy.48 These statements of policy are agency statements

that “advise the public prospectively of the manner in which the agency proposes to exercise a

discretionary power.”49 Congress has passed requirements specific to FDA guidance documents,

which state that such documents “shall not create or confer any rights for or on any person,

although they present the views of the Secretary on matters under the jurisdiction of the Food and

Drug Administration.”50 Under regulations prescribing FDA good guidance practices, it is stated

that guidance documents do not establish legally enforceable rights or responsibilities and do not

legally bind the public or the FDA.”51 Accordingly, if a court were to evaluate the position the

FDA takes in its 2002 Compliance Policy Guide, a court may choose not to defer to the FDA’s

position on when it may exercise enforcement discretion, or whether compounded drugs are “new

drugs.” However, in Medical Center Pharmacy, the Fifth Circuit evaluated the FDA’s statutory

interpretation that compounded drugs were new drugs under a standard that is more deferential to

agency action, a standard that is typically reserved for products of formal agency process (e.g.,

notice and comment rulemaking).52 It should be noted that the few courts that have evaluated the

Compliance Policy Guide have found the guidance to be appropriate or reasonable.53

U.S. Government Accountability Office, GAO-04-195T Prescription Drugs, State and Federal Oversight of Drug

Compounding by Pharmacies, Testimony Before the Committee on Health, Education, Labor, and Pensions, U.S.

Senate (October 2003) at 12.

Id. According to GAO testimony, pharmacy associations pointed to terms in the guidance, such as “very limited

quantities” and “commercial scale manufacturing or testing equipment” that are not defined, and observed that FDA

also has the right to consider other factors in addition to those in the guidance without giving further clarification. Id. at

12.

Government Accountability Office, note 45 supra.

Jeffrey S. Lubbers, A GUIDE TO FEDERAL AGENCY RULEMAKING 94 (4th ed. 2006). Executive Order 13422 sets forth a

definition of a guidance document. Executive Order 13422, Further Amendment to Executive Order 12866 on

Regulatory Planning and Review, January 18, 2007, http://www.whitehouse.gov/news/releases/2007/01/

20070118.html.

Tom C. Clark, Attorney General, Attorney General’s Manual on the Administrative Procedure Act, at 30 n.3 (1947),

http://www.law.fsu.edu/library/admin/1947iii.html; see, e.g., Chamber of Commerce v. United States Department of

Labor, 174 F.3d 206, 212 (D.C. Cir. 1999).

21 U.S.C. §371(h). The provisions on guidance documents were added in 1997 by FDAMA §405.

21 C.F.R. §10.115(d)(1).

Under Supreme Court precedent, certain agency actions should be afforded deference by the courts. In Chevron

U.S.A. Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984), the Supreme Court established a two-part test

for judicial review of agency statutory interpretations. First, a reviewing court must determine “whether Congress has

directly spoken to the precise question at issue.” If it has, the agency must of course comply with clear congressional

intent, and regulations to the contrary will be invalidated. Second, in instances where congressional intent is not clear

and the statutory language is ambiguous, the courts will likely defer to any reasonable agency interpretation, even if

another interpretation is more plausible. However, the Supreme Court in Christensen v. Harris County, 529 U.S. 576

(2000) and United States v. Mead Corp., 533 U.S. 218 (2001) analyzed Chevron’s application, ruling that Chevron

deference applies only if an agency’s interpretation is the product of a formal agency process, such as adjudication or

notice-and-comment rulemaking, through which Congress has authorized the agency “to speak with the force of law.”

Mead Corp., 533 U.S. at 229. Although a notice about the Compliance Policy Guide was published in the Federal

(continued...)

Congressional Research Service

FDA’s Authority to Regulate Drug Compounding: A Legal Analysis

If a future court were to take up the issue of whether the non-speech provisions in Section 503A

are severable, it is difficult to predict how a court would rule. Under Supreme Court severability

precedent, “[u]nless it is evident that the Legislature would not have enacted those provisions

which are within its power, independently of that which is not, the invalid part may be dropped if

what is left is fully operative as a law.”54 Further, a key inquiry evaluating severability is whether

without the unconstitutional provision, “the statute will function in a manner consistent with the

intent of Congress.”55 The Court has also indicated “when Congress has explicitly provided for

severance by including a severability clause in the statute … the inclusion of such a clause creates

a presumption that Congress did not intend the validity of the statute in question to depend on the

validity of the constitutionally offensive provision.”56 The courts in both Western States and

Medical Center Pharmacy relied on various statements in the legislative history of FDAMA as

evidence of whether the solicitation and advertising provisions of FDAMA were integral to the

rest of the statute. However, neither court was able to point to a statement that explicitly

referenced the unconstitutional provisions of Section 503A and the intent behind them. In

addition, as in these two cases, if courts in another jurisdiction were to review whether Section

503A is severable, a court would likely evaluate the severability clause of the FFDCA. A court

could agree with the Ninth Circuit, finding that because the severability clause was enacted prior

to FDAMA, it is not clear whether it was to apply to the amended portions of the FFDCA.57

Alternatively, a court could side with the Fifth Circuit and hold that the severability clause kept

Section 503A of the FFDCA intact, assuming that if Congress had not wanted the clause to apply,

it would have said so.58

(...continued)

more likely that a court would not employ Chevron deference in evaluating the agency’s interpretation as provided in

the guidance document. But, as discussed above, courts still employ this deferential standard outside of this formal

agency action. See also In re the Matter of Establishment Inspection of Wedgewood Pharmacy Inc., 270 F. Supp. 2d

525 (D.N.J. 2003) (court applies Chevron deference to 2002 Compliance Policy Guide).

See, e.g., In the Matter of Establishment Inspection of Wedgewood Pharmacy, 421 F.3d 263 (3rd Cir. 2005)(court of

appeals finds the guide “a reasonable basis under which to initiate an inspection under the FFDCA”). See also

Schaerrer v. Stewart’s Plaza Pharm., Inc., 79 P.3d 922, (Utah 2003)(In examining whether compounding pharmacy’s

conduct fell into category of “pharmacist” or “drug manufacturer,” court states that “[w]hile the policy statements of

the FDA are by no means binding on this court, they do provide meaningful guidance on a question that few, if any,

courts in this country have yet considered.”). It should also be noted that FDA regulations define a guidance document

to include “documents that relate to: … inspection and enforcement policies.” 21 C.F.R. §10.115(b)(2). Thus, while not

addressed in the Wedgewood case, given that the Compliance Policy Guide addressed when the FDA will exercise

enforcement discretion on drug compounding, one could argue that the guide is an appropriate exercise of FDA

authority.

Alaska Airlines, Inc. v. Brock, 480 U.S. 678, 684 (1987)(quoting Buckley v. Valeo, 424 U.S. 1, 108 (1976) (per

curiam), Champlin Refining Co. v. Corporation Comm'n of Oklahoma, 286 U.S. 210, 234 (1932).

Alaska Airlines, 480 U.S. at 685.

Id. at 686 (citing INS v. Chadha, 462 U.S. 919, 932 (1983); Champlin Refining Co. v. Corporation Comm'n of

Oklahoma, 286 U.S. 210, 235 (1932).

Western States, 238 F.3d at 1098-99.

Medical Center Pharmacy, 536 F.3d at 401-402.

Congressional Research Service

FDA’s Authority to Regulate Drug Compounding: A Legal Analysis

Author Contact Information

Jennifer Staman

Legislative Attorney

[redacted]@crs.loc.gov, 7-....

Congressional Research Service

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