How ‘compounding pharmacies’ can prevent the next drug crisis

As the last year-plus has shown, regulations that seem to make sense in ordinary times can sometimes be revealed to have serious shortcomings during an emergency. In the public health sphere alone, regulations governing telehealth services, occupational licenses, and the authority of pharmacists to test for and immunize against COVID-19 have been relaxed or waived altogether. If these regulations (and others) had not been scaled back, the devastation wrought by the pandemic could have been far worse.

Now that the pandemic is receding, it makes sense to think carefully about whether the temporary measures implemented to create flexibility during the most chaotic months of 2020 should be made permanent. An area that deserves special attention are regulations that limit the ability of compounding pharmacies to address drug shortages.

A compounding pharmacy makes medications that are tailor-made for individual patients who suffer from specific ailments. Think of a traditional pharmacy like a restaurant where the cheeseburger is pre-made irrespective of the customer. Compounding pharmacies, by contrast, are more like the restaurant that caters to customers who want to “hold the onions” or that have a rare allergic reaction to pickles. With medicines, unlike cheeseburgers, the tailor-made option isn’t just a matter of taste. It can mean the difference between an effective medical therapy and one that fails.

Compounding pharmacies face a different regulatory landscape than makers of traditional, commercially available drugs. It does not make sense to require all tailor-made medications to go through the cumbersome and expensive FDA approval process for mass-made drugs. Therefore, a different legal framework has been carved out for those drug producers focused on individualized medicines and the important social need they fill.

Some larger compounders, legally known as 503Bs, are regulated more like manufacturers, since they produce in bulk, largely for hospitals or medical offices. Meanwhile, other compounders, known as 503As, are required to obtain individual prescriptions before filling an order, which means they operate more like traditional pharmacies (despite also manufacturing the medications).

In ordinary times, this regulatory framework doesn’t attract much attention. A problem arises, however, when there are supply chain disruptions or a surge in demand for medications, which can happen in an emergency. In those cases, traditional FDA-approved drugs — drugs that compounders typically don’t produce because their focus is on individualized medicines — can go into shortage or become otherwise unavailable.

During the pandemic, the FDA issued guidance allowing 503A compounding pharmacies to help out by producing versions of FDA-approved medications when a medical facility could not otherwise find them from a traditional source or 503B facility. In other words, the usual prohibitions against 503As producing what are essentially copies of FDA-approved drugs, or requirements that they have a prescription in-hand before completing an order, were waived. These steps likely saved lives by ensuring that 503A compounders could step in when a drug was in shortage or was otherwise urgently needed. 

To be proactive, policymakers should stay ahead of the curve before the next crisis arises. Moreover, even when a pandemic is not raging across the country, the health system often experiences drug shortages. The American Society of Health System Pharmacists has a portal for members to report regional drug shortages, and the FDA has a national drug shortages list that is periodically updated. Behind the drugs on these lists are real people in dire need of medications. 

A bipartisan bill in the House of Representatives, H.R. 3662, would codify the FDA emergency permissions that allowed 503A compounders to respond to urgent-use and shortage drugs when those drugs are unavailable from other sources. Since shortages arising from COVID-19 are not fundamentally different from shortages from other causes, the approach deserves careful consideration.

It sometimes takes a crisis before regulators awake to the fact that rules that sound good on paper don’t always work as intended. Compounding pharmacies possess the capabilities and expertise to step in during an emergency. Forward-looking policymakers should anticipate drug shortfalls before they arise and take steps to rectify the situation now. Otherwise, they will inevitably be playing catch-up at times when an effective policy response is literally a matter of life or death.

James Broughel is a senior research fellow with the Mercatus Center at George Mason University. Patricia Patnode, a Mercatus research assistant, contributed.