EDITOR’S NOTE: The Compounding Quality Act, requiring compounders to meet quality and sterility standards, has been signed into law but continues to draw mixed responses from stakeholders. In the December issue of Bloomberg BNA’s “Pharmaceutical Law and Industry Report,” Manatt’s Michelle McGovern examines the new law and its future implications. Below we summarize some key points. Click here to download the full Bloomberg BNA article.

After a year of public debate and a half-dozen failed proposals, the Compounding Quality Act (the Act) was signed into law on November 27, 2013.The new Act establishes federal oversight of and dictates quality standards for compounding pharmacies that choose to register as “outsourcing facilities.” It gives the Federal Food and Drug Administration (FDA) clear enforcement jurisdiction over registered compounding pharmacies-- facilities that prepare sterile or other high-risk drugs, and which have historically not been subject to regulation by the FDA.

One such pharmacy, the New England Compounding Center (NECC) located in Framingham, Massachusetts, prepared a tainted, compounded steroid that caused a spinal meningitis outbreak responsible for the deaths of 64 people and illnesses in more than 750 in the fall of 2012. That incident helped put the debate over compounding pharmacy regulation in the media spotlight.

The Act passed both the Senate and the House with bipartisan support. It represented a compromise, however, between those who believed that legislation was necessary to clarify the FDA’s role in regulating compounding facilities and those who felt the FDA already had the authority it needed under existing policy guidance. While the Act’s success in preventing future public health crises remains to be seen, many of its provisions provide a stronger framework for regulation than compounders have seen in decades.

What Is the Compounding Quality Act?

The Act standardizes the patchwork of compounding regulations that had historically been in place. It requires compounders to adhere to standards that ensure the quality and sterility of products. Under the Act, compounders may voluntarily register as “outsourcing facilities,” which would subject them to FDA requirements and enforcement actions. Compounders electing to register as outsourcing facilities will be subject to, among other things, restrictions relating to the quality of their products and to engaging in behaviors more traditionally associated with manufacturers.

For instance, outsourcing facilities will be prohibited from compounding certain drugs and drug products (such as drugs withdrawn or removed from the market for being unsafe or ineffective), preparing drugs that are essentially copies of FDA-approved products, and acting as wholesalers of compounded products.

Additionally, the law attempts to prevent public health crises like the spinal meningitis outbreak from occurring in the future. Outsourcing facilities will be required to report adverse events, helping the FDA address and contain public health issues quickly. Outsourcing facilities also will be subject to a risk-based inspection schedule, permitting the FDA to access their facilities and ensure their products are prepared in accordance with quality and safety requirements.

The law will require drug reporting, so the FDA and consumers can learn the types of drugs being prepared by compounders. It also will require labels on compounded products to alert providers and patients about the nature of the drugs being prescribed and administered. The Act leaves regulation of traditional compounders --those that prepare patient-specific products based on individualized prescriptions – to the states.

The Pros and Cons of Voluntary Registration

The voluntary registration provision of the Act –arguably the key driver of future enforcement action – is one of its more controversial provisions. Voluntary registration will provide the FDA with unprecedented information about compounders. Because registration is not mandatory, however, it is inevitable that some compounders will not register.

On one hand, the registration option will essentially provide an FDA “seal of approval” for certain pharmacies, encouraging providers to select their products. In addition, it is likely that the FDA will focus investigations on facilities that, for whatever reason, elected not to register.

Registration, however, may raise cost issues. Because registered facilities will have to comply with heightened quality and reporting standards, unregistered facilities will likely be able to sell compounded products for less money than registered facilities. While certain providers will insist on drugs prepared by outsourcing facilities, others may choose cheaper products, even if they are prepared by unregulated facilities. This is particularly true as more providers shift to capitated payment models and cost containment grows increasingly important.

Section 503A of the FDCA

In 1997, Congress enacted the Food and Drug Administration Modernization Act (FDAMA), which added compounding-specific provisions to the Food, Drug and Cosmetic Act (FDCA) in Section 503A. This section of the FDCA featured quality controls for compounded products but also included a prohibition on marketing compounded drugs. The marketing prohibition was struck down by the U.S. Supreme Court in 2002 as an impermissible restriction on free speech in the case of Thompson v. Western States Medical Center1. The Court did not decide on whether the non-speech provisions of the law could stand, however, and in the majority of the country, the entire law was considered invalid.

The Act resolves the constitutional question of the applicability of Section 503A of the FDCA to compounders by striking the speech-related provisions. Therefore, it gives the FDA unambiguous enforcement jurisdiction over compounders. This will allow the FDA to carry out investigations and bring enforcement actions with full regulatory authority. It also will make it more difficult for compounders to create procedural barriers to enforcement actions based on lack of federal enforcement jurisdiction. To be effective, however, this enforcement jurisdiction must be supported by sufficient funding.

Funding for Enforcement

The Act requires all registered facilities to pay an annual fee that will start at $15,000 in fiscal year 2015, adjusted for inflation. Facilities that require re-inspection in any fiscal year will have to pay a re-inspection fee of $15,000 in the relevant fiscal year. Although the inspection and re-inspection fees will help fund enforcement actions, it remains to be seen how many facilities will choose to register under the Act, and how much funding these registrations will generate.

If fees paid by outsourcing facilities fail to offset the cost of increased enforcement actions, congressional appropriations will be necessary. There is no guarantee however, that Congress will prioritize regulating outsourcing facilities in future national budgets.

Communication between State and Federal Regulators

Under the Act, the FDA will receive submissions from states concerned about compounding pharmacies that may be violating the requirements set forth in Section 503A of the FDCA, and descriptions of actions taken against compounding pharmacies. Increased federal-state communication can bolster enforcement actions by encouraging state pharmacy boards to target and report “bad actors” that may be violating Section 503A.

important to note, however, that state and federal regulators may only be communicating about “known” entities. Because the Act does not require all compounders to register with the FDA, the benefits of increased communication may not be fully realized.

An Uncertain – But Brighter – Future

How much progress the Act will make in curbing abusive compounding practices depends on a number of factors, including the content of the Act’s implementing regulations, the number and type of compounders that choose to register as “outsourcing facilities,” whether federal and state regulators will be able to identify “bad actors” that elect not to register, and availability of funding for enforcement. Although the true impact of the Act remains to be seen, its enactment alone is a significant sign of progress.