In the fall of 2012 there was a multi-state fungal meningitis outbreak which resulted in more than 50 fatalities and rendered hundreds of Americans ill.1 2 The contamination source was traced back to 17,000 vials of steroid injectables manufactured in bulk at New England Compounding Center (“N.E.C.C.”) in Framingham, Massachusetts and distributed to 23 states. N.E.C.C. issued a product-wide recall in October 2012,3 and later filed for bankruptcy. The outbreak made national news and highlighted concerns regarding regulation of pharmaceutical compounders at both the state and Federal level. On May 22, 2013, in response to the N.E.C.C. incident, the United States Senate Committee on Health, Education, Labor and Pensions ("H.E.L.P.") passed S. 959, the Pharmaceutical Compounding Quality and Accountability Act, which proposes to amend portions of the Federal Food, Drug and Cosmetic Act (“F.F.D.C.A.”) (21 U.S.C. 301 et seq.) and streamline regulation of compounders.4

This article seeks to offer insight and recommendations prompted by the events in Massachusetts by exploring the nature of compounding, the reasons compounding is necessary for specialized patient care, and the potential exposure medical facilities and healthcare professionals face when contracting with offsite compounders.

Compounding: What is it and Why is it Useful?

Most people have at some point in their life taken medication that was prescribed by a doctor. It may have been an intravenous medication administered in a hospital setting, an injectable medication at a pain management clinic, or a pill taken orally from a prescription filled at the local pharmacy. What the general public is likely not entirely familiar with is how that medication is made and gets to the hospital, pain management clinic and local pharmacy. Certainly most people have a basic familiarity with some of the more well known pharmaceutical companies (e.g. Pfizer and Merck) that manufacture medications we see advertised on television everyday. What you likely are not familiar with is the difference between those well known pharmaceutical manufacturers, and the lesser known facilities such as N.E.C.C. that are “compounding pharmacies.”

Traditional pharmacy compounding is defined by the Food and Drug Administration ("F.D.A.") as "..combining, mixing, or altering of ingredients by a pharmacist in response to a physician's prescription to create a medication tailored to the specialized medical needs of an individual patient."5 Compounding in essence dates back to the formulation of medications with the mortar and pestle - an iconic symbol adopted by the pharmaceutical industry. The purpose of traditional compounding is to create patient specific medications, pursuant to a prescription, by doing such things as adding flavoring to a pediatric medication, removing fillers and dyes that some patients are allergic to, or by converting a medication into liquid form for hospice patients unable to swallow pills.

Just as medication creation has evolved from beyond the corner druggist to include large scale machinery manufacturing, so has compounding production. Certain facilities have expanded the scope of their compounding to a much larger process of non-prescription manufacturing with multi-state distribution. Such facilities are known in the industry as "non- traditional" compounders. Hospitals have contracted with non-traditional compounding facilities for medication preparations due to shortages of commercial products that can only be replicated by a compounding facility or because the hospitals do not have the equipment or facilities needed for preparation of high risk medications.6 Non-traditional compounders fill a large gap in the marketplace for specially formulated medications, yet they operate and exist in a gray area between drug manufacturers and the local or hospital-based pharmacy. As discussed below, this gray area has led to difficulties in ensuring uniformity and sterility, thus opening the door to public safety threats like the N.E.C.C. outbreak.

Reaction to the N.E.C.C. Outbreak

As is often the case following large scale incidents, the recurring question asked in response to the N.E.C.C. outbreak is: How did this happen? On a broad level, the explanation is a lack of formal regulation of compounders at both the state and Federal level.

In the wake of the N.E.C.C. outbreak, Congressman Edward J. Markey, Representative for Massachusetts' Fifth Congressional District ("Rep. Markey") launched an initial investigation into the respective regulatory roles played by the F.D.A. and the state Boards of Pharmacy by analyzing media accounts and all publicly available safety-related compounding pharmacy enforcement actions taken by the F.D.A. and 50 states.7

Rep. Markey's investigation revealed of dozens of instances of injuries and death from contaminated compounded products across the county since 2001. The report outlines the current difficulties experienced by the F.D.A. and state Boards of Pharmacy in regulating non-traditional compounding facilities. These difficulties have arisen not just from questions about which agency has the authority to regulate compounding practices, but the expanding nature of the industry itself.

Although the F.D.A. has authority to regulate manufacturing of new drugs, the regulation of traditional pharmacy practice has historically been left largely to the states. On the other hand, the state-level pharmacy boards typically focus on compliance with traditional pharmacy licensing or controlled substances, rather than enforcement actions relating to the safety or scope of compounding facility practices. By exceeding the scope of traditional compounding by mass producing medications and then selling them in interstate commerce, compounding facilities such as N.E.C.C. were able to escape strict scrutiny by the F.D.A. and state Boards of Pharmacy by virtue of the gray area in regulatory oversight and jurisdiction.

Shortly after Rep. Markey’s investigation, the Senate H.E.L.P. Committee conducted a "state of the crisis" hearing on November 15, 2012, regarding the implications of the fungal meningitis outbreak. The hearing honed in on regulatory oversight and concluded that government supervision of N.E.C.C. failed at the state and Federal level because there was no clear distinction in law or practice as to what constituted a pharmaceutical manufacturer and what constituted a compounder.8 Representatives from the F.D.A., American Society of Health-System Pharmacists ("A.S.H.P."), National Association of Board of Pharmacists and The International Academy of Compounding Pharmacists gave testimony at that hearing, and were challenged by H.E.L.P. Committee members to innovate solutions to problems in governance of pharmaceutical compounders and compounding quality.9

A second Senate H.E.L.P. Committee Hearing was held on May 9, 2012, during which a new tiered regulatory scheme was suggested by the F.D.A. with pharmaceutical entities divided into three distinct categories: 1. Manufacturers (e.g. Pfizer); 2. Compounding Manufacturers (e.g. non-traditional compounders); and 3. Traditional Pharmacy Compounding (e.g. creation of a customized medication for an individual patient pursuant to prescription by a pharmacist, including hospital pharmacies).10

Next, on May 22nd, the H.E.L.P. Committee passed the proposal for The Pharmaceutical Compounding Quality and Accountability Act, which as drafted, defines a "compounding manufacturer" - as a non-traditional compounding entity that compounds preparations without or in advance of prescriptions and distributes formulations across state lines. The Pharmaceutical Compounding Quality and Accountability Act would bestow upon the F.D.A. the authority to oversee compounding manufacturers, and would require them to complete F.D.A. registration in order to do business. Under the proposed scheme, compounding manufacturers would be subjected to Federal standards akin to regulation of conventional drug manufacturers under current good manufacturing practice requirements.11 Traditional compounders such as the local pharmacist or the hospital pharmacy would remain under the auspices of state authorities. The Pharmaceutical Compounding Quality and Accountability Act further serves to define drugs that "may not be compounded", including complex dosage forms such as extended release formulations or transdermal patches.12 13

These legislative proposals would resolve an industry full of gray areas by creating clearer definitions for compounding industry standards and governance. A.S.H.P endorsed the HE.L.P. Committee's proposed legislation, noting that the proposed law would help eradicate the current confusion as to which laws pertain to pharmaceutical compounders, and which government entity's jurisdiction applies for the purpose of registration, inspection and the like.14 Having passed the H.E.L.P. Committee, the Pharmaceutical Compounding Quality and Accountability Act will now be presented for a full vote in the Senate.

Considerations for Limiting Outsourcing Risks

Why does this evolving regulatory climate of pharmaceutical compounding affect a hospital or its affiliated medical professional? The reason is that outsourced pharmaceutical compounding manufacturers have been a key provider of drugs needed by hospital systems, and will continue to be for the foreseeable future. A hospital's decision to outsource compounded medication supplies is multi-factorial. The need to outsource is often due, in part, to such things as drug shortages, physical resources which preclude compounding on site, an inability to comply with standards for sterile preparations due to staffing shortages, or an effort to defray up-front costs.

Yet, as the N.E.C.C. incident demonstrates, the potential benefits to a hospital of outsourcing pharmaceutical compounding carries along with it new and particular risks. Hospitals and providers purchasing from compounding manufacturers have a bitter pill to swallow when litigation from compounding defects ensue. Traditional defense strategies for product recall cases may not apply. The fact that your medical facility has nothing to do with the production of contaminated medication will not automatically insulate your facility from liability if they were administered or prescribed by your staff because let's face it; the successful plaintiff's attorney does not take a case if there is no financial benefit. The plaintiff's attorney has to consider who to sue and what theories of liability are potentially sustainable, how much insurance coverage is available, and what assets are available if the insurance coverage is not sufficient.

N.E.C.C. filed for bankruptcy in the United States District Court in Massachusetts in December, 2012, shortly after meningitis outbreak. Hundreds of lawsuits have already been filed on behalf of patients who received the contaminated steroids, and early estimates predict the potential damages are likely to total hundreds of millions of dollars.15  The representatives for N.E.C.C. have publicly acknowledged the need to compensate those affected by the meningitis outbreak but there is limited insurance coverage, limited assets to liquidate through bankruptcy, and N.E.C.C. has numerous business creditors in addition to the victims of the meningitis outbreak. Thus, the potential monetary compensation available on N.E.C.C.'s part is far outweighed by what legal experts would consider fair damages for to the victims of the outbreak, leaving savvy attorneys for the victims searching for "deeper pockets".

The lawsuits stemming from the fungal meningitis outbreak do not implicate N.E.C.C. alone, and instead include as defendants the medical facilities and doctors who administered the contaminated steroids to patients. Massachusetts Department of Health to report that N.E.C.C. was violating an April 2011 cease and desist order issued by Colorado, prohibiting N.E.C.C. from preparing and dispensing bulk shipments of drugs Suits against the consumer hospitals and providers who without patient specific prescriptions, but unfortunately administered N.E.C.C.'s tainted compounded products could be styled under any one of these theories: products liability, strict liability, negligence, or medical malpractice. And the rub is that the savings and efficiencies affiliated with procuring medications from an offsite compounder in the first place can be totally negated by the cost and the time spent on litigation for compounding gone awry. An intangible expense is the negative press your facility would receive in the court of public opinion, if contaminated medication from a compounding facility like N.E.C.C. enters your premises and irreparably taints your reputation for patient safety.

So then, while the government endeavors to create stricter enforcement of compounding manufacturers, what can hospital systems and providers do to avoid litigation or to defend against compounding defect lawsuits? In brief: contract with caution and implement protocols as the purchaser of compounded goods which encourage competing offsite compounding manufacturers to elevate their standards.

In wake of the public outcry following the N.E.C.C. meningitis outbreak, a hospital or provider is unlikely to be successful with the defense argument that they simply "expected" the compounding facility would provide sterile products to them, without investigation or vetting before buying from the facility.

When tasked with assessing a hospital or ambulatory facility's potential liability in the compounding commerce stream, a juror is going to put themselves in the shoes of the plaintiff. Visualize a plaintiff's attorney addressing a jury and arguing that his/her client went to the hospital for help, believing the hospital's professionals would have undertaken due diligence to ensure their safety, and that a medical facility that routinely promotes itself as being in the forefront of patient care and safety only exercised "minimal" checkpoints when selecting the pharmaceutical compounder that provided the medications! This argument implies the medical facility could have employed "maximum" standards to keep contaminated compounds away from their patients, yet willfully or otherwise did not; and could easily sway a juror who has no experience with pharmaceuticals and has never heard of compounding.

A defense argument that the hospital or provider relied on the judgment of governmental agencies tasked with inspecting compounding manufacturers and enforcing regulations may not be successful these days either. As born out in the Congressional investigations in the N.E.C.C. aftermath, the F.D.A. and the Massachusetts Department of Health were respectively involved in site inspections and were made aware of prior violations by N.E.C.C., and yet the lack of clarification as to whether those entities had jurisdiction or authority over the facility allowed N.E.C.C. and it's product contamination to slip through the proverbial cracks.16 17  No Federal inspections were undertaken between 2006 and 2012 due to the fact that N.E.C.C. contested whether the F.D.A. had jurisdiction over the facility.18 In July 2012 the Colorado State Board of Pharmacy had contacted the Massachusetts Department of Health to report that N.E.C.C. was violating an April 2011 cease and desist order issued by Colorado, prohibiting N.E.C.C. from preparing and dispensing bulk shipments of drugs without patient specific prescriptions,19 but unfortunately Massachusetts took no action in response to Colorado's letter, leaving purchasers of N.E.C.C.'s products exposed and patient-recipients injured.20 21

The prudent medical facility sets itself apart from the pack and can successfully defend against compounding manufacturer based claims by setting the bar high for the compounders they purchase from, and by demanding high quality products and safe and sterile production facilities. The risk-aware hospital system's goal in this context is to establish a definitive process to ensure that "maximum" steps were taken to ensure patient safety before a final commitment is made to a compounding facility. Otherwise a jury may conclude your medical facility chose to engage with a less than qualified compounding facility simply to save a few dollars.

Although there is no precise definition for what constitutes "due diligence", certainly an investigation into the background and practice of the compounding facility is a good start. It would be more beneficial to a hospital provider's defense to be able to demonstrate that measures were affirmatively made to confirm the quality, sterility, consistency and efficacy of the compounding manufacturer's products before the patient was administered that compound.

A.S.H.P., the pharmaceutical group involved with testimony on compounding before the H.E.L.P. Committee, has promulgated a guide called the "Outsourcing Sterile Products Preparation Contractor Assessment Tool" which hospital systems may find useful in determining which non-traditional compounding manufacturers to contract with in so far as it provides quantitative inquires designed to challenge a compounding manufacture vendor's competency, ability to meet regulatory standards and it's competitive value when compared to other such vendors.22 The purchaser of compounder products should be aware of: the results of any prior regulatory investigations, whether the facility has the resources available to provide you quality services without needing to cut corners, the training and education required of the facility's staff members who actually compound the medications; and the internal protocols the compounding facility employs to determine its own compliance with safety standards.

Additionally, a coalition of pharmacy groups has collaborated to create the Pharmacy Compounding Accreditation Board "PCAB."23 Though not mandatory for compounding manufacturers, the PCAB website proclaims that compounders bearing their seal have "gone the extra mile." The PCAB accreditation process includes analysis of: quality of ingredients, specialized training of compounding pharmacists and technicians, the facility's system of testing compounded material, and system of identifying to whom the compound was distributed.24 A hospital system seeking to do business with an offsite compounding manufacturer may want to insist upon PCAB accreditation before signing a contract.

These are but a few suggestions for investigative best practices. The point is that a prudent healthcare system ought not commit to doing business with any compounding facility without a multi-level investigation to avoid the risks of contracting with a facility with increased risks such as N.E.C.C.

Our hope is that ultimately Federal agencies, state agencies, pharmacy organizations and compounders can collaborate to create the "right mix" in order to safeguard against future incidents like that of N.E.C.C. The proposals contained in the Pharmaceutical Compounding Quality and Accountability Act will hopefully reduce the risk of further outbreaks due to under regulation. However, until there is stricter regulation at the state and Federal level, the onus still falls to the purchaser at the health care provider level to carefully select compounding facilities and to hold compounding facilities to high standards of sterility and production quality in order to minimize their own risk exposure.

An often cited quote from philosopher George Santayana is "[t]hose who cannot remember the past are condemned to repeat it." Remember N.E.C.C. and take the necessary measures to insulate your facility from potential exposure from compounding errors.