Impact of the US Drug Quality and Security Act

November 2014 - Vol. 11 No. 11 - Page #20

Q&A with Eric S. Kastango, MBA, RPh, FASHP
President and CEO of Clinical IQ, LLC, and CriticalPoint, LLC

Pharmacy Purchasing & Products: Since the Drug Quality and Security Act (DQSA) became law in November 2013, how have hospital pharmacy operations been impacted?
Eric Kastango: A few notable changes have occurred subsequent to the DQSA being passed in part due to the widely publicized outsourced compounding tragedies of 2012. Firstly, Margaret Hamburg, Commissioner of the FDA, sent a Dear Hospital/Purchaser letter on January 8, 2014, encouraging facilities purchasing compounded medications from an outsourcing facility to require those compounding pharmacies to register as outsourcing facilities with the FDA under the 503B provision of the DQSA (see SIDEBAR, #1).

Beyond this, many hospitals have and continue to re-evaluate their own internal compounding capabilities and explore alternative opportunities associated with centralizing or regionalizing sterile compounding operations to decrease the reliance on external vendors. Concomitantly, many state boards of pharmacy have expanded their oversight of compounding operations to now include hospital pharmacies, and as a result, hospital pharmacy leadership are rushing to secure the resources to ensure their facilities and processes comply with USP Chapter <797>.

PP&P: What new information does the Compounding Quality Act (CQA) of the DQSA contain?
Kastango: The Act itself does not contain specifics on quality standards associated with compounding; rather, it references that the USP chapters on compounding be followed when compounding either sterile or non-sterile medications. When Congress modified the Federal Food, Drug, and Cosmetic Act (FFDCA) in 1997, it contained a new section—503A regarding pharmacy compounding—creating a safe harbor for pharmacists who were compounding medications pursuant to a physician’s order, and exempted them from three key provisions of the act:

  1. Adulteration provision of section 501(a)(2)(21 U.S.C. 351(a)(2)(B)): current Good Manufacturing Practice (cGMP) requirements;
  2. Misbranding provision of section 502(f)(1)(21 U.S.C. 352(f)(1)): labeling of drugs with adequate directions for use;
  3. New drug provision of section 505 (21 U.S.C. 355): …use of drugs under Investigational New Drug Applications (INDs), New Drug Applications (NDAs) and Abbreviated New Drug Applications (ANDAs).

The Compounding Quality Act of DQSA removed certain provisions from Section 503A related to solicitation of prescriptions, and advertising and promotion that were found to be unconstitutional by the US Supreme Court in 2002 and clarifies the difference between traditional pharmacies (now referred to as 503A pharmacies), and outsourcing facilities or 503B entities. With the addition of Section 503B to the FFDCA, the FDA recognizes pharmacies that engage in the manufacture and shipment of larger quantities of compounded drugs without prescriptions. TABLE 1 delineates some of the requirements for each type of facility and clarifies how they differ from one another.

Click here to view a larger version of this Table

The FDA has published their final guidance for traditional 503A pharmacies that prepare compounded sterile preparations (CSPs) pursuant to an order or prescription (see SIDEBAR, #2). Likewise, similar draft guidance has been published and made open for public comment for the newly designated 503B outsourcing facilities. This document is titled Current Good Manufacturing Practice—Interim Guidance for Human Drug Compounding Outsourcing Facilities Under Section 503B of the FD&C Act (see SIDEBAR, #3).

PP&P: Do hospital pharmacies need to register as 503B outsourcing facilities if they compound medications for another hospital within their health system?
Kastango: As many hospitals are re-evaluating their relationships with outsourcing vendors and some are deciding to meet their own hospital or health-system needs through regionalized or centralized pharmacies, serious effort must be undertaken to understand your state’s pharmacy laws. 

Health systems may be exempt from registering as a 503B entity if they compound medications for the health system’s own patients and as long as the pharmacy complies with state laws. However, some states, such as Nebraska, Massachusetts, Washington, and New York do not permit one hospital to compound for another hospital within the health system unless that hospital also has registered as a 503B outsourcing facility. For those health systems that span multiple states, you must ensure that the regulations of each state are being followed and it is strongly recommend that you notify each state board of pharmacy that this service model is being employed. Should conflicting regulations exist between respective state boards, I would suggest the facility apply for an exemption from the state board before registering with the FDA as a 503B entity. There is a provision within the 503A requirements of the CQA that states:

“Compounder cannot distribute or cause to be distributed interstate more than 5% of the total prescription orders dispensed or distributed by that pharmacy or physician unless they are located in a state that has entered into a Memorandum of Understanding (MOU) that provides for appropriate investigation of complaints related to drugs distributed outside the state and addresses the distribution of inordinate amounts of compounded drug products interstate.”

Currently, no state board of pharmacy nor the NABP has entered into a MOU with the FDA and the impact of this requirement is not known at this time.  

PP&P: What conditions does a facility need to meet to become a 503B entity? 
Kastango: The processes a hospital or health system must comply with to be a 503B-registered entity may be extremely difficult to achieve due to the physical plant, human, and fiscal resources required to meet the 503B compliance guidance. Furthermore, some confusion still exists as to what the FDA requires in concert with what the individual state boards of pharmacy require. So, it remains to be seen how the different regulations at these two levels will harmonize. Accepting that, the basic condition will be to understand the draft guidance that the FDA published this past July 1st pursuant to 503B registration—the above-mentioned cGMP document (see SIDEBAR, #3). Although the final guidance has not been published, it does provide the core elements expected of a 503B outsourcing facility. 

The information contained in this draft guidance document includes detailed language covering concepts such as facility design, control systems and procedures for maintaining the facility, stringent environmental and personnel monitoring processes, proper use of equipment and containers, production and process controls, release testing, packaging and labeling, quality assurance, and so on. For facilities that have yet to fully comply with USP <797>, the idea of attempting to register as a 503B entity should not be considered. For a healthy dose of reality, it would be wise to review the FDA 483s, or inspection reports, which document observed conditions that may constitute violations of the FFDCA. 

PP&P: Can you provide an example of the level of rigor required under the proposed cGMPs?
Kastango: As with practically everything required of a 503B-registered entity, the devil is in the details. A couple of good examples include stability programs and labeling. In the first case, the FDA is expecting that a stability-testing program be used to determine appropriate storage conditions and expiration dates. Some of the key elements include:

  • Incorporate stability-indicating test methods that are reliable, meaningful, and specific 
  • Evaluate samples of the drug product in the same immediate container closure system and with the same label that will be affixed to the container when the drug product is marketed
  • Evaluate samples for stability that are representative of the lot or batch from which they were obtained and are stored under suitable conditions
  • Incorporate testing to evaluate antimicrobial effectiveness (resistance to antimicrobial contamination) for drug products labeled or intended to be multiple dose
  • Evaluate three batches of each drug product to determine the expiration date

The level of detail for product labeling is likewise more rigorous in comparison to standard pharmacy practice. For example, medications supplied from 503B facilities must bear the statements: This Drug Is Compounded, Not For Re-Sale, and For Office-Use Only (in the event the product is being sent to a physicians’ office). In addition, the label must identify both active and inactive ingredients, as well as storage and handling instructions. Specifically, the label of a product prepared by a 503B-registered facility also must include:

  • Name, address, and phone number of outsourcing facility
  • Lot and batch numbers
  • Established drug name
  • Dosage form and strength
  • Volume
  • Date compounded / Expiration date
  • NDC number
  • FDA contact information for adverse events
  • Directions for use

PP&P: What are the general expectations of 503B-registered entities?
Kastango: There is an important distinction between 503A and 503B entities: Compounding pharmacies that meet federal requirements under 503A are not required to establish drug efficacy and safety, obtain FDA approval, or comply with manufacturing and labeling standards under the significant assumption that compounded drugs are prepared as result of (or in limited quantities in anticipation of) the receipt of a valid prescription for an identified patient.

In contrast, 503B-registered entities—usually outsourcing facilities—are subject to more rigorous quality and safety standards modeled after the cGMPs that apply to pharmaceutical manufacturers. Keep in mind, cGMPs are not best practice standards; rather, they are minimum guidelines for practice in the manufacture, processing, packaging, or storing of drug products to be administered to humans or animals. The purpose of cGMPs is to ensure that all pharmaceutical products are produced in such a manner as to ensure consistent quality and integrity. Therefore, cGMPs establish what to do, not the specific elements of how to do it.

PP&P: What quality assurance and control efforts are required of the 503B entity under this act?
Kastango: Preparing medicines in large volumes necessitates significant, robust quality assurance practices, hence the requirement to follow cGMPs. A core tenet of the cGMP approach is the focus upon building quality into the overall process in order to prevent problems from developing. Quality is defined as consistently producing products or services that the customer wants while simultaneously decreasing errors. Though quality can represent a measurement at a defined instance, it is better explained as a dynamic process leading to continual improvement of the output to customers over time. Thus, systematic evaluation and elimination of variability within a manufacturing process is a cornerstone of predictable quality outcomes. As such, sterility testing is required for every batch of medication produced in a 503B environment and also in 503A pharmacies when the default BUDs of USP Chapter <797> are exceeded. 

Though it may be challenging to develop metrics based on volume and scale of production, they are nonetheless needed; the risk of patient exposure to potentially unidentified safety problems at high-volume compounding pharmacies demands it. Therefore, more robust sterile compounding quality systems must be adopted for all outsourcing facilities, as well as for large scale compounding pharmacies that remain under state oversight.

PP&P: How must adverse events be handled by a 503B entity? 
Kastango: A compliance system that tracks and trends feedback to improve the manufacturing process is a cornerstone of cGMP quality systems, and this certainly applies to any production errors or compromised quality. As a key cGMP concept, a corrective and preventive action (CAPA) system focuses on the systematic investigation of discrepancies (failures and/or deviations) in an attempt to prevent their reoccurrence (corrective action) as well as eliminate the cause of a potential nonconforming product and other quality problems (preventive action). To ensure that corrective and preventive actions are effective, failures must be systematically investigated and corrective actions must be standardized and integrated into the standard operating procedures (SOPs).

Performance feedback may be constituted via manufacturing process data on operational variances, or it may come about from customer complaints. To accommodate these occurrences, a robust CAPA system must include a written SOP that delineates how complaints are handled, as well as a written record of each complaint. If the complaint requires an investigation, the investigation must be documented and made readily available in the CAPA record. Understanding your outsourcing facility’s CAPA program would be an important quality metric to monitor.  

PP&P: How important is FDA registration and compliance to the process of choosing an outsourcer?
Kastango: As a purchaser, the goal of the hospital pharmacy is to acquire medications from a facility that is being held to the highest possible standard. We know the states are working very hard to inspect and oversee traditional sterile compounding operations, but these operations likely do not have the same level of quality control as a registered outsourcer, particularly in light of the significant differences between USP Chapter <797> and the draft guidance being proposed for 503B-registered facilities. 

This is not to say that adherence USP <797> does not provide for quality products, the chapter simply is not designed to cover the quality system requirements for large-scale compounding practices that are outside the traditional compounding role of pharmacists as defined in Section 503A. Pharmacy will benefit from sourcing products compounded under the explicit quality standards of 503B guidance documents. In addition, there is the strong suggestion by Margaret Hamburg that hospital pharmacies use FDA-registered outsourcers as delineated in the previously mentioned letter that was sent to all hospital CEOs and purchasers.  

One of the fundamental benefits of outsourcers that are registered with the FDA is that they are starting out with sterile, FDA-approved ingredients, so the risk of contamination is much lower than it would be for compounders that are using non-sterile products from which they expect to create sterile products. The question that purchasers now must ask themselves is: Do I simply trust that a non-registered outsourcer is doing everything possible to ensure 100% sterile and stable medications? Or, do I purchase from a facility that is now aggressively held to the highest standards?

Keep in mind, compounders that do not register with the FDA as 503B entities, but fail to follow the provisions of 503A, will be subject to FDA inspections as a 503B entity.

PP&P: How regularly is the FDA expected to inspect 503B entities?
Kastango: Once an organization registers as a 503B entity, it is anticipated that they will be put into the queue to be inspected. Historically, when large-scale compounders or pharmaceutical companies registered, they would wait 30 days before go-live, and then the FDA would perhaps inspect within six months to a year. That may no longer be the case. As a point of reference, the FDA already publishes a list of registered outsourcing facilities on their website (see SIDEBAR, #4). This site contains some great information, including the company name, date of registration, end date of last FDA inspection, whether a 483 was issued, any other FDA actions, and whether the company compounds sterile drugs from bulk substances. So it is evident that after registration, the majority of inspections take place within a couple months.

Based on the outcome of the inspection, it is anticipated that the facility will be placed in a queue for re-inspection until a comfort level has been established that the facility is complying with the guidance.

PP&P: What types of enforcement actions can we expect to see from the FDA?
Kastango: By way of example, if a pharmacy has registered as a 503B, one or more FDA inspectors will issue a 482, which is a notice of inspection, at the start of their visit. The inspector will spend anywhere from one day to several weeks reviewing records and observing operations. The inspector then may draft a report (a 483), which consists of any observations of potential violations of the FFDCA. This 483 may then be posted on the FDA website (often with certain sensitive or confidential information redacted). The facility typically has 15 business days to respond with a remediation action plan, which the FDA will review and either reject or accept in the short term. Pending a subsequent inspection, the inspectors will look to see if the entity followed through on their plan. 

If the plan is rejected or the FDA determines that the facility did not abide by its remediation plan upon secondary inspection, the FDA can issue a warning letter. A warning letter provides the entity’s leadership with the opportunity to take voluntary and prompt corrective action before the FDA initiates an enforcement action. Warning letters are issued to achieve voluntary compliance and to establish prior notice. These letters (intended as informal and advisory) are addressed to the person(s) considered most responsible in the organization (usually the president or CEO). This letter will say that the CEO can be held civilly and even criminally accountable for the entire operation in the event of malfeasance or lack of compliance with cGMPs leading to medication errors. If the facility continues to violate cGMPs and ignore FDA recommendations, the next step is a consent decree. A consent decree is an order issued by a judge that expresses a voluntary agreement by the participants in a lawsuit, typically between the FDA and the entity. It is a final, binding judicial decree or judgment memorializing a voluntary agreement between parties to a suit in return for withdrawal of a criminal charge or an end to a civil litigation. The action that can be taken by the FDA is to create a progressive disciplinary plan, but one wherein the ultimate consequences have the potential to shut down the company.

In my experience working with hospitals that have only had traditional pharmacy compounding experience, the senior managers, risk managers, CEOs, CFOs, COOs, and chief legal officers do not understand the gravity of the commitments they will be making to the FDA should they attempt to register as a 503B entity. As a now highly visible and potent federal agency inspecting pharmacies in the wake of the devastating events of 2012, the transparency of compounding activities will be achieved. Thus, a facility seeking to volunteer for 503B registration must fully understand the commitment and obligations of registering with the FDA.  

PP&P: How should hospital pharmacies interpret 483s and warning letters?
Kastango: That a compounding pharmacy or outsourcing facility has received a 483 is not an automatic indication that a hospital should not purchase medications from that facility. As mentioned throughout this article, it is substantially difficult to conform to the new expectations of the FDA under cGMPs. Many operations are currently working to bring themselves up to speed and that takes time. However, if I am a pharmacy director at a hospital, the main things I want to know are: What were the issues, did they affect the sterility of the compounded products, and has the FDA accepted the entity’s remediation plan? It is incumbent upon the pharmacy director to review that plan with the entity and inquire as to what auditing processes are in place to monitor for compliance to the plan.

This being said, large-scale operations working within the provisions of Section 503B of the DQSA need to be regulated and inspected by the FDA. The FDA and state boards of pharmacy must work together to identify non-traditional compounding facilities that have not registered with the FDA as 503B entities in order to ensure that appropriate regulatory oversight exists. Only when all compounding facilities are held fully accountable to appropriate quality systems can drug quality and patient safety be assured.

PP&P: Is there a final thought you would like to leave us with?
Kastango: FDA’s guidance document contains important quality requirements encompassing a wide range of topics, including garbing, physical plant design, and sterility and stability standards. It includes nuanced information and subtle recommendations; and at 28 pages, there is no reason for health-system pharmacists to not download and read this guidance today!

Eric S. Kastango, MBA, RPh, FASHP, is the president, CEO, and owner of Clinical IQ LLC, a provider of customized process and educational strategies for the pharmaceutical, medical device, and health care industries. A member of the USP’s Compounding Expert Committee from 2005 to 2012, Eric now serves as an Expert Consultant on the USP Council of Experts. 


FDA Documents Pertaining to the DQSA, Section 503A, and Section 503B

  1. DHHS Information Letter, January 8, 2014, from Margaret A. Hamburg, MD, Commissioner of the FDA.
    Available at:
  2. Pharmacy Compounding of Human Drug Products Under Section 503A of the Federal Food, Drug, and Cosmetic Act.
    Available at:
  3. Current Good Manufacturing Practice—Interim Guidance for Human Drug Compounding Outsourcing Facilities Under Section 503B of the FD&C Act.
    Available at:
  4. FDA List of Registered Outsourcing Facilities.
    Available at:


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