Due Diligence Drives 503B Vendor Selection

June 2022 - Vol.19 No. 6 - Page #10
Category: Outsourced Compounding Services (503B)

Utilizing the services of an outsourced compounder has become increasingly common in hospital pharmacy practice. According to Pharmacy Purchasing & Products’ 2022 State of Pharmacy Compounding survey, 75% of all facilities outsource at least some portion of their compounded preparations.1 In recent years, the severity and persistence of drug shortages have been one of the major factors driving this trend. The PP&P survey notes that in 2022, 27% of facilities are outsourcing due to drug shortages.1 When choosing a 503B outsourcing partner, performing the requisite due diligence is critical to ensure the chosen vendor operates safely and in compliance with all regulations and requirements. Thus, hospital pharmacies must develop and implement vendor selection guidelines for procuring any outsourced compounded non-sterile (CNSP) or sterile preparations (CSPs).

The same survey reported encouraging news: 80% of hospital pharmacies use formalized internal guidelines to select a 503B vendor.1 Tools such as regulatory, quality, and medication safety information and references are available to assist organizations in this pursuit. To ensure the safety and quality of compounded preparations purchased from an outsourced partner, pharmacists must have a clear understanding of the current regulatory environment, maximize the effectiveness of the available tools, and dedicate sufficient time and resources to thoroughly evaluate potential 503B partners.

Regulatory Landscape

Further complicating the vendor selection process is the recent release of the Food and Drug Administration’s (FDA) Hospital and Health System Compounding Under Section 503A of the Federal Food, Drug, and Cosmetic Act Guidance for Industry DRAFT GUIDANCE (issued October 2021).2 This draft guidance, once finalized, “will represent the current thinking of the FDA on this topic.” It is important to note that this is a guidance document, and as such, alternative approaches are acceptable as long as they satisfy the applicable statutes and regulations.

This guidance only allows the compounding of drugs in the hospital or health system for a specific patient after receiving a prescription, or limited batch compounding in anticipation of critical need. The guidance document uses the word “prescription,” but appears to be referring to a medication order or charted entry for a medication. The language used appears to shift the determination of what constitutes essentially a copy of a commercially available dosage and could be interpreted to mean that this guidance would no longer permit hospitals or health systems to use bulk vials for compounding. The guidance does state, “FDA guidance documents, including this guidance, should be viewed only as recommendations, unless specific regulatory or statutory requirements are cited.” The use of the word should in an FDA guidance means that something is suggested or recommended, but not required. That would appear to be straightforward; however, concerns arise if a particular Board of Pharmacy (BOP) is not willing to discuss FDA policy statements but is instead content to incorporate them unedited into their regulations. In some cases, pharmacies have been cited and fined based solely upon FDA Form 483 citations without local BOP verification of any actual regulatory non-compliance. To see if your local BOP is engaged in this practice, you should carefully read the public published minutes of the Board’s regular meetings.

In addition, the guidance states, “… for a compounded drug product to qualify for the exemptions under section 503A of the FD&C Act is that it is compounded by a licensed pharmacist in a state-licensed pharmacy or federal facility, or by a licensed physician...” Under this language, it would appear that only a licensed pharmacist or physician could compound sterile preparations. This could preclude technicians or nurses from compounding CSPs.

It is very clear in this document that the FDA recommends utilizing FDA-registered 503B outsourced facilities to meet the need for compounded drug products. Because these facilities are subject to cGMP requirements and inspected by FDA, this helps mitigate the risk of contamination or substandard compounding conditions.2

The FDA lays out a simple pathway (from their perspective) for hospitals and health systems to comply with the guidance provided on compounding without a prescription:

  1. The compounded drug products are administered only to patients within the hospital or health system.
  2. The compounded drug products are used or discarded within 24 hours of transfer out of the pharmacy.
  3. The drug products are compounded in accordance with all other applicable requirements of the FD&C Act and FDA regulations (eg, the drug products are not made under insanitary conditions (section 501(a)(2)(A)) or misbranded (eg, section 502(g)).

The FDA reinforces that the pharmacist in charge or physician who is purchasing outsourced compounded preparations is legally responsible for the quality and safety of the purchased compounded preparations. This mirrors the responsibility of purchasing products from commercial sources; however, note that products acquired from commercial sources are backed by decades of product liability law and associated protections. This is not true for 503B entities as they are not manufacturers, but essentially FDA registered pharmacies.

The FDA has provided 48 regulatory policy documents and related materials regarding compounding drugs for human use on its website.3 Although not all of these documents directly address outsourced compounding, each does contain valuable direction pertaining to compounding practices in general. Carefully review the documents that specifically address 503B specific topics (see TABLE 1).

After developing a comfortable understanding of the relevant regulatory and operational issues, the next step is to thoroughly review publicly available resources. Begin by examining the registration information available on the FDA website, which lists the federally registered outsourcing facilities and provides access to publicly released inspection documents.4 The outsourcing entity must be registered and listed with FDA, and, if locally required, must also obtain and maintain state licensure in the jurisdiction in which it is located, as well as licensure allowing it to ship to the hospital’s locale. Consultation with your hospital’s or health system’s general counsel or a qualified consultant to verify proper licensure is essential.

Vendor Selection Process

Outsourcing CSPs does not release the hospital or health system from its responsibilities under USP and state board of pharmacy statutes, rules, and regulations. Therefore, it is imperative to review each potential outsourcing vendor using both a formal review tool and an organizationally developed request for proposal (RFP) document. This will ensure that the health system’s needs are addressed, and that each vendor is evaluated fairly. Developing a checklist of questions to ask potential 503B partners is crucial to this process; see TABLE 2 for specific questions to ask in the evaluation process.

Evaluate Vendor Offerings

Before entering into a business relationship with any vendor, carefully examine the potential vendor’s CSP portfolio, quality standards, service capabilities, customization opportunities, delivery methods, and pricing. Furthermore, assess the vendor’s willingness to provide comprehensive and meaningful data especially related to its quality standards, recall processes, communication and notification capabilities, and service.

Ensure that a 503B vendor is following or exceeding the QC and QA standards required by FDA, USP General Chapter <797>, current pharmacy practice standards, and prevailing state board of pharmacy statutes, rules, and regulations. The hospital or health system must hold its outsourcing partners accountable for the safety and quality of the medications they provide. Noncompliance by your outsourcing partner could by extension create noncompliance issues for your health system with the Centers for Medicare and Medicaid Services (CMS).5 Any violations deemed significant could violate the organization’s Conditions-of-Participation under CMS rule and impact the health system’s ability to access CMS reimbursement.

Review Form 483s

An FDA Form 483 is issued when an FDA inspection has identified objectionable conditions at an outsourcing facility. The simple existence of an FDA-issued Form 483 inspection document should not be used to exclude an outsourced compounder; rather, it should trigger a more in-depth review. A thorough review of any FDA Form 483s is crucial to ensuring proper due diligence when evaluating a 503B vendor. Be sure to gather and review all recent inspection documents relating to each vendor being evaluated. The 503B facility must share any correspondence between the facility and the FDA to provide an accurate picture of the current status and what is going on as a result of the 483 and the outsourcing provider’s dialogue with the FDA.

Utilize a Multidisciplinary Team

Employ a multidisciplinary team in all vendor evaluations. Nurses, technicians, administrators, and pharmacists can have strikingly different perspectives on the materials and services proposed by vendors. For example, dosage forms (ie, syringe versus vial presentations) and final containers will be viewed differently by nurses versus pharmacists. Administrators may be heavily focused on contractual limits, terms, and pricing, and less focused on the other operational concerns impacting the clinical team.

Additionally, it is wise to utilize this team to conduct both announced and unannounced site visits to verify the accuracy of the information and services offered by the outsourcing provider. Interestingly, the 2020 PP&P compounding survey noted that only 35% of health systems using outsourced compounding have conducted onsite visits to their outsourcing partners.6 Nonetheless, investing time and resources to verify the quality of a vendor via site visits is a worthwhile pursuit. Notably, the 2022 PP&P compounding survey found that 71% of respondents have developed their own vendor selection guidelines.1 This reflects an increased understanding of the shared liabilities of these services, along with the increased spending on these critical medications. There is no doubt that actual site visits to verify key performance indicators are not a luxury, but a necessity, to ensure that the outsourcing partner is providing safe, effective medications. 503Bs may have multiple compounding methodologies for providing these medications; be sure that none of these methodologies (eg, use of bulk powders or non-USP active pharmaceutical ingredients) are an unacceptable risk to your organization.

Contract Considerations

Involve the legal department or a legal resource throughout the vendor review process, especially in the contracting deliberations, as they can provide invaluable assistance. Often, the information beyond simple pricing and payment terms can be most telling about the level of quality and overall control an outsourcer exerts over its operation; omitted information can also be revealing. Does the prospective outsourcing provider exclude any responsibilities for assisting you in withdrawing/recalling CSPs they have provided? Can the prospective outsourcing provider deliver meaningful customer references (eg, clients of similar size, in the immediate area), or do they only provide limited business references? Are they forthcoming with information that can illustrate their business solvency? All documents, client references, and pending or in-process regulatory actions should be reviewed.

If the provider has open investigations with its local BOP, FDA, DEA, or other agency, request not only an unredacted copy of these documents, but also a copy of the provider’s complete response to these agencies. Do not limit your due diligence to documents that are publicly available. Note that it is not unusual to be required to sign a confidentiality agreement with the provider, as some of these inspection documents or their corresponding responses may contain proprietary information.


With increasing numbers of pharmacies purchasing compounded medications from 503B outsourcers, ensuring the safety and quality of the drugs compounded in these establishments is essential. The decision to purchase preparations from offsite 503B vendors can only be made after conducting the appropriate due diligence. Evaluating the outsourcer’s offerings, reviewing FDA inspection activity (ie, FDA 483s), asking key questions, and conducting site visits are critical steps in identifying an appropriate outsourcing partner. Given the proposed changes to key USP General Chapters impacting compounding (<795>, <797>), and the recent updating of FDA’s Hospital & Health System Compounding Guidance, some health systems may consider establishing their own 503B operation to supplement procurement of critical CSPs.


  1. State of Pharmacy Compounding 2022 Annual Survey. Outsourced Compounding. Pharm Purch Prod. 2022;19(suppl 4):52-58.
  2. United States Department of Health and Human Services. Food and Drug Administration. Hospital And Health System Compounding Under Section 503A Of The Federal Food, Drug, And Cosmetic Act Guidance For Industry. Center for Drug Evaluation and Research; 2021.
  3. Compounding: Regulatory Policy Information. United States Department of Health and Human Services. Food and Drug Administration. Updated February 8, 2022. https://www.fda.gov/drugs/human-drug-compounding/regulatory-policy-information
  4. Registered Outpatient Facilities. United States Department of Health and Human Services. Food and Drug Administration. Updated March 15, 2022. https://www.fda.gov/drugs/human-drug-compounding/registered-outsourcing-facilities
  5. Centers for Medicare & Medicaid Services. CMS. https://www.cms.gov/.
  6. State of Pharmacy Compounding 2020 Annual Survey. Outsourced Compounding. Pharm Purch Prod. 2020;17(suppl 4):46-47–52-53.
  7. Pharmaceutical compounding—sterile preparations (general information chapter 797). In: The United States Pharmacopeia, 43rd rev., and the National Formulary, 38 ed. Rockville, MD: The United States Pharmacopeial Convention. 2008.

Lou Diorio, RPh, FAPhA, is a principal of LDT Health Solutions, Inc, an international medication safety and quality management consulting company celebrating its 16th year of operation. Lou is a graduate of Long Island University’s Schwartz College of Pharmacy, where he is also an adjunct professor of pharmacy practice, a member of the college’s Alumni Board, and a preceptor of pharmacy students. He serves as a member of the New York State Council of Health-System Pharmacists’ Research and Education Committee and also is a member of the New Jersey Society of Health-System Pharmacists’ Industry Relations Committee.

David Thomas, RPh, MBA, is a principal of LDT Health Solutions. He previously served as the director of information technology operations for SoluNet, LLC, and as a manager of implementation and technology development for Baxter Healthcare. Prior to his 15 year tenure with Baxter, Dave held hospital practice and management positions for 5 years. He is a graduate of St. Louis College of Pharmacy.


Performing due diligence when evaluating the quality and services offered by a potential 503B provider requires investigation into the provider’s licensure, environmental standards, knowledge and experience, controlled processes, labeling and packaging, and its QA program. Asking the right questions can help elucidate critical information from the vendor.


  • Is the provider licensed as a pharmacy in the state where it is located?
  • Is the provider registered with the FDA as a drug manufacturer, repacker, or outsourcing establishment?
  • Is the provider licensed within its respective state as a wholesaler/distributor?
  • Does the provider hold an out-of-state wholesaler/distributor license (where applicable) for the state(s) they ship to?
  • Does the provider maintain out-of-state special pharmacy licenses or sterile compounding licenses, as required?


  • Do the provider’s cleanrooms meet or exceed USP <797> requirements?
  • Does the provider use only FDA-approved sterile components?
  • Does the provider have SOPs in place for all production, monitoring, and sanitation processes?


  • Does the provider have special credentials or experience that indicates compounding expertise?
  • Does the provider have robust staff training and competency-based education programs in place?
  • Will the provider supply a list of client references so that pharmacy can independently conduct interviews?


Current USP <797> requires that the provider has: A written description of specific training and a performance evaluation program for individuals involved in the use of aseptic techniques for the preparation of sterile products for each site.7

  • Does the provider have controlled processes that are based on best practices and have been analyzed using a failure mode and effects analysis methodology? Processes should not be based on historical precedent or “the way it has always been done.”


  • What format(s) and special features are offered?
  • Is the labeling compliant with FDA 503B guidance and applicable state board of pharmacy requirements?
  • Does the compounder offer TALLman lettering and color coding on labels and packaging?
  • What information is contained within the bar coding on the labels and packaging?
  • Are the bar codes compatible with the hospital’s automation?
  • Can the bar coding assist in any drug tracking, withdrawals, or recalls of the provider’s compounded preparations or components?


  • Can the provider articulate its QA program and specific processes?
  • Who develops and reviews the compounder’s offerings, formulas, and compounding documents?
  • What data does the compounder have to support its BUDs?
    • What methods were employed to develop this data?
    • Is this data USP compliant?
    • How often is this data reviewed?
  • Is container closure integrity testing part of their program?
  • What sterilization methods are in use?
    • What verification/validation processes are in place to check this testing?
  • What environmental monitoring is in place?
  • Can pharmacy review the provider’s most recent certification and testing reports?
  • What data does a review of recent sampling reveal?
  • Can pharmacy view the last unfavorable/actionable/alert incident report?
    • Can pharmacy review the remediation reports for any of these out-of-specification incidents?
    • Does the compounder conduct this testing internally or does it utilize a laboratory partner or contractor?
    • Who is the outside partner and what are their qualifications?
    • Can the hospital review the provider’s programs and processes?
  • Does this provider have any FDA Form 483s?
  • Has the provider recalled any compounded preparations?
    • What were the preparations?
    • What were the circumstances of the recall?
    • Can pharmacy review these documents?
    • What changes were made to the outsourcer’s processes, programs, or offerings since this recall?


  • Can pharmacy review the provider’s current licensure (FDA, state board of pharmacy, DEA, etc), liability insurance, and the staff’s current licensure (pharmacists and technicians)?
  • Does the 503B vendor provide its SOP manual for compounding processes, cleaning and sanitization, BUD determination, sterility testing, and recalls and variances?
  • Does pharmacy have access to the 503B vendor’s training materials?
  • Are examples of QA reports, daily cleaning logs, QA testing logs, stability references, BUD data, standard reports, and service contracts provided?


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