FDA established a forum for outsourcing facilities and related stakeholders to discuss issues that affect outsourcing facilities, health care providers that purchase their products and associated stakeholders as part of FDA’s Compounding Quality Center of Excellence. This group meets approximately five times a year, allowing individuals to share perspectives on compounded drug quality, production, demand and clinical use. Information discussed during meetings is summarized and posted below.
State of Outsourcing Facility Industry (October 2023)
Drug Approval Pathways (July 2023)
Drug Shortages (May 2023)
Future Focus of the Cross-Sector Stakeholder Group (March 2023)
Future Role of Outsourcing Facilities (December 2022)
Compounding Quality in Outsourcing Facilities (October 2022)
Educating Stakeholders About the Outsourcing Facility Industry (July 2022)
Drug Shortages (May 2022)
Goals of the Cross-Sector Stakeholder Group (March 2022)
The meeting focused on the current and future states of the outsourcing facility sector, with special focuses on business viability, compounding drug quality and patient access to compounded drugs.
Presentation and Facilitated Discussion on the State of the Outsourcing Facility Sector
The presentation opened with a discussion of the size of the outsourcing facility market, which indicated the number of registered facilities is stabilizing. Participants then provided individual views on outsourcing facilities’ top business challenges and growth opportunities, quality culture and quality practices across the industry and barriers to meeting customer demands.
The presentation concluded with questions for individual input on the future of the outsourcing facility industry.
The presentation and discussion covered a series of issues, including:
- Recruiting outsourcing facility staff during staffing shortages
- Decisions used to produce shortage drugs
- Industry-wide quality culture
- Long-term industry viability
Throughout the presentation, participants provided individual views on the current state of the outsourcing facility sector, including:
- Business challenges and opportunities: Individuals acknowledged that a leading business challenge for outsourcing facilities is recruiting and retaining staff. A few participants noted that outsourcing facilities experience recruitment challenges due to a lack of potential employees in their surrounding area or competition with other companies who offer more competitive compensation packages. While participants acknowledged these challenges, they noted that outsourcing facilities are uniquely positioned to offer staff stable work schedules, on-the-job training and mission-oriented work, which can contribute to hiring advantages in a tight labor market.
- Growth opportunities and drug shortages: Individuals provided views on growth opportunities within the outsourcing facility industry, including responding to drug shortages. Some participants acknowledged that outsourcing facilities can play a role in alleviating drug shortages, but barriers, such as time required for development and uncertainty around shortage timing, make business decisions challenging. Specifically, participants shared that the business risk associated with producing shortage products can challenge their ability to seek interested investors. Some participants shared that predictability in the form of early warnings and extended tail periods are two factors that would better enable outsourcing facilities to produce drugs in shortage.
- Quality practices and quality culture: The group then discussed outsourcing facility drug quality and quality culture practices, recognizing that quality views and practices vary across the industry. Individuals in the group noted that some outsourcing facilities (especially smaller ones or those newer to the industry) cite difficulty in understanding areas of FDA policy or expectations responding to Form FDA 483s and warning letters.
- Participants shared that while outsourcing facilities may hire external consultants or industry experts to help understand and address FDA policy, outsourcing facilities may be challenged to establish a quality mindset throughout the facility, which can contribute to compliance challenges. Some participants shared the view that to embrace a shared understanding of quality across the industry, outsourcing facilities must establish robust quality management systems within their facilities and foster a quality culture mindset with staff. Participants noted that training on how to interpret and respond to observations on Form FDA 483s are helpful.
- Meeting customer demands: The group then discussed patient access, including an overview of the customers across the industry and challenges outsourcing facilities face in meeting customer demand. Participants noted how outsourcing facility customers span across acute and ambulatory care (e.g., hospitals and health systems), niche customers (e.g., ophthalmology and dermatology) and group purchasing organizations. Participants noted that outsourcing facilities are sometimes challenged in meeting customer demands due to the shelf life of the requested drug, complex formulations, the cost to produce specialty products or the lack of drug standardization. While challenges persist, participants shared that outsourcing facilities continue to build relationships with customers and that customers increasingly recognize the value of current good manufacturing practices and the quality that outsourcing facilities can offer.
- Future of the industry: Participants then shared thoughts on the future of the industry. Some participants acknowledged that the industry is young and evolving. Many outsourcing facilities continue to learn their unique position in the market, develop sustainable business models and build trusted partnerships with stakeholders (e.g., customers, state boards of pharmacy). A few participants also acknowledged there may be a potential bifurcation in the industry between larger outsourcing facilities that can scale their business operations to address large health care systems and smaller outsourcing facilities who can flex their business operations to focus on niche markets.
The discussion focused on FDA’s abbreviated drug approval pathways, with an emphasis on abbreviated new drug applications (ANDAs) and approvals under section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, based on requests from outsourcing facilities.
Presentation and Facilitated Discussion Around FDA Drug Approval Pathways
The meeting began with two presentations from FDA staff with general information about the 505(b)(2) and the ANDA pathway, as well as a brief overview of the new drug application (NDA) approval pathway for comparison. The presentation was followed by a question-and-answer session.
Stakeholder Group Individual Activity Updates
Participants shared updates and discussed their progress on individual activities:
- Two participants are developing a resource that lists state licensure requirements for outsourcing facilities in a single document. They are compiling the information for this resource.
- Another participant is developing a “matchmaker tool” that links potential purchasers with outsourcing facilities nationwide based on specific product needs. A framework for the tool has been developed and is being populated with data.
- An additional project involves identifying and documenting long-duration or frequent FDA shortage drugs to inform production decisions for outsourcing facilities.
The meeting focused on trends in drug shortages. Participants discussed the causes of drug shortages, including manufacturing issues, regulatory challenges at the state and federal level, increased demand and disruptions in the supply chain. Participants noted the factors that drive drug shortages are often complex and can be hard to predict.
Facilitated Discussion on Drug Shortages
The group began with an overview of the state of drug shortages, focusing on the misconception that shortages are driven by short-term shifts. Participants highlighted that shortages are caused by structural inefficiencies in drug production related to drug supply chain and market mechanisms.
Participants raised the following issues:
- A small number of traditional pharmaceutical companies can frequently control pricing and production, reducing competition and increasing costs.
- The disconnect between drug patent holders and drug manufacturers can limit transparency, creating information gaps.
- Pharmacy group purchasing organizations (GPOs) have a limited number of drug manufacturers on contract and therefore have an important role in impacting the availability of affordable high-quality drugs.
- Drug manufacturers may focus on traditionally profitable markets (e.g., cell and gene therapy, biologics), creating a need for low-cost sterile injectables and oral generic drug production.
Participants raised the following questions:
- If the industry continues to do what it has always done, will shortages get better or worse?
- What changes can we envision that would address shortages and reduce public health crises caused by them? More specifically, how can outsourcing facilities help?
- Does more work around education, communication, guidance and regulatory change need to be done to distance current good manufacturing practice (CGMP) requirements from US Pharmacopeia (USP) standards to make the distinction clear?
- What needs to change to make outsourcing facilities a more significant answer to the ongoing drug supply chain issues in the U.S.?
Participants discussed potential ideas to address challenges facing the drug supply chain, including the following:
- Two-year minimum on FDA’s drug shortages list: Participants discussed whether establishing guidelines for minimum amount of time drugs remain on a shortage list might allow outsourcing facilities to be better equipped to assist. With more time for stability testing, product marketing, capturing sufficient market share and resources to produce drugs on the shortage list, there is a greater likelihood outsourcing facilities can play a significant role. Participants noted this may discourage manufacturers from reporting shortages in a timely manner, as this would increase competition with outsourcing facilities.
- Collaboration between outsourcing facilities and large manufacturers: Participants discussed whether encouraging, and potentially incentivizing, drug manufacturers and outsourcing facilities to collaborate early and often could allow outsourcing facilities to be better positioned to act and alleviate drug shortages more readily. Participants noted that although this could increase competition for large manufacturers, customers generally prefer to purchase FDA-approved drug products, as they are generally reimbursed.
- Extended tail end for production: Participants discussed the possibility that allowing outsourcing facilities more time to recoup investment costs might make them more likely to take risks associated with the development of a new drug facing shortage. Participants noted this action may discourage drug manufacturers from reporting shortages in a timely manner, as this action may increase perceived competition.
- Increased batch size for drugs on FDA’s drug shortages list: By increasing batch sizes beyond the current 1,000 batch limit, outsourcing facilities would likely be better equipped to produce a higher volume of drugs and respond to shortage.
- Additions to the bulks list: Participants discussed whether the addition of pre-vetted bulk substances that pertain to sterile injectables to the 503B bulks list could allow outsourcing facilities to compound drugs that are likely to be in shortage under current good manufacturing practice (CGMP) requirements to help meet demand and alleviate shortages. Participants noted this is currently underway with bulk substances EDTA and glycopyrrolate. However, participants also noted their classification under category 2 of the 503B bulks list allowed only pharmacy compounders (under section 503A of the FD&C Act), not outsourcing facilities (under section 503Bs of the FD&C Act), to use these substances for production.
Participants also discussed other current industry challenges, including the ability of outsourcing facilities to:
- change FDA-approved containers for compounding drugs during a shortage period
- receive drugs when large manufacturers experience backorders hindering drug supply
The meeting focused on how the group can be used to support stakeholder-driven change across the outsourcing facility industry. Participants noted the cross-sector stakeholder group has been a helpful way to engage with stakeholders across the outsourcing facility and health care industry and FDA.
Facilitated Discussion on the Future Activities of the Cross-Sector Stakeholder Group
The group discussed ideas from previous meetings for future consideration. These ideas fell within four areas:
- Drug shortages and supply chain issues: Participants discussed activities that focused on outsourcing facility interest in developing drugs that have been in shortage for a long time and linking purchasers to outsourcing facilities offering specific, desired drugs.
- Advancing education and communication gaps: Participants discussed activities to bridge knowledge and communication gaps across the outsourcing facility industry for key stakeholders, including states and potential customers, on commonly misunderstood topics, such as the distinction between compounding pharmacies and outsourcing facilities and state licensure requirements.
- Industry networking and norm setting: Participants discussed the desirability of outsourcing facilities establishing industry norms around quality, as well as future convening of stakeholders to continue discussing issues, solutions and future goals for the industry.
- Advancing quality: Participants discussed interest in developing quality tools for customers’ use, encouraging pre-operational audits as an industry practice and educational tools on current good manufacturing practices (CGMP) requirements for outsourcing facilities and other stakeholders to understand the impact of CGMP on quality.
Participants expressed particular interest in:
- identifying long-term drug shortage issues
- developing a tool that matches customers with outsourcing facilities that produce needed drugs,
- developing educational materials that compare compounding pharmacies with outsourcing facilities
- developing a matrix of state licensure requirements
Brainstorming Session on Current Challenges Facing Outsourcing Facilities
Participants identified current challenges faced by the outsourcing facility industry, including:
- difficulties new outsourcers have when entering the industry
- knowledge gaps between new outsourcing facilities and industry veterans
- strained supply chains due to limited suppliers
- outsourcing facilities drug portfolio management that adequately serves customers
- buyer reimbursement challenges with restrictive National Drug Codes (NDCs)
- communication barriers working with state boards of pharmacy
Participants also identified areas for future consideration:
- developing supply chain redundancy to ensure outsourcing facilities are not dependent on a sole supplier
- creating resources to assist customers through opaque reimbursement processes
- improving communication between state boards of pharmacy and outsourcing facilities
Future Meeting Planning
Participants discussed the format of future meetings, and supported continuing these discussion forums with the potential for guest speakers and time allotted for individual participants to share updates on activities they are pursuing to advance the outsourcing facility industry. Meeting topics for the remainder of 2023 were discussed, and topics identified by group members included:
- a more in-depth discussion on drug shortages
- section 505(b)(2) of the FD&C Act applications process, the state and evolution of the industry
- the matrix of state licensure requirements
The meeting began with an overview of the current role of outsourcing facilities. Participants discussed types of services provided by outsourcing facilities as well as the benefits and challenges of using outsourcing facilities.
Participants noted that outsourcing facilities provide hospitals and health systems with key products, such as admixtures or parenteral medications not commercially available or experiencing a shortage, sterile and non-sterile and topical formulations (often for dermatologic use). Participants noted common benefits that outsourcing facilities deliver to their clients, such as relieving staffing and space constraints. Key challenges that hospitals and health systems face when using outsourcing facilities include cost of outsourced drugs (compared with the material costs of compounding the drugs in house), as well as managing unplanned interruptions of supply from outsourcing facilities driven by production issues, quality issues, vendor supply chain issues and pending FDA regulatory actions (e.g., 483 observations, warning letters, recalls).
Meeting facilitators provided an overview of the history of the outsourcing facility industry. Participants discussed the relative youth of the industry and continuing improvements in customer and other stakeholder understanding of outsourcing facilities (e.g., differences between compounding pharmacies and outsourcing facilities, states’ understanding of outsourcing facility requirements).
Participants noted a common desire for the outsourcing facility industry to serve customers during drug shortages. They also expressed the view that outsourcing facilities are constrained in producing shortage products for a variety of reasons, including the high cost of startup (e.g., stability testing) and uncertainties surrounding the time of onset and length of some shortages.
Participants discussed the economic challenges of production in specialized practice areas such as dermatology and ophthalmology in which there is no drug standardization, and the batch size is generally smaller than what is required by hospitals and health systems.
Participants noted considerations the outsourcing facility industry will navigate as it continues to grow. Key considerations discussed included:
- potentially restrictive reimbursement policies
- different interpretations of essential copies guidance across the industry
- states’ interpretation of the wholesaling prohibition (e.g., in some circumstances outsourcing facilities report being unable to sell to pharmacies and physicians)
Meeting participants acknowledged that a shared understanding of wholesaling across the outsourcing facility industry remains a priority for all stakeholders.
Discussion questions included:
- Are compliance with current good manufacturing practice (CGMP) requirements and “quality” synonymous for some outsourcing facilities?
- What do health care providers want in understanding quality when assessing an outsourcing facility?
- Where is the outsourcing facility industry heading regarding quality?
- How can stakeholders advance a shared understanding of quality in the outsourcing facility 503B ecosystem?
Facilitated Discussion on Quality and Compliance in the Outsourcing Facility Industry
The meeting began with review of the 2012 meningitis outbreak caused by contaminated compounded products released by the New England Compounding Center.
Participants proposed as a framework for discussion the outsourcing facility ecosystem can be characterized by four types of understanding of compounding quality:
- compounding veterans who understand compounding quality as contingent upon CGMP compliance
- compounding veterans who believe compounding quality is not contingent upon CGMP compliance and seek greater regulatory flexibility
- compounding novices who are largely unfamiliar with CGMP compliance as a necessity for compounding quality
- compounding novices who understand compounding quality as contingent upon CGMP compliance
Participants noted that groups 2 and 3 above , though well-intentioned, can be vulnerable to decreased compounding quality without consistent CGMP requirements compliance.
Participants noted that customers seek greater transparency and insight into the quality of each outsourcing facility to allow for benchmarking. However, participants highlighted that there is currently no standardized means of quality transparency for outsourcing facilities to meet customer demand.
Various stakeholders noted that the American Society of Hospital Pharmacists (ASHP) recently released a digital tool to enable customers to assess quality.
Participants also noted the challenges of sharing sensitive information with customers in a digital world where security and privacy of information is critical. One participant noted their organization temporarily shares sensitive customer-requested data in a secured digital space for greater transparency to address this challenge.
Another discussion point raised was the challenge of maintaining a profitable business with quality (e.g., greater investments in quality can lead to increased costs).
Participants discussed automation in compounding as one way to reduce costs associated with human error as well as product standardization to reduce development costs of multiple products and enable agility in production.
Participants noted that newer facilities may proactively request FDA pre-operational evaluations before starting up to proactively obtain feedback on production and quality plans, which could save on later costs associated with compliance issues.
Participants also discussed developing advanced trainings and continuous education on producing quality drugs. The discussion on the means of continuous education included advanced training delivered through the Compounding Quality Center of Excellence or other body and leveraging the annual conference.
The meeting included a presentation and facilitated discussion on educating stakeholders and communicating information about the outsourcing facility industry.
A participant outlined key points for discussion on the need to educate stakeholders and communicate information that affects the outsourcing facilities:
- target audiences
- outsourced drugs differences between compounding pharmacies and outsourcing facilities
- current good manufacturing practice (CGMP) requirements
- outsourcing facility inspections
- Form FDA 483 observations
- state regulations and licensure
A participant discussed the importance of distinguishing between compounding pharmacies and outsourcing facilities that are compounding, noting that FDA Compounding Quality Center of Excellence trainings have been very useful for industry personnel and highlighted the need for greater distribution channels to amplify the trainings that all outsourcing facility stakeholders may benefit from them.
Participants offered several options to promote trainings, including ASHP’s Compounding Resource Center Vendor Assessment Tool and an ASHP webinar, as well as and distribution through professional academies and organizations listed on the Council of Medical Specialty Societies External Link Disclaimer.
The group discussion underscored the importance that customers understand the critical differences between compounding pharmacies and outsourcing facilities. A participant discussed the value in communicating to customers that compounding pharmacies are primarily managed by a pharmacist, whereas outsourcing facilities are primarily managed by quality systems . Another discussion point highlighted that compounding pharmacies, such as those located within a hospital, compound drugs for more immediate consumption whereas outsourcing facilities produce compounded drugs over a longer term, necessitating different regulations.
The group discussed one potentially harmful impact of inaccurately using “investigational” and “experimental” terms to describe drugs compounded by outsourcing facilities. Participants expressed concern that the terminology can create confusion for health care providers and patients. To address confusion, participants discussed the potential utility in developing a visual tool to differentiate pharmaceutical companies, compounding pharmacies, outsourcing facilities and hospitals. Other participants proposed a frequently asked questions (FAQs) document for non-clinicians to understand key differences.
The presenting participant introduced a discussion on the difference between outsourcing facility inspections completed by FDA versus state boards of pharmacy.
Some participants have experienced confusion from customers, and some individual participants expressed interest in having the FDA Compounding Quality Center of Excellence develop a CGMP inspection process training targeted for state regulators. FDA provided a link to current, on-demand FDA Compounding Quality Center of Excellence trainings and mentioned that state regulators have been included in previous virtual trainings on a limited basis. Additionally, the FDA Compounding Quality Center of Excellence had a training and discussion session for state regulators following this meeting.
The participants observed that Form FDA 483 observations are frequently interpreted as violations or sanctions by some customers. Some participants expressed that observations should be instead interpreted as feedback for continuous quality improvement. One participant noted the Form FDA 483 observations were akin to the inspections that the Joint Commission conducts in hospital pharmacies.
Outsourcing facility participants raised a discussion on the diversity in state regulatory requirements for outsourcing facilities. Participants observed that there is no coordinated effort of outsourcing facilities with state boards to address this issue, citing low visibility into the inefficiency of maintaining licensing across states as a potential cause. Participants proposed solutions, including outsourcing facility ownership in educating stakeholders, and discussed this issue with state regulatory bodies and related stakeholders, (e.g., International Society for Pharmaceutical Engineering (ISPE)), the Outsourcing Facility Association’s (OFA’s) collaboration with National Association of Boards of Pharmacy (NABP ) and/or development of a visual (e.g., table) amended to NABP summary of laws that breaks down state licensing information for centralized access and increased visibility.
Participants discussed the potential role of the FDA Compounding Quality Center of Excellence in promoting materials to a broader audience.
Group members expressed concern that words such as dispense, distribute, sell and resell may be insufficiently understood, which is challenging for gaining industry understanding.
At this meeting, a participant presented data on the impact of drug shortages and staff issues. The discussion focused on recent data and historical trends.
Recent American Society of Hospital Pharmacists (ASHP) data suggest that 66% of new drug shortages in 2021 and 2022 are among injectable drugs, and there are approximately 240 active drug shortages in Q4 2021 and Q1 2022.
ASHP historical data indicate the earliest currently active drug shortage tracked by ASHP dates to 2008.
It was noted there has been a significant and consistent increase in the number of ASHP-tracked shortages that have remained active for shortages beginning in 2016 to present, with a peak in 2019-2020.
It was reported that hospitals are perceiving increased workforce shortages for entry-level and experienced pharmacy technicians. As of 2021 the shortage of pharmacy technicians is at the highest level since data collection began in 2007.
Discussion of Duke Margolis Center for Health Policy Drug Shortages Meeting
Another participant attended the Duke Margolis Center for Health Policy meeting on drug shortages in Washington D.C. on November 2018 titled Identifying the Root Causes of Drug Shortages and Finding Enduring Solutions.
This meeting was part of a federal inter-agency task force led by FDA and contributed to the FDA report Drug Shortages: Root Causes and Potential Solutions, which was published in 2019 and updated in 2020.
While the meeting occurred more than three years ago, participants noted the intensity and duration of drug shortages as described by the presentation and discussed continued relevance of some issues and themes.
Participants discussed how the prevalent shortages of low-cost sterile injectable generic drugs could be related to their diminishing profitability and manufacturer exits from these markets as manufacturers increasingly shift production to newer, more profitable drugs.
Participants discussed considerations that affect purchaser decision-making, such as reimbursement and budget, and those that impact outsourcing facility decision-making, such as the time required for process development and stability testing.
Facilitated Discussion on Drug Shortages
Participants from hospital systems described the impact of acute drug shortages on their operations, including their need for daily internal meetings to discuss strategies to preserve patient care with a limited supply of certain drugs.
When facing a drug shortage, the hospital and health system participants also described their supply chain decision-making process, including their need to consider the impact and duration of the shortage and then determine whether they have the capacity to compound in-house or if a compounding pharmacy or outsourcing facility has the capacity to meet their needs.
Participants from outsourcing facilities described the factors that influence whether a drug in shortage is a good fit for their production. Drugs that were identified as potentially viable included small molecule, injectable or older generic drugs. Low-margin products like IV fluids and saline flushes that can be produced in greater volumes by contract manufacturers or generic drug companies were identified to be less ideal for outsourcing facility production.
Outsourcing facility participants mentioned the financial and time commitment required to conduct stability studies and the risk of having to cease production after a short tail period when a drug in shortage becomes available from the manufacturer as key factors in their decision-making.
Participants discussed that being able to proactively predict drug shortages would be helpful regarding purchasing and production-related decision-making.
Participants also discussed situations in which non-profit foundations have collaborated with outsourcing facilities to enable their production of certain drugs predicted to be in shortage by funding stability studies.
Hospital and health system participants mentioned they are less able to fund stability studies or commit to purchasing a certain volume of drugs in shortage produced by outsourcing facilities due to financial constraints.
Participants discussed potential collaboration opportunities to identify specific drugs in shortage with high clinical need that align well with outsourcing facility production capability.
Participants discussed feedback on the goals and focus of the cross-sector stakeholder group, future topics for discussion and patient needs.
Feedback on Goals and Focus Areas
One goal of the cross-sector stakeholder group is to foster an improved understanding of the outsourcing facility sector, including how the industry serves health care providers and patients.
Outsourcing facility representatives mentioned their hope is to share best practices with each other, such as strategies to better understand and meet demand and lessons learned from deploying automation or other quality manufacturing practices at outsourcing facilities.
Participants discussed ongoing problems affecting the industry including drug and workforce shortages, lack of public awareness of the industry and lack of transparency.
The hospital and clinical representatives mentioned their hope is to raise awareness about the impact of drug shortages, to learn more about the manufacturing side of the industry and to have a more streamlined process for finding, evaluating and purchasing drugs produced by outsourcing facilities.
Future Discussion Topics
- Demand and patient need
- Drug shortages
- Current and future role of outsourcing facilities
- Educating stakeholders and communicating about the outsourcing facility industry
Discussion on Demand and Patient Need
Participants discussed the key questions that are useful to address when examining demand and patient need, such as:
- Which products would providers like to buy from outsourcing facilities but cannot?
- What challenges do you face in forecasting demand?
- What tools could help providers better understand outsourcing facility drug availability?
Hospital and clinical stakeholders mentioned they purchase drugs from multiple outsourcing facilities. However, some drugs may only be available from one outsourcing facility, which can lead to gaps in meeting patient need if the outsourcing facility has downtime due to shortages or shutdowns.
Participants discussed the impact of clinical use guidelines in production and purchase decision-making. These guidelines are followed by prescribers and may vary across clinical specialties.
Participants discussed gaps that exist within demand transparency, such as a lack of real-time awareness of product availability and lack of purchaser knowledge of outsourcing facility capacity for certain products.
Contact the Compounding Quality Center of Excellence
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