The Marketplace After HR 3204

As major decisions on the US's future financial status are being made, House and Senate resources on the hill are being diverted from pending legislation. Inquiries from Congress sent to the FDA asking for their stance on language of the new bill are left unanswered. It may be a while before any progress is made on this bill. In the meantime, pharmacy owners, pharmacists and patients are contemplating what will happen to access to compounded medication. If the Drug Quality and Security Act does pass as written, some pharmacy groups supporting this bill say it would not be the worst-case scenario. Let's take a look at how the language of the new law would influence the marketplace and how the FDA's track record plays an important role in this new environment. 

The major consequence of this legislation passing as written will be the emergence of a new category of suppliers of compounded medication termed outsourcing facilities. While this category is not entirely new, HR 3204 would clearly define the qualities of this type of supplier while allowing the FDA to police  "traditional compounding pharmacies" who engage in activities that encroach on the boundaries of this category. In another post, the activities that have triggered FDA inspections were reviewed based public documents provided by the FDA. Additionally, their compliance policy guide (CPG) for pharmacy compounding gives some insight into this thought process. Since their authority will become apparent in the new legislation, section 503A of the FDCA will be subject to the FDA's interpretation and will continue to be enforced as previously seen along with some new restrictions. 

The implications for this bill in the marketplace are multifold. In examining the forces of any industry that shape its unique competitive environment, the goal is to understand the relationships of each stake holder to determine what influences profitability. While an in-depth, quantitative analysis is outside the scope of this post, given here is a brief overview of major changes that can be expected to impact pharmacy compounding. 

In the classic Porter model of forces that shape competition in an industry, the major expected change in pharmacy compounding is the threat of new entrants- outsourcing facilities. Historically, the threat of new entrants has (almost exclusively) been in the form of other compounding pharmacies, thus the strategic responses have been predictable and expected. The rivalry of competition in response to this traditional threat has also been well defined. This means that a new compounding pharmacy entering the market would know what to expect from established businesses responding to the threat of new competition. 

However the Drug Quality and Security Act will open the doors to a new entrant at an unprecedented level. The response to this type of threat has not yet been fully defined and pharmacies will be forced to examine many aspects of their business to determine how to respond. 

Some factors that will determine how a compounding pharmacy can strategically reposition itself for viability can be answered by asking the following questions: 

What resources do we have to fight back?

• Excessive cash flow?
• Unused borrowing power? 
  
• Available productive capacity?  
• Rapport with distribution channels, prescribers,  patients? 

These are a few critical factors to consider because legislation will effectively lower the barriers of entry for outsourcing facilities. Additionally, the regulatory requirements for these facilities appear more explicit as they remain exclusively under federal jurisdiction. If a business has explicit instructions of what is right and wrong, they can better allocate resources to conform to the necessary actions with regularity. Conversely, it is not known know how the FDA will regard traditional compounding pharmacy activities that push the envelope of these new regulations (namely office-use and anticipatory compounding). The outsourcing facility on the other hand, has a more transparent view of their regulatory requirements which, along with other elements of this legislation, give them an advantage in carrying out pharmacy compounding operations. 

Overall, this legislation will create a structural change to the industry that will influence many other forces currently existing in pharmacy compounding. To what degree this will impact the intensity of rivalry, the price of compounded medication, supply channels and other elements of the industry, is not yet fully known. Understanding the implications of upcoming major changes in the marketplace will help compounding pharmacies to prepare for disturbances in their business and to protect patient access to compounded medications. 

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Diagram of potential marketplace changes

A Brief History of the FDA & Pharmacy Compounding

Since the FDA started inspecting compounding pharmacies across the country last year, many questions have been raised regarding their source of authority and their interpretation of existing statutes. In a separate post I explained the criteria used by the FDA in deciding which pharmacies pose a threat to public safety and therefore warrant an inspection by the FDA. This post examines the perspective (which may soon change) of federal authorities, namely the FDA, based on a history of legal proceedings. 

Two separate federal court rulings on the Food Drug and Cosmetic Act (FDCA) of 1938 have left the FDA arguing that their jurisdiction of pharmacy compounding is unclear. The first of these rulings did not deal with the practice of pharmacy compounding per se, but rather elements of the law pertaining to commercial speech. In 1997 as part of the Food and Drug Administration Modernization Act, Congress enacted a provision of pharmacy compounding (marketing & promotion) codified in Section 503A of the FDCA. In 2001, the Ninth Circuit Court of Appeals ruled this entire section invalid because of its unconstitutional restrictions on how pharmacy compounding was allowed to promote its business. This ruling also stated that these restrictions could not be severed from section 503A, therefore rendering the entire act invalid (for those in Ninth Circuit appellate jurisdiction).

In 2002, the FDA challenged this ruling and the Supreme Court upheld the Ninth Circuit Court's decision.  

Jump to 2008, the Fifth Circuit Court of Appeals ruled that these restrictions could indeed be severed from the rest of section 503A while keeping the remainder of the law in effect.

In light of these conflicting rulings, the FDA has issued a compliance policy guide explaining how it will take action against compounding pharmacies that pose a threat to public health. The guideline essentially states the administration's interpretation of section 503A of the FDCA. Based on this interpretation a pharmacy can be identified as a manufacturer if in violation of this document based on their discretion. This has been the guiding document and reasoning behind inspecting pharmacies during the past year. Knowing inspection laws and your rights as a law-abiding community pharmacy is critical to limiting the FDA's authority over a state-regulated business in the interim prior to new legislation. 

HR 3204 Drug Quality and Security Act (Upton, R-MI)

In the past week since the original House bill by Representative Griffith (R-VA), entitled the Compounding Clarity Act of 2013, gained favor by compounding pharmacists and special interest groups across the country, much has already changed. Because the ACA has been the main item of debate, both sides have been working around the clock to put forth a bill that both establishes safety measures for patients and creates clear accountability between the FDA and state boards of pharmacy.  However, the latest compromise bill between the House and Senate has been reneged and has turned into an entirely new entity, HR 3204 the Drug Quality and Security Act.  

Currently, HR 3204 ( Upton, R-MI, Chairman House Energy & Commerce Committee) represents the latest compromise. The bill has already cleared the House (via voice vote) this past Saturday September 28, 2013 and is being sent to the Senate. The bill is divided into two provisions, Pharmacy Compounding and Track and Trace. The basics of the Drug Quality and Security Act as it pertains to compounding are the following: 

Title I: Pharmacy Compounding 

OUTSOURCING FACILITIES  

• Creates FDA registered facility called outsourcing facility  (does not have to be a pharmacy) 
• Outsourcing facility defined as "voluntary" mini-manufacturer overseen by a pharmacist and subject to FDA regulations and cGMP 
• Not allowed to compound duplicate of FDA approve drugs unless explicit communication with FDA  
• Drugs requiring REMS component, if compounded, must also comply with these requirements as the manufacturer does
• Not subject to boards of pharmacy, exclusively FDA

SECTION 503A of FDCA (See separate post for history) 

• Reaffirms Section 503A as the law of the land
• Individually identified prescriptions only are valid, NO "FOR OFFICE USE" compounding
• Non-patient specific compounding is considered a new drug, adulterated (not prepared in compliance with cGMP), and misbranded because they are in the market without the approval process in violation of 503A
• Does not explicitly speak to anticipatory compounding, but offers the above definition, this area remains unclear as to how it will be interpreted by a court
• Overall, 503A remains an impending threat to pharmacy compounding 

 What's the impact of this legislation? 

A whole new marketplace. Traditional compounding pharmacies will be at an immediate disadvantage if this bill passes as written. These federally registered facilities will be able to operate without oversight of state boards of pharmacy. The outsourcing facilities do not have to be pharmacies, may involve any type of professional, and can ship non-patient-specific sterile and non-sterile drugs across the country freely in any volume. 

Section 503A of the FDCA would be in effect immediately. This means that any pharmacy that has compounded for office use (and possibly anticipatory) will likely be subject to the authority of the FDA. If this does occur, an inspection and Form 483 indicating the pharmacy is in violation of the items mentioned in Section 503A may be issued and the pharmacy forced to pay fines and stop this activity. The other consequence is that they be required to register as an outsourcing facility and follow all rules and fees that go along with this. Although the choice to register as an outsourcing facility is "voluntary" in the language of the bill, this is a clear example of how it is more realistically a requirement. 

 This bill as written is clearly NOT favorable for pharmacy compounding. The fallout of this bill may have drastic consequences for patient access to compounded medications that millions of patients across the country depend on daily. Special interest groups and lobbyists are working with the Senate to amend the bill into a more workable form. The elimination of office use compounding will send a shock through the entire system , affecting doctors offices, hospitals, surgical centers, medical spas and more. Stay updated to help educate your patients to be advocates for your services and to keep your pharmacy business protected and viable. 

FDA Compounding Pharmacy Inspections in California

If you are compounding pharmacy owner, should you expect the Food and Drug Administration to inspect your pharmacy? In this post, I will skip the legal perspective and give a quick break-down on what the FDA looks for in determining who gets paid a visit on the left coast.  

Based on the FDA form 483s, the forms provided to pharmacies with inspection results, a few key trends emerge as indicators that often result in an inspection. What the FDA states as their risk-based model does not tell the entire story. 

Here are a few common characteristics of the compounding pharmacies the FDA has visited since they began inspections post-NECC: 

• Provides sterile compounding service 
• Ships any amount of sterile or non-sterile compounds across state lines  
• Dispenses sterile or non-sterile compounds "for office use" (non-pt-specific rx)
• Repackages sterile drugs for ophthalmic injection (or compounds 17-hydroxyprogesterone)

Each pharmacy that received a Form 483 provides sterile compounding service along with one or more of these attributes. Given the use of the FDA's discretion when it comes to whom they target for inspection, this criteria represents their pragmatic approach to "preventing another NECC". 

There are a few simple things to keep in mind to make sure that your pharmacy either remains off the radar for an inspection by the FDA or is at the very least, not subject to their authoritative over sight. Although not a panacea, weighing the pros and cons of these actions for your business may help prove critical in the near future. 

The first, as you may have guessed, is to stray away from these activities if they represent a minimal or insignificant amount of your business. If this can be done, it may be beneficial in the long run to sacrifice a small portion of your business to protect the whole. Until "clear" legislation is passed, the FDA will refer to their own set of guidelines when it comes to inspection and authority (Pharmacy Compounding CPG). 

The second is to follow all state laws as they pertain to pharmacy and pharmacy compounding. All though each state clearly has their own respective pharmacy laws, CA does have particularly more stringent laws (some more so than federal) that when followed will keep your practice from making mistakes that can trigger an inspection. Yes, this is an obvious tip, but it may help to review the pharmacy law book if you aren't clear on a technical issue. Additionally, abiding by state laws provides a very important benefit for pharmacies who do undergo a federal inspection. 

Finally, have policies and procedures in place that dictate such situations as a federal inspection. During an inspection, there are many opportunities to give inspectors more than they need or to provide them with information they are not legally entitled to. A strong set of policies and procedures which delineate the role of personnel, define areas inspectors are legally authorized to access, and how to document the procedure are a few critical elements to include in this type of document.