The Misuse of Drug Compounding in the United States

J Clin Aesthet Dermatol. 2026;19(8):67–71.

Marc Brown, PhD, and Stefan Weiss, MD, FAAD

Dr. Brown is with MLBT Investments Ltd, Watford, United Kingdom. Dr. Weiss is with Trillium Research LLC, Raleigh, North Carolina, and the Warren Alpert Medical School of Brown University, Providence, Rhode Island.

FUNDING: No funding was provided for this article.

DISCLOSURES: The authors have no relevant conflicts of interest.

Abstract: This commentary examines the regulatory, clinical, and ethical aspects of pharmaceutical drug compounding misuse in the United States (US), with a focus on dermatologic practice and associated patient safety risks. Drug compounding remains an essential component of clinical care when US Food and Drug Administration (FDA)-approved therapies are unavailable, unsuitable, or discontinued. However, expansion of compounding beyond these limited indications has been accompanied by documented quality failures, inconsistent regulatory oversight, commercialization pressures, and avoidable patient harm. In the US, a hybrid federal-state framework governs compounding, creating regulatory gaps that can be exploited by high-volume compounders operating at the boundary between pharmacy practice and manufacturing. Evidence from statutory history, regulatory actions, clinical studies of compounded topical preparations, and public health investigations demonstrates that compounded products often lack validated manufacturing consistency, stability, labeling standardization, and systematic safety surveillance. Dermatology illustrates these risks because compounded combination topical therapies are frequently promoted as cash-pay alternatives, sometimes with physician dispensing and inadequate disclosure of limitations in safety, efficacy, costs, and conflicts of interest. Compounded drugs should be reserved for patient-specific indications when approved therapies cannot reasonably meet clinical needs. Policies that clarify the boundary between 503A compounding and 503B outsourcing, strengthen enforcement consistency, and require meaningful informed consent and disclosure can reduce preventable harm while preserving appropriate access. Keywords: Pharmaceutical compounding, 503A, 503B, topical formulations, FDA regulation, dermatology, patient safety

Introduction

Pharmaceutical compounding is the historical foundation of pharmacy, with documented practices extending back more than 3,000 years to ancient Mesopotamian and Egyptian medical systems, where medicines were prepared through systematic mixing and formulation of ingredients. These practices were later formalized in Greco‑Roman medicine, notably by Galen, and remained the dominant mode of drug preparation until the emergence of industrial pharmaceutical manufacturing in the late nineteenth century. In the United States (US), pharmaceutical compounding has long been part of medical practice. The United States Pharmacopeia (USP) describes compounding as the preparation, mixing, assembling, packaging, and labeling of a drug or device pursuant to a licensed practitioner’s prescription or medication order, within a practitioner-patient-pharmacist relationship.¹ In its traditional form, compounding is intended to fill gaps when commercially manufactured products cannot meet a patient’s needs. Common indications include dose modification for older adult or pediatric patients, an alternate dosage form for patients who cannot swallow tablets, exclusion of excipients associated with allergy or intolerance, and provision of therapy during temporary shortages or after discontinuation of an otherwise effective product.

In parallel, the development, approval, and manufacturing of drugs by the US Food and Drug Administration (FDA) are structured to ensure consistent identity, strength, quality, and purity across production lots and refills. Compounding exists outside that premarket approval framework and therefore requires clear boundaries, transparent disclosure, and robust oversight to prevent compounded products from functioning as de facto substitutes for approved medicines. Over the last several decades, the scope of compounding has expanded beyond patient-specific exceptions into high-volume commercial activity, often driven by economic incentives, variable state enforcement, and the practical challenges of regulating interstate distribution.

Historical Timeline: From Traditional Compounding to a Dual 503A/503B Framework

1938–1996. The Federal Food, Drug, and Cosmetic Act (FD&C Act) of 1938 marked a major expansion of federal authority over food and drug safety and became the foundation for modern FDA regulation of drug manufacturing and labeling.² At the time, compounding was largely viewed as a component of pharmacy practice, typically small in scale and driven by prescription, and primarily under state boards of pharmacy. As industrial pharmaceutical manufacturing expanded over the following decades, this historical division of authority persisted: the FDA regulated manufacturers; states regulated pharmacies.

1997. Congress enacted the Food and Drug Administration Modernization Act (FDAMA) to modernize several aspects of drug regulation and, relevant here, to codify conditions under which compounded drugs could qualify for exemptions from certain FD&C Act requirements.³ Section 503A of FDAMA attempted to preserve traditional compounding while discouraging manufacturing-like behavior, including through limits related to solicitation and advertising.

2002. In Thompson v Western States Medical Center, the US Supreme Court decided that the restrictions on advertising and solicitation related to compounded drugs by FDAMA were unconstitutional restrictions on commercial speech.⁴ This decision created substantial uncertainty about how Section 503A would function in practice and reduced a key statutory lever intended to prevent compounding from scaling into manufacturing-like promotion.

2012–2013. The nationwide fungal meningitis outbreak linked to contaminated compounded injections produced by the New England Compounding Center (NECC) demonstrated the public health consequences of high-volume compounding under inadequate oversight.⁵ In response, Congress enacted the Drug Quality and Security Act (DQSA) in 2013, including the Compounding Quality Act, which created Section 503B outsourcing facilities as a voluntary category subject to FDA registration and current good manufacturing practice (cGMP) requirements.^6,7

2014–present. After the DQSA, the FDA resumed efforts to implement statutory conditions intended to address interstate distribution of compounded products. A standard memorandum of understanding (MOU) between the FDA and states was developed to support investigation of complaints and address distribution of “inordinate amounts” of compounded drugs across state lines.⁸ FDA communications regarding this MOU have emphasized that multistate distribution can impede timely detection of adverse events and complicate coordinated action, challenges made evident during the NECC outbreak.⁸

FDA Enforcement Asymmetry: When State Oversight Substitutes for Federal Manufacturing Controls

The current framework intentionally distinguishes between (1) 503A compounding, which is prescription-driven and primarily overseen by states, and (2) 503B outsourcing facilities, which may compound for office use and are subject to FDA registration and cGMP. In practice, however, enforcement asymmetry emerges when high-volume operators remain categorized as 503A entities while functioning operationally like manufacturers. As state boards vary in resources, inspection frequency, and enforcement posture, the real-world level of oversight can differ substantially by geography. The result is a regulatory patchwork that can incentivize forum shopping, whereby high-output operations are located in jurisdictions with weaker controls while widely distributing products.

This asymmetry is amplified by differences in surveillance and transparency. FDA-approved products are subject to structured postmarketing safety monitoring; adverse events are aggregated through federal reporting systems, including the FDA Adverse Event Reporting System (FAERS).^9,10 In contrast, compounded products may lack systematic and standardized adverse event reporting, making it harder for regulators and clinicians to identify product-specific safety signals. When compounded products are distributed broadly, incomplete reporting can delay recognition of clusters of harm and impede attribution to a specific compounder, particularly when labeling, lot tracking, and strength expression vary.

Labeling conventions are one practical example of enforcement asymmetry. The FDA has warned that differences in how strength is expressed on labels for compounded products compared to conventional manufacturers can lead to dosing errors, including overdoses, when clinicians or patients misinterpret drug concentration labels.¹¹ Standardization of labeling is a routine feature of the approved-drug system but is less consistent in compounding, especially where state oversight does not require harmonized formats.

Finally, FDA enforcement is applied unevenly across the compounding ecosystem. Outsourcing facilities are inspected under a federal framework and may face recalls and other regulatory actions. The FDA also maintains a compounding-focused portal for inspections, recalls, and related actions.¹² By contrast, many high-volume 503A operations are inspected mainly through state processes, with varying public transparency about findings. For patient safety, the key issue is not whether compounding is legitimate but whether manufacturing-like risks are met with manufacturing-like controls.

Commercialization and Regulatory Circumvention

Economic incentives contribute to compounding misuse when such products function as substitutes for approved drugs. Drug development requires extensive investment in drug discovery, formulation development, nonclinical testing, clinical trials, large-scale manufacturing process development and validation, and postmarketing surveillance. Estimates of the full cost of bringing a new drug to market exceed $2.6 billion.¹³ Compounders can bypass these costs by producing a version of an approved drug without establishing quality, safety, and efficacy through the FDA approval pathway.

Although the FDA has repeatedly emphasized that compounded drugs are not approved and that approved products should be used when available, market forces can favor compounded alternatives when patients face coverage barriers, high list prices, or access restrictions. At the same time, compounding may create incentives to circumvent patent and exclusivity protections by making slight formulation changes that are marketed as “custom” but functionally substitute for approved products.

Regulatory actions illustrate these tensions. One large compounder, Empower Pharmacy, has been the subject of multiple FDA warning letters since 2019 for its sterile injectable compounded products; public reporting has raised questions regarding ingredient quality and compliance while compounded versions of high-demand drugs continued to circulate.^14,15 These examples underscore a structural challenge: the compounding market can grow rapidly in response to demand shocks (eg, shortages, consumer trends), but oversight mechanisms may lag behind.

Compounding in Dermatology: Convenience Narratives, Cash-Pay Models, and Conflicts of Interest

Dermatology provides a high-visibility case study of compounding misuse. In contemporary practice, compounded topical formulations are often marketed to dermatologists as cash-pay alternatives to FDA-approved therapies, particularly when insurance coverage is limited. Telemedicine growth can accelerate this trend by enabling standardized prescribing pathways that favor bundled, mail-order compounded products. Such models may be framed as increasing convenience, lowering cost, or providing “personalization,” but these claims frequently lack supporting scientific evidence and may obscure meaningful differences in regulatory status, quality assurance, and safety surveillance.

Compounded combination products also raise evidentiary issues. Combining multiple active ingredients into a single topical formulation can be clinically plausible, but the combination should be evaluated under a regulatory pathway capable of establishing safety, efficacy, and quality, including manufacturing consistency at scale. When combinations are compounded without clinical evaluation, patients receive therapy with uncertain bioavailability, stability, safety, and potency. In dermatology, where therapeutic outcomes depend heavily on formulation and vehicle effects, these uncertainties are nontrivial.

Ethical concerns become more acute when physicians dispense compounded products directly from the office or maintain financial relationships that benefit from prescribing volume. Even when legally permitted, physician dispensing creates a risk that treatment choice may be influenced by revenue rather than patient benefit. This is particularly problematic when patients are not clearly informed that the product is not approved by the FDA and that evidence supporting claims of superiority, or even equivalence, is limited. Professional societies have not done enough to caution against unsupported claims nor have they highlighted the safety concerns associated with compounded therapies. Although commercially produced and compounded dermatologic products may share similar active ingredients and structural formulations, compounded products are not required to demonstrate clinical efficacy, potency consistency, or therapeutic equivalence to commercially available alternatives prior to marketing.¹⁶

Why Topical Compounding Is Scientifically and Clinically High Risk

Topical drug development is uniquely complex. Human skin is a multilayer barrier that regulates water loss and prevents ingress of pathogens and chemicals; effective topical therapy depends on a precise balance of drug physicochemical properties, vehicle thermodynamics, excipients, and manufacturing controls. Formulation development therefore requires specialized expertise and extensive empirical validation.¹⁷ Unlike many oral formulations, simply increasing the amount applied or altering concentration does not reliably compensate for suboptimal vehicle design.

These scientific constraints make topical compounding especially vulnerable to potency variation and inconsistent delivery. In one study analyzing compounded topical diltiazem 2% for the treatment of anal fissure, 38.9% of preparations failed USP content uniformity standards, 41.7% of pharmacies produced preparations with a mean potency below 90% of label claim, and only 3 of 12 pharmacies (25%) consistently produced prescriptions within acceptable potency limits across all fills.¹⁸ While not a dermatology-specific example, it illustrates a core issue: the same “formula” may not yield the same drug delivery when compounded across different sites.

Clinical evidence further challenges routine use of multidrug-compounded topicals. A randomized, double-blind trial comparing compounded pain creams containing multiple active ingredients to placebo found no significant improvement in pain reduction or functional outcomes across pain subtypes, discouraging routine use given the high cost and uncertain benefit.¹⁹ When efficacy is unproven and formulation quality is variable, the risk-benefit profile shifts unfavorably.

Severe harm has also been documented with compounded topical anesthetic products. In February 2007, the FDA issued a Public Health Advisory following the deaths of 2 women who used compounded topical anesthetic creams containing high concentrations of local anesthetics prior to laser hair removal procedures. The FDA warned that exposure to high concentrations of local anesthetics in compounded topical creams can cause life-threatening adverse effects including seizures, irregular heartbeat, breathing difficulties, coma, and death, and it expressed particular concern that use of these products before cosmetic procedures may occur without supervision by trained health professionals.²⁰ Federal prosecutions have described fraud schemes in which compounded creams were prescribed without medical necessity and billed fraudulently to federal health programs.^21,22 Separately, compounded topical products have been associated with life-threatening adverse effects and death, as documented in regulatory advisories, adverse event reports, and peer-reviewed outbreak investigations.^20,23,24 In addition to direct clinical harm, these events degrade trust in legitimate compounding and complicate clinical decision-making.

Economic abuse associated with compounded topicals has been substantial. The US Department of Health and Human Services Office of Inspector General (OIG) reported that Medicare Part D spending for compounded topical drugs was 24 times higher in 2016 than in 2010 and identified about 550 pharmacies with questionable billing patterns.²⁵ The same report highlighted concentrations of questionable billing and recommended policy clarifications and utilization controls. Criminal enforcement actions have described schemes in which pharmacy owners and marketers paid illegal kickbacks to physicians to induce prescriptions for medically unnecessary compounded creams billed at inflated rates to federal health programs.^21,22

Public Health Consequences of Compounding Failures

Compounding failures can produce harm at scale when sterile products are contaminated or when dosing errors occur. The NECC fungal meningitis outbreak remains the most consequential modern example. Surveillance data from the US Centers for Disease Control and Prevention documented 751 cases of illness and 64 deaths linked to contaminated compounded methylprednisolone acetate injections distributed across 20 states, representing one of the largest healthcare-associated outbreaks in US history.^5,26 Multistate distribution complicated detection and response, underscoring why interstate oversight mechanisms were central to the post-DQSA policy agenda.

Other fatal incidents include a cluster of deaths linked to contaminated cardioplegia solution used in heart surgery and deaths from intravenous colchicine compounded at 8 times the recognized therapeutic concentration by a Texas pharmacy.^27,28 A systematic review of compounding errors from 1990 through 2020 identified 63 incidents across the published literature, with 27 classified as contamination errors that collectively harmed 1,119 patients, while concentration errors harmed another 36 patients, with deaths documented across both categories.² Concentration errors were also reported in the compounding literature, disproportionately affecting pediatric patients.² These included errors involving compounded tacrolimus (a narrow therapeutic index immunosuppressant used after solid organ transplantation), where preparation errors and strength confusions in compounded oral liquid formulations have been documented as a recurring source of patient harm.²⁹

Ethical Analysis: Informed Consent, Transparency, and Physician Self-Dispensing

Ethical concerns associated with compounded drugs arise from 3 interrelated issues: uncertainty in benefit and risk compared to approved alternatives potential conflicts of interest related to prescribing and dispensing, and informational asymmetry between clinicians and patients. Informed consent in medicine is not merely a signed form; it requires that patients understand material risks, reasonable alternatives, and the clinician’s interests that could influence recommendations.³⁰ Compounded products are, by definition, outside the FDA approval pathway and therefore have not been evaluated for safety, effectiveness, or quality in the same manner as approved drugs.^16,31,32 When a compounded drug is proposed, meaningful informed consent requires that clinicians clearly disclose, at minimum, 4 things: that the product is not approved by the FDA; what FDA-approved alternatives exist and why they are inadequate for this patient; what is known and unknown about the product’s potency, stability, and clinical evidence; and whether the clinician has any financial relationship with the compounding pharmacy or dispensing arrangement. This disclosure obligation is heightened when compounded products are marketed as superior or customized despite limited supporting evidence and when patients bear substantial out-of-pocket costs for products without clinical benefit that was established through the same regulatory process as approved alternatives.

Physician self-dispensing introduces an additional ethical dimension. Even when absent of explicit kickbacks, dispensing revenue can create subconscious incentives that distort prescribing. In settings where office dispensing is coupled with proprietary telemedicine workflows, the patient may have limited opportunity to comparison shop or to access independent pharmacy counseling. The appearance of a conflict can be as damaging as the conflict itself because it undermines trust. These concerns parallel those raised in other compounding contexts, such as compounded bioidentical hormone therapy, where professional organizations have emphasized safety limitations and the need to avoid misleading claims.^33,34

Finally, ethical practice requires proportionality: using the least risky effective option. When an FDA-approved product is available and appropriate, routine substitution with a compounded product shifts risk from regulated manufacturing and surveillance to a more variable system. In dermatology, where the formulation of the topical product heavily influences outcomes and adverse effects, this shift may be difficult for patients to appreciate without explicit counseling.

Policy Implications and Recommendations

Policy responses should aim to preserve appropriate access to compounding while reducing the misuse of compounded drugs as substitutes for approved medicines. First, regulators should clarify and enforce the operational boundary between 503A compounding and 503B outsourcing. High-volume facilities that distribute widely, produce anticipatory batches, or otherwise function like manufacturers should be directed toward 503B registration and cGMP compliance under the Compounding Quality Act.^6,7

Second, interstate distribution oversight should be strengthened through federal-state collaboration. The statutory mechanism for addressing “inordinate amounts’” of interstate distribution relies on a standard FDA–state MOU intended to facilitate complaint investigation and information sharing.⁸ Implementation of such mechanisms can improve the ability to detect multistate safety problems earlier and to coordinate responses.

Third, transparency requirements should be enhanced. Minimum labeling standards for compounded products, particularly regarding strength expression, lot identifiers, and beyond-use dating rationale, could reduce dosing errors and improve traceability.^2,11,18 In addition, adverse event reporting expectations for compounders, particularly for products distributed outside the compounding state, should be strengthened to support signal detection analogous to FAERS-based monitoring for approved products.^2,8,10,23

Fourth, professional accountability should be reinforced. Clinicians who prescribe compounded drugs should document clinical necessity, counsel patients using standardized disclosure language, and disclose any dispensing-related financial interests. Payors and pharmacy benefit managers can support these goals by requiring documentation of medical necessity, applying utilization controls consistent with OIG recommendations for compounded topical drugs, and discouraging routine coverage when approved alternatives are suitable.^19,22,25,30

Finally, enforcement should be based on risk and targeted. The objective is not to eliminate compounding but to align regulatory intensity with patient risk, particularly for sterile products and high-volume distribution.^2,5,7,31 Public reporting of inspections, recalls, and warning letters can further incentivize compliance and enable clinicians to make informed sourcing decisions.¹²

Conclusion

Drug compounding remains a necessary component of individualized medical care when FDA-approved therapies cannot reasonably meet a patient’s needs (eg, pediatric formulations). However, the expansion of compounding into manufacturing-like commercial activity has exposed patients to avoidable risks. This risk is amplified when compounded products substitute for approved medicines without validated evidence, consistent quality controls, and transparent disclosure. Aligning oversight with risk through clearer boundaries, stronger interstate coordination, improved surveillance, and enhanced ethical accountability can protect patients while preserving appropriate access to legitimate compounding.

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