Many healthcare systems are creating Consolidated Service Centers (CSC) to help standardize the pharmaceutical experience throughout their system. There are many cost savings and quality improvement benefits to consolidating pharmaceutical practices. Unfortunately, when it comes to centralizing sterile compounding there is a great deal of misunderstanding when it comes to registering with the FDA; specifically, whether to be a state regulated 503A or an FDA regulated 503B. The most common notion is that registering as a 503B is the right approach. Even though that approach might appear to be the safest option, registering with the FDA as a 503B outsourcing manufacturer is not the same thing as operating an inpatient pharmacy following the standard USP 797 regulations. It is better to think of 503B as becoming an actual manufacturer with its own set of rules. To be effective, selecting the 503B path would require a different business model to cost justify such an operation. Fortunately, working within the confines of the 503A classification can still produce a quality product for patients and help keep the high costs associated with Current Good Manufacturing Practice (CGMP) from disrupting certain aspects of a consolidated services approach.
The draft guidance for Hospital and Health System Compounding Under the Federal Food, Drug, and Cosmetic Act: Guidance for Industry dated April 2016 states, “…FDA does not intend to take action if a hospital pharmacy distributes compounded drug products without first receiving a patient-specific prescription or order provided that: (1) The drug products are distributed only to healthcare facilities that are owned and controlled by the same entity that owns and controls the hospital pharmacy and that are located with a 1 mile radius of the compounding pharmacy;” Forcing CSCs to register as 503B because they move compounded product more than 1 mile from the facility that compounded the product is frequently misinterpreted and does not align with the regulations which clearly allow for anticipatory compounding and interstate distribution of products when certain conditions are met.
It is important to focus on the applicable statutes and regulations as found in Section 503A of the Federal Food, Drug, and Cosmetic Act. The guidance documents have limited ability to be enforced when they make statements and claims outside of the applicable statutes and regulations. To reinforce this, many of the Guidance for Industry documents contain in their introductions: “You can use an alternative approach if it satisfies the requirements of the applicable statutes and regulations.” The headers on many of the pages within the documents also state: “Contains Nonbinding Recommendations.”
The key requirements for maintaining 503A compliance for most CSCs are as simple as:
CSCs are in a unique position to receive valid prescription orders for identified individual patients. With the advancements in electronic health records, CSCs can operate as a member of their health system with full access to required documentation and the ability to generate auditable reports to support their practice.
Section 503A and the FDA guidance documents have left opportunities for healthcare systems to take a defensible position on identifying their CSC(s) as 503A. Consolidating sterile compounding can increase safety and decrease costs for patients without taking on the unnecessary burdens of registering with the FDA as a 503B outsourcing manufacturer.
Centralized Services Centers have been implemented or are being considered by numerous health systems to improve efficiency, reduce medication errors, and for the potential cost savings that can be captured. However, inventory management is extremely challenging when the Centralized Services Center (CSC) provides medications to both non-covered and covered entities (CEs). Ensure that the inventory management model selected does not expose the CEs to a GPO prohibition violation if they are required to comply with this requirement.
For example, some health systems have centralized the sterile compounding of products such as TPN and various antibiotics. If any of these products are administered to covered outpatients and purchased on GPO by the CSC, the CE could be at risk for a GPO prohibition violation unless a strategy is in place to prevent this from happening. The 2013 HRSA 340B Drug Pricing Program Notice Release No. 2013-1, Statutory Prohibition on Group Purchasing Organization Participation states, “Organizations that are not part of the 340B covered entity are not subject to the GPO prohibition; however, the 340B covered entity is still prohibited from having organizations purchase covered outpatient drugs through a GPO on its behalf or otherwise receive covered outpatient drugs purchased through a GPO.”
One of several strategies to consider is to place these compounded products on a non-covered outpatient drug list. With this approach, they can be excluded from the 340B program and will not be subject to the GPO prohibition. The downside to this approach is that the individual ingredients cannot be purchased on 340B which could result in lost savings. If your health systems needs help determining a compliant approach, you can find a team of experts at Trulla (www.trullarx.com) or reach out to them directly by emailing firstname.lastname@example.org.
In today’s environment, creating Centralized Service Centers (CSCs) to standardize medication processes, increase efficiency, improve safety, and to save money is quickly becoming a reality for many health systems. Centralized packaging, sterile and non-sterile compounding, and targeted purchasing allows the individual sites in a health system to order EXACTLY what they need instead of being forced to order the pack size available from the manufacturer. These services reduce the workload at the sites, the medication outdates and waste, along with the cost associated with each of these activities. Highly trained individuals that are working in an environment free from interruptions reduces errors and improves medication safety. It is easy to see why this is appealing to health systems as these CSCs have the ability to serve several inpatient pharmacies and outpatient clinics simultaneously.
Since this industry is moving so quickly in this direction, it is easy to forget that centralizing the services that involve controlled substances can be tricky and must be managed carefully. Remember, that the five percent rule remains in effect for CSCs that are registered as a hospital/clinic with the Drug Enforcement Administration (DEA). What this means is that the total number of dosage units of all controlled substances distributed by a pharmacy may not exceed five percent of all controlled substances dispensed by the pharmacy during a calendar year. If at any time the controlled substances distributed exceed five percent, the pharmacy is required to register as a distributor.
In addition, if the controlled substances are manipulated, such as being repackaged or used in compounding, the pharmacy may also need to register as a manufacturer. To add to this burden, distributors and manufacturers have additional record keeping and reporting requirements when compared to a pharmacy.
Remember, it is critical to have the correct DEA registrations in place BEFORE providing centralized services that involve controlled substances! If your health system needs experts to evaluate the activities of their CSC or to analyze their controlled substance compliance, please email email@example.com.
Disclaimer: The information provided in this article does not constitute legal advice and should not be construed as such. Readers of this document are encouraged to contact their attorney to obtain advice with respect to any particular legal matter. The views expressed in this document are those of the author and not those of the Trulla LLC. All liability with respect to actions taken or not taken based on the contents of this document are hereby expressly disclaimed. The content in this document is provided “as is;” no representations are made that the content is error-free.