Q What is a compounded medication?

A The FDA defines compounding as: A practice in which a licensed pharmacist, a licensed physician, or, in the case of an outsourcing facility, a person under the supervision of a licensed pharmacist, combines, mixes, or alters ingredients of a drug to create a medication tailored to the needs of an individual patient.

Q Why do physicians prescribe compounded medications?

A Physicians prescribe compounded medications for numerous reasons. Patients with a specific health need may require an individually compounded medication. For example:

• The patient requires limited dosage strength.
• The compounded medication replaces their regular drug due to a supply shortage.
• The patient needs a liquid dose of a medication instead of a pill form.
• Due to an allergy, the drug must have dyes removed.
• The patient requires a flavor additive to create a more palatable drug.

Q Is pricing a consideration when prescribing a compounded drug?

A Sometimes. Although not listed by the FDA or other authorities on compounding, price is also a factor when physicians prescribe a compounded drug over a similar FDA-approved drug sold by a manufacturer. Drug manufacturer’s prices are usually higher than compounding pharmacy pricing.

Q What is the most common compounded drug used in ophthalmology?

A The most commonly used compounded medication in ophthalmology is bevacizumab (Avastin), which is FDA-approved to treat colorectal cancer. Bevacizumab’s use in ophthalmology is “off-label”; it has not been through the rigorous FDA process required for approval to treat ophthalmic pathology. Compounded drugs are not FDA-approved, which means that their safety or effectiveness hasn’t been verified. This hasn’t stopped ophthalmologists from using bevacizumab or other compounded drugs, though. Ophthalmologists use bevacizumab to treat a variety of ophthalmic conditions, including choroidal neovascularization, age-related macular degeneration, diabetic retinopathy and retinal vein occlusion.
The drug manufacturer Genentech doesn’t produce bevacizumab in doses suitable for intravitreal injections. Therefore, ophthalmologists look to compounding pharmacies to create single-use vials of the appropriate dose.

Q Have there been any incidents of infection with the use of compounded drugs?

A Unfortunately, yes. In September, 2012, the Centers for Disease Control and the FDA investigated a fungal meningitis outbreak and other infections acquired by patients who had received steroid injections primarily for pain management. These procedures occurred throughout the United States. The New England Compounding Center in Framingham, Mass., had supplied the compounded medications to the facilities where the injections were administered; there were more than 800 illnesses resulting in 64 deaths. The investigation revealed a violation of NECC’s state license as a compounding pharmacy.

Q Have there been any incidents in ophthalmology of infections with the use of compounded drugs?

A Yes. In 2014, the American Academy of Ophthalmology reported incidents of infection associated with the injection of bevacizumab in four locales from 2011. These infections occurred in Los Angeles, Miami, Minneapolis and Nashville in Veterans Affairs hospitals and in the community. The FDA issued a warning to providers to be cognizant of where the drug is compounded and only use drugs secured from reliable pharmacies using aseptic techniques for drug preparation.

Q What federal agency oversees compounding pharmacies?

A Until 2013, the FDA had limited authority to regulate compounding pharmacies. Following passage of the Drug Quality and Security Act and revision of the Federal Food, Drug and Cosmetic Act, the FDA began to monitor and regulate the manufacture of compounded drugs, prohibit reselling drugs labeled “not for resale” and trace drugs throughout the U.S. Section 503A of the FDCA outlines a set of rules and limitations for compounding pharmacies. The outlined rules include the following provisions:

• The product is compounded based on a valid prescription order for a specific patient.
• Licensed individuals perform the compounding.
• Under certain conditions outlined in 503A, section 2, limited quantities may be compounded prior to receipt of a valid prescription for an individual patient.
• The pharmacy must comply with specific quality standards.
• Compounding must be done with FDA-approved or -regulated substances.

Additional provisions exist in the legislation, but these are the ones of primary interest.

A new section, 503B, was added in 2013, permitting a pharmacy to become an “outsourcing facility.” Outsourcing facilities are a cross between a traditional compounding pharmacy and a drug manufacturer. These facilities must register with the FDA, comply with current good manufacturing practices and undergo periodic FDA inspections; they are held to a higher standard than 503A pharmacies. Unlike 503A pharmacies, outsourcing facilities do not require a patient-specific prescription. Registered outsourcing facilities can be verified on the FDA website.

Q Are there specific reimbursement issues associated with compounded drugs?

A Yes. Third-party payers typically reimburse for drugs that have been FDA-approved when prescribed or used for indications described in the FDA labeling. However, payment for off-label drugs or compounded drugs is at the discretion of the payer.

Key points for billers to know about reimbursement for compounded drugs.

• The ASC is not separately reimbursed for compounded drugs.
• Pricing for compounded drugs is assigned by the local Medicare contractor.
• Specific HCPCS codes do not exist for compounded drugs. You should not use the HCPCS code for the brand name drug that is being mixed or altered by the compounding pharmacy.
• Compounded medications do not have NDC [National Drug Code] numbers.
• Compounded drugs are coded as miscellaneous “J” codes, J3490 or J3590. Payers may have other miscellaneous codes for use. Check your local policies.
• Submitted claims typically require a narrative in “box 19” to describe the compounded medication, including dose; some payers also require an invoice. Check with your payers to determine necessary information for claim processing.

Q Is there a fee schedule for compounded drugs to ensure that providers will be paid fairly for the drugs?

A No. Regardless of whether the drug is FDA-approved with its own unique HCPCS code or a compounded drug, physicians should not accept reimbursement that is lower than the cost of the drug. Drugs with unique HCPCS codes are not usually an issue, as a formula exists to ensure recoupment of cost plus a small additional amount. When submitting miscellaneous codes for compounded drugs, there is no such formula, and payment amounts are at the discretion of the payer. Monitor payments and, if needed, consider changing compounding pharmacies if payers are not covering the cost.

Q Is there national oversight of licensure and daily operations of compounding pharmacies?

A State pharmacy boards oversee the licensure and daily operations of pharmacies. The requirements vary by state. For example, some states allow compounding pharmacies to fill a general prescription for “office use”; others require a patient-specific prescription. After the NECC failure, several states began requiring individual prescriptions for every compounded medication order.  REVIEW

Ms. McCune is vice pres­ident of the Cor­coran Con­sult­ing Group. Con­tact her at DMcCune@corcoranccg.com.