Potential Pitfalls of Physicians Owning Compounding Pharmacies

More and more frequently, I am being asked by clients in private practice, "What are the pitfalls of physician ownership and operation of a compounding pharmacy?" A "compounding pharmacy" is a type of ancillary medical provider, similar to an imaging center or a lab, which is thought to be desirable because of the potential to supplement physician income.   

Each state maintains its own unique set of rules and laws which must be considered. Often, a state law may permit a physician to compound medication in the office for a patient's immediate needs, but require a licensed pharmacist to dispense prescribed compounded pharmaceuticals outside of the office setting.  There are also a number of FDA and Stark Law implications, as well as AMA Ethics Opinions which must be considered. It is impossible to cover all these rules in one blog. The following considerations are universal to physicians in each state.

AMA Ethics Opinions
Originally, the AMA took the position that physician ownership of any pharmacy constituted prohibited "fee- splitting." Many states passed statutes along the same lines. Eventually, the AMA realized the real problem was not so much the "ownership," but the "referral" of a physician's own patients which was troublesome.  Thus, AMA Ethics Opinion 8.06 replaced the "fee splitting" opinion. Under 8.06(3) Physicians may own or operate a pharmacy, [note: check state law for licensing rules details] "but generally may not refer their patients to the pharmacy" unless exceptional circumstances under Opinion 8.032 (conflict of interest) exist.

Stark Law
Stark Law and its close cousin, the Anti-Kickback Statute, have their origins in the AMA rules. In fact, most of the trouble one can encounter at the federal level could be avoided by simply following the AMA's main rule: "Don't refer your own patients." Problems multiply where a number of physicians seek to invest in a single compounding pharmacy. Many have been told that investing in a management company can safely avoid Stark Law issues. All I can tell you is "hire an experienced Stark lawyer" before you do anything which could be considered abusive of a state or federal program.

FDA Rules
In the absence of special rules, each compounded prescription would need to be approved by the FDA, which would be prohibitively expensive. Further, the requirement of a uniform label as to proper dosage would completely defeat the purpose of compounding. The trouble isn't whether the drug itself is accepted as an "effective treatment," but instead, "how much of it" would be "safe and effective" for a particular patient's body weight, or tumor size. Therefore, it is important that the FDA remain flexible with compounding. On the other hand, left unchecked, compounding pharmacies could abuse the FDA's leniency as an end-around the approval process entirely. A compounder could stockpile wholesale quantities under the guise of compounding, which could be unsafe, and would be unfair to retail manufacturers who must pay up to $800 million for studies and approval.  

The court in the case of Medical Center Pharmacy v. Mukasey, 536 F.3d 383 (5^th Cir. 2008) writes an excellent treatment of the history of the FDA's efforts relating to the problem of compounding pharmacies. Originally the FDA banned advertising of compounding pharmacies, but this was rejected by the United States Supreme court in Thompson v. Western States Medical Center, 535 U.S. 357 (2002.)

On April 12, 2013, the Congressional Research Service wrote a report entitled "Federal Authority to Regulate the Compounding of Human Drugs," which covers the basics in greater detail. As the name implies the CRS works for Congress as its research agency.

In conclusion, there are many, many issues for which you, as a physician, are ultimately responsible. This is true regardless of assurances that the same model has "worked like a charm for others, without any problems." Always consult independent legal counsel to represent your interests.