The increased use of compounded medications—particularly driven by the glucagon-like peptide-1 (GLP-1) therapies and ketamine assisted psychotherapy—has drawn renewed attention to their role in modern treatment. This trend raises important questions about the legal considerations of using compounded medications when FDA-approved alternatives are available.
Compounded medications play an important role in individualized patient care when an FDA-approved drug is not suitable—for example, when a patient has an allergy to a specific excipient or requires a unique dosage form. In recent years, physicians have also increasingly used compounded medications for convenience and perceived lower cost, particularly for in-office administration and improved patient access. However, compounded drugs carry distinct clinical, quality, regulatory, and liability risks that must be carefully managed. Unlike FDA-approved medications, compounded drugs do not undergo premarket review for safety, effectiveness, or manufacturing quality, increasing the potential for patient harm if standards are not met.1,2
1. Regulatory Framework: Federal and California Considerations
Under the federal Food, Drug, and Cosmetic Act, compounded drugs that meet the conditions of section 503A may be exempt from FDA premarket approval and certain manufacturing requirements but remain subject to prohibitions against unsanitary conditions and unsafe practices. Importantly, compounded medications are not FDA-approved, and outbreaks and serious adverse events linked to poor compounding practices in medical offices and clinics have been documented.1,2
In California, compounding is governed primarily by the California Board of Pharmacy under Title 16 of the California Code of Regulations. These rules establish expectations for documentation, beyond-use dating (BUD), ingredient control, and storage practices.3 Although recent regulatory updates clarify that physician practices are exempt from pharmacy licensure requirements, this exemption does not eliminate a physician’s responsibility to ensure safe preparation, handling, and use of compounded medications.
Additional California regulations, including those applicable in workers’ compensation cases, require clear documentation of medical necessity when compounded drugs are prescribed or dispensed, emphasizing that compounded products should not be used as a convenience substitute for commercially available drugs without justification.4,5
2. Quality and Preparation Standards
Medical necessity is a requirement. Compounded medications should be used only when a patient’s specific clinical needs cannot be met by an FDA-approved product. The clinical rationales such as allergies, dosage requirements, or route of administration should be clearly documented in the medical record.3
Written procedures are critical. Best practices and California regulations call for written master formulas or procedures describing ingredients, compounding steps, equipment, quality checks, storage requirements, and assigned BUDs.6 This documentation not only supports patient safety but is also essential for defending care decisions in the event of a claim.
Staff training and oversight matter. Personnel involved in compounding should be appropriately trained and supervised, with competency assessments documented. Even when compounding is limited, lack of training or deviation from recognized standards can significantly increase malpractice exposure.6
Physicians should be aware that compounded drugs are not subject to Good Manufacturing Practice (GMP) requirements applicable to commercial manufacturers. Variability in strength, sterility, and stability has been documented, and adverse outcomes may expose both the compounder and the prescriber to liability.7
3. Storage and Handling Risks
Improper storage and handling are common sources of risk.
- Environmental controls: Ingredients and finished compounded products must be stored under appropriate temperature, light, and humidity conditions consistent with United States Pharmacopeia (USP) standards and regulatory expectations.¹
- Labeling and integrity: Containers should be clearly labeled with contents, lot numbers when available, preparation dates, and beyond-use dates. Altered or repackaged products must be relabeled accurately.¹
- Beyond-use dating: Products should never be used beyond their assigned BUD. Inadequate justification for BUDs is a frequent compliance issue and a vulnerability in litigation.¹
Failure to follow these practices can result in reduced potency, contamination, or patient injury—outcomes that are often difficult to defend.
4. Documentation, Consent, and Monitoring
From a risk management perspective, documentation is your strongest defense. The medical record should clearly reflect:
- Why a compounded medication was necessary
- Why commercially available alternatives were not suitable
- How and where the medication was prepared or sourced
- Storage conditions and administration details
- For higher-risk compounded products, particularly sterile injectables, physicians should consider an informed consent discussion, explaining that the medication is not FDA-approved and may carry additional risks.5
- Practices should also have a process for identifying and responding to adverse events, including internal review and reporting to appropriate regulatory bodies when required.
5. Risk Management Recommendations
To reduce exposure while supporting patient care:
- Limit in-office compounding unless your practice has appropriate facilities, policies, and trained personnel.
- Use reputable, licensed compounding pharmacies or outsourcing facilities whenever possible.
- Collaborate with pharmacists for formulation, storage guidance, and quality assurance.
- Stay current on California regulatory changes, including Board of Pharmacy guidance and documentation requirements.1-3
- Confirm that your professional liability coverage applies to the prescribing or manufacturing of compounded medications.
Compounded medications can be clinically appropriate, but they require heightened vigilance. Thoughtful use, careful documentation, and adherence to recognized standards are essential to protecting your patients and your practice.
Monica Ludwick, Pharm.D., is a Senior Risk Management and Patient Safety Specialist. Questions or comments related to this article should be directed to MLudwick@CAPphysicians.com.
1California Code of Regulations, Title 16, Section 1735.2. Compounding Limitations and Requirements; Self-Assessment. Accessed December 2025. https://www.law.cornell.edu/regulations/california/16-CCR-1735.2
2California Code of Regulations, Title 8, Section 9792.27.9. Compounded Drugs. Accessed December 2025. https://www.dir.ca.gov/t8/9792_27_9.html
3California Code of Regulations, Title 8, Section 9789.40.7. Compounded Pharmaceuticals Dispensed by a Physician on or after July 1, 2025. Accessed December 2025. https://www.dir.ca.gov/t8/9789_40_7.html
4U.S. Food and Drug Administration. “FDA Highlights Concerns with Compounding of Drug Products by Medical Offices and Clinics under Insanitary Conditions.” Accessed December 2025. https://www.fda.gov/drugs/human-drug-compounding/fda-highlights-concern…
5U.S. Food and Drug Administration. “Compounding and the FDA: Questions and Answers.” Accessed December 2025. https://www.fda.gov/drugs/human-drug-compounding/compounding-and-fda-qu…
6California Board of Pharmacy. Compounding Regulations and Guidance (16 CCR §§ 1735 et seq.). Accessed December 2025. https://www.pharmacy.ca.gov/publications/compounding_faqs.pdf
7Federation of State Medical Boards. White Paper on Physician Compounding. 2020. Accessed December 2025. https://www.fsmb.org/siteassets/advocacy/publications/white-paper-on-physician-compounding-2020-for-posting.pdf