503A or 503B? Choosing a compounding partner for telehealth

Current as of October 21, 2026.

The short version

A 503A pharmacy compounds for identified patients on prescriptions. A 503B outsourcing facility can make non-patient-specific stock, under CGMP and FDA inspection.
FDA is not enforcing the 503A interstate limit while it writes a new rule. State licensure to ship into each state still applies.
Which one fits depends on your model: patient-specific prescriptions, office stock, or both.

Paul’s take

People mix these two up constantly and use the terms as if they mean the same thing. They don’t. One point clears up a lot of the fog. A 503B can supply a 503A pharmacy that dispenses the drug to a patient on a prescription, where state law allows it. The statute permits dispensing on a prescription, and FDA’s 2023 draft guidance on wholesaling describes it.

Your pharmacy partner is the least visible and most important contract a telehealth company signs. When something goes wrong with the drug, it goes wrong with your company too. Diligence it like your most important supplier, because it is.

— Paul Albarrán

What are the two federal paths for compounded drugs?

The choice often follows how the drug reaches the patient. Prescriptions for individual patients often go to a 503A pharmacy. Under federal law, office stock for clinics generally comes from a 503B outsourcing facility.

Federal law gives a compounding supply chain two kinds of compounder. Under section 503A, a licensed pharmacist or physician compounds for an identified individual patient, based on a valid prescription. A 503B outsourcing facility compounds sterile drugs, has elected to register with FDA, and may compound with or without patient-specific prescriptions.

FDA describes compounding as generally combining, mixing or altering a drug’s ingredients to create a medication tailored to an individual patient. Compounded drugs are not FDA approved. FDA does not verify their safety, effectiveness or quality before they are marketed.

The Federal Food, Drug, and Cosmetic Act sets out two main routes for compounding. Section 503A covers traditional compounding by state-licensed pharmacies and physicians. Section 503B covers outsourcing facilities that register with FDA. The two routes carry different rules.

What does section 503A allow?

Under section 503A, the compounder is a licensed pharmacist in a state-licensed pharmacy or federal facility, or a licensed physician. The drug is compounded for an identified individual patient, based on a valid prescription. A 503A compounder may also prepare limited quantities ahead of orders. That is allowed only with a history of valid prescriptions for the drug, from an established relationship with the patient or prescriber.

When its conditions are met, section 503A exempts the drug from three federal requirements. They are current good manufacturing practice (CGMP) requirements, a labeling requirement for adequate directions for use, and FDA approval as a new drug.

FDA describes state boards of pharmacy as having primary responsibility for day-to-day oversight of these pharmacies. FDA still conducts surveillance and for-cause inspections.

Section 503A has other conditions. It limits which bulk drug substances may be used. It bars compounding, regularly or in inordinate amounts, drugs that are essentially copies of commercially available products. It also limits how much a pharmacy may distribute across state lines. The statute uses either a state agreement with FDA or a 5 percent cap. FDA does not currently enforce the 5 percent cap. It says it will not do so until a final rule and an updated standard agreement are issued. FDA also treats its 2020 standard agreement as suspended. FDA’s policies on several of these limits have changed over time.

What is a 503B outsourcing facility?

Section 503B created a category called the outsourcing facility. A facility elects to register with FDA and must be engaged in compounding sterile drugs. Federal law does not require it to be a licensed pharmacy. State law may separately require licensure or registration. Michigan, for example, requires an outsourcing facility doing business there to be licensed as a pharmacy. Compounding happens under the direct supervision of a licensed pharmacist.

An outsourcing facility may compound with or without prescriptions for identified individual patients. That allows it to supply hospitals, clinics and practitioners with drugs for office use.

Outsourcing facilities carry more federal oversight. They are subject to CGMP requirements, and FDA inspects them on a risk-based schedule. They report adverse events to FDA. They also report the drugs they compound each June and December. Their labels must state that the product is a compounded drug.

Section 503B has its own limits on bulk drug substances. A facility may not compound drugs that are essentially copies of approved drugs, subject to two exceptions. A drug identical or nearly identical to an approved drug is a copy, unless the approved drug is on FDA’s drug shortage list. The approved drug must be on that list at the time of compounding, distribution and dispensing. A drug made with an approved drug’s bulk ingredient is a copy unless a change produces a clinical difference for an individual patient. That difference is determined by the prescribing practitioner. A drug from an outsourcing facility generally may not be sold or transferred by anyone except the facility that compounded it. Administering it in a health care setting, or dispensing it on a valid prescription, remains permitted. That transfer rule matters for any model that places a reseller between the facility and the provider. Under FDA’s draft guidance, a 503B facility may supply a state-licensed pharmacy that dispenses the drug on a prescription, where state law allows. A 503A pharmacy is one such state-licensed pharmacy. FDA describes this arrangement in a June 2023 guidance on wholesaling, which is a draft and not for implementation.

Which kind of compounder fits which telehealth model?

The right relationship depends on how the product reaches the patient.

Prescription fulfillment for individual patients. A telehealth company whose prescribers write patient-specific prescriptions often works with a 503A pharmacy. The pharmacy fills each prescription and ships to the patient. Some states require out-of-state pharmacies doing business in, or shipping into, the state to be licensed there, subject to exceptions. Michigan Compiled Laws 333.17748 requires a license to do business in Michigan, except for qualified pharmacies. California Business and Professions Code 4112 licenses out-of-state pharmacies that ship, mail or deliver prescription drugs into California under prescriptions.
Office stock for clinics. A clinic, medical spa or practice may want compounded drugs on hand to administer on site, without a prescription for each patient. Under federal law, that supply generally comes from a 503B outsourcing facility. Some states allow prescriptions without patient names. FDA says those prescriptions do not meet section 503A’s patient-specific requirement.
Mixed models. Some companies use both. Map each product line to the section it relies on, and keep the documents that support it.

A telehealth brand can face FDA action over its marketing, even when a pharmacy holds the license.

FDA has also focused on how telehealth companies market compounded drugs. A companion article covers what FDA has told them not to claim.

What do compounding supply contracts usually cover?

A compounding relationship should be in writing. Useful terms include these:

Status and licenses. The partner states whether it operates under 503A or 503B. It lists its state licenses and, where it applies, its FDA registration.
Ongoing compliance. The partner agrees to stay in compliance, keep its licenses current and give notice of any change.
Inspections and regulatory notices. The partner promptly shares inspection findings, warning letters and state board actions that affect the brand’s products.
Ingredients and sourcing. The partner confirms its bulk drug substances meet the federal conditions. That includes a registered source and a valid certificate of analysis.
Quality events and recalls. The contract assigns who handles complaints, adverse event reports and recalls, and on what timeline.
Marketing review. The brand’s claims are checked against the partner’s status. Compounded drugs are not FDA approved, so marketing should never suggest that they are.
Exit. The contract sets out how patients are moved to a new source if the partner loses a license or stops making a product.

Payment terms also deserve care. Fees tied to prescription volume can raise anti-kickback issues. The federal anti-kickback statute applies to items a federal health care program may pay for, in whole or in part. At the state level, Florida’s Patient Brokering Act is Florida Statutes section 817.505. It bars offering or paying kickbacks, bribes or split fees to induce patient referrals, and soliciting or receiving them in return for referrals. It exempts payment practices that the federal anti-kickback statute does not prohibit, among other exceptions.

Which rule changes can affect these relationships?

Compounding rules respond to events. When a drug goes on or comes off FDA’s drug shortage list, what compounders may make can change. FDA found the tirzepatide and semaglutide shortages resolved in late 2024 and February 2025. FDA’s limited periods of enforcement discretion, tied to the shortages, ended between March and May 2025. In a notice published May 1, 2026, FDA proposed not to include semaglutide, tirzepatide and liraglutide on the 503B bulks list. No final decision had been published as of October 20, 2026. FDA also updates its bulk drug substance lists and its interim policies. A product that was permissible last year may not be permissible today. States regulate compounding too.

A supply chain built on compounding needs a regular check of the current rules for each product. The contract should say who watches for those changes and what happens when one lands.

The information on this site is general information, not legal advice.