What is a 503B? Outsourcing Facilities Explained
A 503B outsourcing facility is a type of drug manufacturing establishment authorized to compound medications in bulk, with or without patient-specific prescriptions, for distribution to healthcare facilities for office or “office-administered” use. These facilities are regulated by the U.S. Food and Drug Administration (FDA) and must comply with stringent quality and safety standards.
Intro to 503B Outsourcing Facilities
503B outsourcing facilities compound sterile drugs and other products for use in clinics, hospitals, and health systems. These facilities are specifically designated under the Federal Food, Drug, and Cosmetic Act (FD&C Act) and operate under a unique set of regulations aimed at ensuring the safety, quality, and integrity of compounded sterile preparations (CSPs).
At Restore Health Consulting, we provide business and compliance guidance designed to help 503Bs achieve quality and regulatory excellence. If you’re considering starting a 503B outsourcing facility, book a free consultation with one of our experts today.
Understanding the regulations and requirements that apply to 503Bs is the first key step to building a successful 503B business.
With this in mind, we’ll examine what a 503B FDA outsourcing facility is, covering the main regulations, requirements, and definitions.
If you’re looking for an in-depth guide to starting a 503B outsourcing facility, read this article. In case you’re preparing for a 503B outsourcing facility FDA inspection, access this guide.
What is a 503B Outsourcing Facility?
503B outsourcing facilities create custom medications in large batches for hospitals, doctors’ offices, clinics, and other healthcare institutions. These medications are administered by healthcare providers in hospitals or clinics, which is why they’re sometimes called “office-use” or “office-administered” medications.
Examples include sterile medications administered by injection during a patient’s doctor visit that are not commercially available and must be compounded.
Although the term “503B pharmacy” is sometimes used online, these establishments are officially designated as 503B outsourcing facilities — often referred to simply as 503B facilities or 503Bs.
At its core, a 503B outsourcing facility is an FDA-registered entity that compounds large volumes of sterile drugs for healthcare providers. Think of it as a hybrid between a traditional pharmaceutical manufacturer and a compounding pharmacy, but with its own distinct regulatory framework.
How 503B Outsourcing Facilities Came to Be
The "503B" designation comes from Section 503B of the Federal Food, Drug, and Cosmetic Act (FD&C Act). It was established following the 2012 New England Compounding Center (NECC) tragedy, a nationwide fungal meningitis outbreak caused by contaminated injectable steroid medications produced by NECC. It led to 753 illnesses and more than 50 deaths across 20 states.
Following the tragedy, Section 503B of the law established outsourcing facilities as a new category of compounders. This provision strengthened FDA oversight of large-scale sterile drug compounding and aimed to enhance product safety and quality. The intent was to protect patients and prevent similar tragedies from occurring again.
How 503Bs Complement 503As
503B outsourcing facilities are authorized to compound larger batches of medications, with or without patient-specific prescriptions. This allows for economies of scale that can reduce manufacturing costs and ultimately lower prices for consumers. Medications produced by 503B facilities are typically sold to healthcare providers for office-administered use, though 503Bs may also supply 503A pharmacies, which in turn dispense medications to patients pursuant to individual prescriptions.
503Bs that provide patient-specific medications are held to higher regulatory standards. Unlike 503A pharmacies, these facilities are required to maintain full compliance with Current Good Manufacturing Practice (CGMP) requirements.
By contrast, drugs compounded by a licensed pharmacist in a state-licensed pharmacy or federal facility, or by a physician, are not. They have to be produced in accordance with the conditions of section 503A of the Federal Food, Drug, and Cosmetic Act (FD&C Act).
This means that 503B outsourcing facilities are regulated and routinely inspected by the FDA and are held to high quality standards similar to traditional drug manufacturers.
Hence, 503B facilities complement 503A pharmacies, which compound smaller quantities according to prescriptions specific to particular patients.
Key Definition: Unlike a traditional 503A pharmacy that compounds patient-specific prescriptions, a 503B produces drugs in mass, without requiring individual patient prescriptions. Their products are traditionally intended for office stock and administration in a healthcare setting.
FDA Oversight
The FDA determines which drugs can be compounded by 503B outsourcing facilities. The active pharmaceutical ingredients that outsourcing facilities use to compound medications also need to come from FDA-registered manufacturers.
503B facilities are required to submit reports on their compounded products and must meet specific quality standards that ensure the safety and effectiveness of the drugs they produce. They must also report serious and unexpected adverse events related to their medications to the FDA.
Outsourcing facilities are inspected by the FDA according to a risk-based schedule and are subject to increased quality standards.
Key takeaway: 503B outsourcing facilities are FDA-registered manufacturers permitted to sell sterile and nonsterile compounded drugs in bulk to healthcare facilities and pharmacies. Although permitted, direct dispensing to patients based on individual prescriptions is rare in practice. Unlike 503A pharmacies, which are limited to prescription-based compounding, 503Bs must comply with federal current good manufacturing practice (CGMP) standards.
Read Next: Preparing for an FDA Inspection: A Comprehensive Guide for 503B Outsourcing Facilities
Does a 503B Facility Need to Be a Pharmacy?
503B outsourcing facilities do not have to be licensed pharmacies.
Instead, they are registered with the FDA as outsourcing facilities under section 503B of the FD&C Act. The drugs they compound must be made under their supervision of a licensed pharmacist. However, unlike 503A pharmacies, 503B outsourcing facilities don’t have to obtain prescriptions for individual patients.
Although a 503B outsourcing facility could technically operate in a manner similar to a pharmacy—by employing licensed pharmacists and technicians and accepting patient prescriptions alongside its GMP manufacturing activities—503Bs and 503As generally function very differently in scope, purpose, and regulatory oversight.
What this means:
Pharmacy Licensure: Federal law does not require 503B outsourcing facilities to obtain a pharmacy license. However, state requirements vary. Most states exempt 503Bs from traditional pharmacy licensure, but most issue a specific “outsourcing facility” license as part of state oversight. Regardless of state classification, all 503Bs must register with the FDA and comply with Current Good Manufacturing Practice (CGMP) regulations.
Dual Oversight: 503Bs operate under both federal and state jurisdiction. While the FDA enforces CGMP compliance and other federal requirements, state boards of pharmacy may impose additional licensing expectations. Each facility must ensure alignment with both sets of regulations.
Focus on CGMP Compliance: The defining feature of a 503B outsourcing facility is its adherence to federal CGMP standards—requirements typically reserved for pharmaceutical manufacturers. This framework governs all aspects of production, from facility design and equipment qualification to environmental monitoring and quality assurance.
Implication: This distinction allows 503B facilities to operate more like pharmaceutical manufacturers, focusing on large scale production with rigorous quality controls, rather than serving individual prescriptions as a typical pharmacy would. This model supports high-volume production while maintaining exceptional safety standards.
Why Do 503B Outsourcing Facilities Exist?
503Bs were created to address a critical gap in the market: the need for a reliable, scalable, safe, and highly regulated source for essential sterile drugs that may be in short supply or not commercially available.
Safety
Although relatively new, 503B outsourcing facilities play an essential role in the American healthcare system. The importance of their strict legislation is clear just from the fact that they are included in federal law (the above-mentioned FD&C Act).
The main reason for their existence is to enhance and ensure the safety of sterile, compounded medications. By following strict Current Good Manufacturing Practices (CGMP), 503B facilities reduce the risk of contamination and ensure consistent quality.
Mitigating Drug Shortages
503B facilities act as a crucial backup for the U.S. drug supply chain. Although outsourcing facilities typically can’t make copies of commercially available drugs, they can make a commercially available drug if the FDA has documented a shortage of it.
In this way, 503B facilities can provide healthcare practices with needed medications that would otherwise be unavailable. 503Bs can rapidly compound drugs, like critical care drugs or injectable electrolytes, that are on the FDA drug shortage list, ensuring patient care is not interrupted. This is key during shortages or emergencies.
Access to Custom Medications
503Bs can also provide custom medications that are not available commercially, giving healthcare practitioners and their patients more treatment options.
Patients may need medications in a different strength than what is commercially available, they may need a combination of drugs compounded into a single dosage form, or they may need medicine that does not have a preservative or allergen that the FDA-approved version contains, among other reasons. Outsourcing facilities can help with these situations.
Operational Efficiency & Cost Reduction
Sourcing ready-to-use, unit-dose medications from a 503B outsourcing facility reduces the labor, quality control, and material costs associated with in-house pharmacy compounding. This allows hospital pharmacists to focus on clinical duties rather than the production of compounds. Bulk production also reduces manufacturing costs and lowers medication prices for consumers.
How are 503B Facilities Regulated?
Key regulations: 503B outsourcing facilities must comply with state regulations and 21 CFR Part 210 and 211 (CGMP), among several other guidelines.
CGMP
Current Good Manufacturing Practices (CGMPs) are the backbone of any successful 503B outsourcing facility. These practices are designed to ensure the consistent production of safe and high-quality products.
Ensuring that your facility adheres to CGMP from day one is critical, as the FDA will regularly inspect 503B facilities for compliance with these standards.
Key CGMP Considerations:
Written Standard Operating Procedures (SOPs): Every aspect of sterile drug production must be documented in SOPs.
Environmental Monitoring: Regular monitoring of the cleanroom environment for airborne particles and microbial contamination is required to ensure that the environment meets ISO standards.
Validated Processes: All systems must be validated or qualified to ensure they consistently produce sterile and effective products. This includes media fills to validate sterile techniques and cleaning validation to ensure that all surfaces are free from contamination.
Batch Records: Detailed records must be kept for each batch of compounded drugs, including information on raw materials, equipment used, processing steps, and final product testing.
Quality Control and Testing: Before a product is released, it must undergo rigorous testing to ensure it meets predefined quality specifications. This includes sterility testing, pyrogen (endotoxin) testing, and potency testing. The time needed for this also needs to be taken into consideration.
Therefore, unlike 503A facilities, 503B facilities must validate every process according to CGMP.
You can read about these processes in more detail in our guide to starting a 503B outsourcing facility.
Inspections and Compliance: The FDA regularly inspects 503B facilities for compliance with regulations and standards. Failure to comply can result in enforcement actions, including recalls or closure.
503B Requirements
In brief, for a drug compounder to be a 503B outsourcing facility, they must:
Register with the FDA as an official outsourcing facility
Comply with state-specific requirements for their state(s) of operation
Register with the DEA if applicable
Compound sterile drugs (though they may also compound nonsterile drugs)
Adhere to all the requirements of Section 503B of the FD&C Act
503B outsourcing facilities have to meet specific facility, equipment, and material requirements. They must be purpose-built to handle sterile compounding operations and meet the stringent requirements outlined in CGMP regulations. The design and layout of the facility are critical to ensuring product quality and patient safety.
Read more about facility, equipment, material, and ingredients considerations for 503B pharmacies in this guide.
Who Can 503Bs Sell To?
503B outsourcing facilities can supply compounded sterile preparations to a range of healthcare entities. The key aspect of their sales is that, unlike traditional pharmacies serving individual patients, their products are intended for:
Hospitals and Health Systems: For use in inpatient and outpatient settings, especially when sterile compounded medications are needed in large quantities.
Clinics and Ambulatory Care Centers: Providing sterile medications for outpatient procedures.
Healthcare Providers and Provider Groups: These may include infusion centers, surgical centers, and specialty clinics requiring high-quality compounded medications.
Other Licensed Facilities: Including pharmacies (retail or hospital), provided they are authorized to receive and use sterile compounded drugs.
503A facilities: allowing 503A pharmacies to reduce regulatory burden and operational complexity
Group Purchasing Organizations (GPOs): acting as intermediaries on behalf of these facilities
Conclusion
503B outsourcing facilities play a vital role in ensuring the safety, quality, and availability of sterile compounded medications in the U.S. healthcare system. By adhering to FDA regulations and Current Good Manufacturing Practices (CGMP), they fill critical gaps in drug supply, enhance patient safety, and support hospitals and clinics with ready-to-use, compliant products.
If you’re planning to launch, optimize, or bring your 503B operations into full regulatory alignment, our team at Restore Health Consulting can help. From startups to cleanups, we design, validate, scale, and fix 503A, 503B, and GMP operations—so you can launch faster, pass inspections the first time, and outperform competitors.
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