Compounding pharmacies that ship prescriptions across state lines operate under a specific federal ceiling. Section 503A of the Federal Food, Drug, and Cosmetic Act caps out-of-state distribution at 5 percent of a pharmacy's total prescription orders, unless the pharmacy's state has signed a memorandum of understanding, or MOU, with the FDA. Compounding interstate shipping guidance often skips the detail that matters most: the FDA's standard MOU is currently suspended, and no state operates under an active, FDA-recognized MOU today. A pharmacy that assumes its state has “signed the MOU” and ships above 5 percent on that assumption is relying on a framework the agency itself paused years ago.
The Statutory 5 Percent Limit
Under 21 U.S.C. § 353a(b)(3)(B)(ii), a compounder located in a state that has not entered into a standard MOU with the FDA meets the Section 503A distribution condition only if it does not distribute compounded drug products out of state in quantities exceeding 5 percent of its total prescription orders dispensed or distributed. FDA calculates that percentage against the pharmacy's total prescription volume for the period, not against a single drug or a single out-of-state patient. Missing the condition matters beyond an FDA enforcement letter: the compounded product no longer qualifies for the exemptions Section 503A provides from FDA new-drug approval, cGMP, and standard labeling requirements that would otherwise apply to a conventionally manufactured drug.
The MOU Is Suspended, Not In Effect
FDA finalized a standard MOU in October 2020, developed in consultation with the National Association of Boards of Pharmacy, and gave states a one-year window to sign before FDA intended to start enforcing the 5 percent cap in states that had not signed. Several compounding pharmacies sued, and in September 2021 the U.S. District Court for the District of Columbia ruled that FDA adopted the MOU as a legislative rule without the small-business analysis the Regulatory Flexibility Act requires, and remanded it back to the agency. In February 2022, FDA conceded the point and committed to notice-and-comment rulemaking on the MOU, a process the agency said could take several years.
FDA considers the October 2020 standard MOU suspended. The agency will not enter into new agreements based on it, and does not expect states that already signed to carry out the activities the MOU describes.
FDA has since extended, more than once, the date by which it intends to begin enforcing the 5 percent limit in non-signing states, most recently tying that date to the completion of its rulemaking and the publication of an updated standard MOU. Until a final rule and a new MOU exist, no state has a working, FDA-recognized MOU in place, whatever a pharmacy's state board or a vendor's marketing materials may suggest. How this distribution condition interacts with a pharmacy's underlying framework is covered in Health Law Alliance's guide to 503A vs 503B: Which Framework Governs Your Compounding.
Why Interstate Shipping Still Needs a Tracking System
FDA's non-enforcement of the 5 percent limit is a matter of agency discretion, not a repeal of the statute. Section 503A's 5 percent line remains the law a pharmacy's exemption depends on, and FDA can end its non-enforcement posture once a final rule and an updated MOU are in place. A pharmacy that has not tracked what share of its total prescription orders left the compounding state has no way to demonstrate compliance if that happens, or if a state board of pharmacy, a PBM audit, or a product liability claim raises the question first. Tracking means a running calculation, refreshed as volume changes: total prescription orders dispensed or distributed, measured against the subset shipped or delivered out of state, not a year-end estimate assembled after the fact.
Why Early Legal Counsel Is Critical
It is critical that compounding pharmacies promptly retain experienced healthcare defense counsel before an interstate distribution question becomes an FDA inquiry, a state board complaint, or a PBM audit finding. Early legal intervention can protect the pharmacy's Section 503A exemption, confirm the pharmacy's distribution tracking will hold up under scrutiny, and preserve defenses before a regulator or auditor frames the pharmacy's shipping practices as noncompliant. Waiting until a warning letter or audit notice arrives narrows the pharmacy's options and can turn a tracking gap into a lost exemption.
How Health Law Alliance Can Help
Health Law Alliance advises compounding pharmacies nationwide on Section 503A compliance, including interstate distribution tracking, drawing on the firm's experience across 2,000+ audits. The firm's attorneys review a pharmacy's distribution calculations, help build a compliance record before a regulator asks for one, and defend pharmacies facing an FDA inquiry, state board action, or PBM audit tied to interstate shipping. Pharmacies with questions about their interstate distribution posture can contact Health Law Alliance's compounding pharmacy defense team for a free, confidential consultation.
