For more than a decade, drug shortages, particularly of sterile injectables, and other essential hospital medicines—have strained the US healthcare system and exposed deep structural weaknesses in the pharmaceutical supply chain. In response, policymakers, hospital systems, and industry leaders have increasingly turned to FDA-registered outsourcing facilities, commonly referred to as 503B compounding facilities, as a potential mitigation mechanism.

These facilities were designed to step in when commercial manufacturers cannot meet demand, producing large batches of compounded drugs without patient-specific prescriptions.

More than a decade after the Drug Quality and Security Act (DQSA) of 2013 created the 503B category, the central question remains unresolved: Have outsourcing facilities meaningfully reduced US drug shortages, or have they had limited impact on what is fundamentally a structural problem?

The answer in 2025 is nuanced. Outsourcing facilities have helped mitigate the clinical impact of shortages in specific, narrow circumstances, particularly for certain hospital-administered injectables.

However, they have not materially reduced the overall scale, duration, or recurrence of drug shortages. Understanding why requires examining both where outsourcing facilities add value and where economic, regulatory, and market constraints limit their effectiveness.

Why outsourcing facilities were created

Outsourcing facilities were established in response to safety failures in traditional pharmacy compounding, most notably the 2012 fungal meningitis outbreak linked to the New England Compounding Center. That crisis prompted Congress to enact the DQSA, which created a new regulatory category, Section 503B, allowing registered facilities to compound drugs at scale under FDA oversight and current good manufacturing practice (CGMP) standards.

By design, outsourcing facilities occupy a deliberately constrained role. They may compound drugs without patient-specific prescriptions and may compound copies of FDA-approved products, only while those products are officially listed on the FDA’s drug shortage list. This framework reflects a clear policy intent: outsourcing facilities were never meant to replace commercial manufacturers, but to serve as a temporary safety valve when supply disruptions threaten patient care, particularly in hospitals.

Growth of outsourcing facilities: What the trend really shows

Since the early post-DQSA years, the number of registered outsourcing facilities has grown steadily but modestly. The sector expanded from approximately 40 facilities in 2014, to around 76 by 2019, remained relatively stable during the COVID-19 period, and reached approximately 93 registered facilities by mid-2025.

This trajectory reflects measured expansion and maturation, not explosive growth. The scale of that growth matters. Even with nearly 100 registered facilities nationwide, the outsourcing sector remains small relative to the scope of drug shortages driven by failures at large, multi-product commercial manufacturing plants. Growth has increased local and institutional resilience, but it has not created capacity sufficient to stabilize national supply.

Where outsourcing facilities have made a difference

There is credible evidence that outsourcing facilities have played a supportive role in mitigating the clinical impact of some shortages, particularly in acute care settings.

FDA surveys and academic analyses indicate that a meaningful minority of outsourcing facilities actively produce drugs listed on the FDA shortage list. These products are typically older, off-patent sterile injectables with relatively straightforward formulations and high hospital demand.

Common examples include injectable analgesics such as morphine and hydromorphone, critical care agents like epinephrine and norepinephrine, anesthetics such as lidocaine and bupivacaine, and certain electrolyte or IV support products. Hospitals frequently report that outsourcing facilities provided short-term continuity of care during acute disruptions, allowing procedures to proceed and avoiding rationing during commercial supply gaps.

In this role, outsourcing facilities function effectively as clinical shock absorbers.

Targeted mitigation, not systemic relief

Despite these contributions, outsourcing facilities address only a small fraction of the total shortage universe. Comparative analyses of FDA shortage lists and 503B production data suggest that fewer than 20% of APIs in shortage overlap meaningfully with drugs compounded at scale by outsourcing facilities.

Many drugs in shortage, particularly oncology agents, biologics, complex injectables, and narrow-therapeutic-index products, are not suitable for compounding due to formulation complexity, stability requirements, or regulatory constraints. As a result, outsourcing facilities operate in a narrow corridor of the shortage landscape.

This explains why outsourcing facilities have not reduced the overall number, duration, or recurrence of drug shortages, even as they have mitigated harm in specific cases.

Why outsourcing facilities have not reduced overall shortages

Outsourcing facilities may compound copies of FDA-approved drugs only while those drugs are officially designated as being in shortage. Once the FDA determines a shortage is resolved, compounding must cease after a limited transition period, even if access remains uneven at the hospital or patient level.

This creates a fundamental disincentive to invest. Development and validation costs may not be recoverable, demand windows are uncertain, and production can end abruptly due to regulatory reclassification. The semaglutide experience of 2024–2025 illustrates this clearly: compounded supply expanded access during shortage, then was required to stop once the FDA removed the drug from the shortage list, despite ongoing affordability and access challenges.

Compounding economics are more fragile than assumed

Outsourcing facilities are often perceived as low-cost alternatives to commercial manufacturing. In reality, they face cGMP compliance expenses, API sourcing volatility, stability testing and quality assurance costs, and smaller production runs with limited economies of scale. For low-margin generic injectables, these economics are challenging, leading many facilities to limit production to short durations or selective products.

Quality, trust, and contracting barriers

Although outsourcing facilities are regulated, quality system maturity varies widely across the sector. Some hospital systems remain cautious about relying heavily on compounded products, particularly for high-risk patient populations. Additional barriers include limited inclusion in group purchasing contracts, liability and pharmacovigilance concerns, and challenges related to labeling, serialization, and interoperability.

Outsourcing facilities do not address root causes

Most importantly, outsourcing facilities do not fix the structural drivers of shortages, including manufacturing quality failures at commercial plants, excessive concentration of production, poor economics of mature generics, and lack of incentives for redundancy and reliability. They respond to symptoms, not causes.

What Is really driving the growth of outsourcing facilities?

Critically, the growth of outsourcing facilities has not been driven primarily by a coordinated effort to solve drug shortages long term. Instead, several other forces are shaping expansion.

First, hospital demand for supply flexibility has been a major driver. Health systems increasingly view outsourcing facilities as tools to reduce dependence on single-source manufacturers, secure backup supply for high-risk injectables, and standardize formulations across sites. In this context, outsourcing facilities function as risk-management mechanisms, not systemic supply replacements.

Second, the failure of the generic injectable market has played a central role. Persistent underpricing, aggressive group purchasing organization contracting, and thin margins have pushed many commercial manufacturers to exit older injectable markets or underinvest in redundancy and quality. Outsourcing facilities have grown in part because they can operate in micro-markets abandoned by traditional manufacturers.

Third, the 503B model offers portfolio diversification and regulatory optionality, supporting ready-to-use injectables, customized formulations, and convenience products alongside shortage-driven compounding. This diversification has decoupled 503B growth from the shortage cycle itself.

Finally, post-pandemic resilience planning has accelerated growth. COVID-19 exposed the risks of just-in-time inventory and global concentration, prompting hospitals to invest in redundant, localized supply options, including partnerships with outsourcing facilities.

Why growth will not solve shortages long term

Despite steady growth, outsourcing facilities face inherent limits:

• Scale mismatch: Fewer than 100 facilities cannot offset failures at large commercial plants.
• Product scope limits: Most shortage drugs remain outside compounding’s reach.
• Economic fragility: Facilities cannot sustainably supply large volumes of low-margin drugs.
• Regulatory dependence: Shortage designation volatility undermines capacity planning.

As a result, growth in outsourcing facilities has increased local resilience, not national supply stability.

Conclusion: A balanced verdict

The evidence supports a measured conclusion. Outsourcing facilities have reduced the clinical impact of some shortages, but they have not resolved the US drug shortage crisis. They are complementary—not substitutive—to commercial manufacturing and function best as tactical buffers, not strategic solutions.

The continued growth of outsourcing facilities should be understood as a signal of deeper market dysfunction, not as proof that shortages are being solved. Long-term reduction in drug shortages will require reforming the economics of essential medicines, incentivizing redundancy and quality investment, and rewarding reliability, not simply expanding the compounding perimeter around a broken system.

About the Author

Thani Jambulingam, PhD, is a professor of food, pharma, and healthcare business at Saint Joseph’s University’s Erivan K. Haub School of Business.