Compounded Medications: Risks, Costs, and the Impact on Workers’ Compensation
Summary:
Pharmaceutical compounding is the practice of mixing, altering, or combining drug ingredients into customized preparations. With roots dating back centuries, compounding has traditionally been reserved for patients with documented allergies to inactive ingredients, swallowing difficulties, or clinical needs unmet by commercially available products. The United States Food and Drug Administration (FDA) acknowledges that compounded medications may serve a legitimate medical purpose when no approved alternative exists for a specific patient (1).
In the workers’ compensation system, however, compounding has expanded far beyond these narrow circumstances. The most common compounded products are topical pain creams containing four to six active ingredients, frequently including gabapentin, cyclobenzaprine, baclofen, and lidocaine (2, 3). Utilization of compounded medications in workers’ compensation has increased nearly fivefold in recent years, accompanied by dramatic price escalation. Compounding pharmacies increasingly market multi-ingredient formulations with unsubstantiated therapeutic claims, raising serious concerns about safety, effectiveness, and cost.
Why Compounded Medications Are Used
Advocates of compounded medications argue that topical formulations deliver drugs directly to the site of injury, reduce systemic side effects, and allow multiple agents to be combined into a single preparation (2). In theory, these features could improve adherence and pain control for injured workers.
In practice, many compounding pharmacies have shifted away from patient specific customization and toward heavily marketed formulations that resemble commercial drug manufacturing, without the requirements of FDA approval or clinical trials. This evolution blurs the line between individualized therapy and large-scale distribution of unproven products, particularly within workers’ compensation where formularies and reimbursement structures differ significantly from group health plans (2).
Safety, Quality, and Effectiveness Concerns
Compounded drugs are not FDA approved, meaning the agency does not review their safety, effectiveness, or manufacturing quality before they reach patients (1).
The risks associated with compounding are well documented. In 2013, contaminated injectable steroids from the New England Compounding Center caused a fungal meningitis outbreak that injured at least 751 patients and resulted in 64 deaths (3).
Since that time, the FDA has continued to identify insanitary conditions at compounding facilities and investigate adverse events tied to poor quality products through enhanced surveillance and incident response programs (5)
Cost Implications
The financial impact of compounded medications is significant.
A national claims analysis found that the average ingredient cost of a compounded prescription reached $710.36 in 2013, compared to $160.20 for non-compounded prescriptions among the same patient population. This represented a 130% increase in a single year, while costs for non-compounded prescriptions rose only 7.7% (3).
Within the California Workers’ Compensation System, mean costs per compounded prescription increased steadily over time. Regulatory efforts such as Assembly Bill 378, which requires ingredient level billing, achieved limited success, with approximately 15% of pharmacy dispensed compounds still failing to comply with billing requirements (2).
In response, states have implemented varied policy approaches. Ohio caps reimbursement at $600 per compounded prescription, Louisiana requires billing at the generic equivalent level, and at least twelve states mandate ingredient level reporting (2).
Compounded GLP 1 Receptor Agonists: A Case Study in Access, Cost, and Risk
The challenges of compounded medications extend beyond topical pain creams. The recent surge in compounded GLP 1 receptor agonists, including semaglutide and tirzepatide, demonstrates how compounding can rapidly expand in response to market demand. High brand prices and limited insurance coverage led many patients to lower cost compounded alternatives (6).
This growth was enabled when these drugs were placed on the FDA shortage list in 2022 and 2023, allowing temporary compounding. After both were removed from the list in early 2025, the FDA ended this allowance with a wind down period through May 2025 (6). Safety concerns emerged, with more than 1,000 reported adverse events linked to compounded GLP 1 products by mid 2025, highlighting risks related to dosing, formulation inconsistency, and product quality (6). The GLP 1 experience illustrates that while compounding may address short term access gaps, prolonged use of unapproved formulations raises significant safety and oversight concerns.
Workers’ Compensation: Claims, Approvals, and Oversight
In workers’ compensation, the impact of compounded medications is magnified. A single compounded prescription can exceed the cost of a month of standard therapy, and repeated use quickly escalates claim costs (2, 3). Evaluating these requests requires pharmacy expertise to determine clinical justification, availability of commercial alternatives, and pricing reasonableness.
Best practices include requiring prior trial of conventional therapies, clinical evidence to support safety and effectiveness, ingredient level billing with audits, and verification of pharmacy regulatory status (2). Oversight remains fragmented between the FDA and state boards of pharmacy, though expanding FDA surveillance programs signal increasing scrutiny of compounding practices (2, 5, 6).
The Path Forward
The objective is not to eliminate compounding, but to restore it to its intended role of serving patients with genuine medical necessity through evidence supported and transparently priced treatments. Payers should require documented failure of conventional therapy before authorizing compounded medications. Prescribers must critically evaluate the scientific basis of multi-ingredient formulations before ordering them. Regulators at both the state and federal levels must continue closing gaps that allow high cost, untested products to reach patients without adequate oversight. For injured workers and for the systems designed to support their recovery, this standard is not optional.
By Abdiaziz Haji
PharmD Candidate (P4)
For questions, e-mail pharmd@prodigyrx.com
Citations
1. U.S. Food and Drug Administration. Understanding the Risks of Compounded Drugs. FDA website. Accessed 2025. https://www.fda.gov/drugs/human-drug-compounding/understanding-risks-compounded-drugs2. Lin TK, et al. Utilization, cost, and pricing scheme of compounded medications for public health system patients: the California Workers’ Compensation System, 2011 to 2013. Journal of Managed Care & Specialty Pharmacy. 2019;25(7):743–751. https://pubmed.ncbi.nlm.nih.gov/31232208/3. McPherson T, et al. Utilization and costs of compounded medications for commercially insured patients, 2012 to 2013. Journal of Managed Care & Specialty Pharmacy. 2016;22(2):172–181. https://pubmed.ncbi.nlm.nih.gov/27015256/4. Jackson LM, Schwinn DA, eds. Compounded Topical Pain Creams: Review of Select Ingredients for Safety, Effectiveness, and Use. National Academies Press; 2020. https://nap.nationalacademies.org/catalog/256895. Janusziewicz AN, et al. A pharmacist driven Food and Drug Administration incident surveillance and response program for compounded drugs. American Journal of Health System Pharmacy. 2021;78(15):1438–1443. https://pubmed.ncbi.nlm.nih.gov/33889929/6. Dudding J. Navigating access: the future of compounded GLP 1 receptor agonists for weight loss. Missouri Medicine. 2025;122(4):252–254. https://pubmed.ncbi.nlm.nih.gov/40787017/
