Medical Necessity Criteria for Compounded Medications

Number 5.01.546

Effective Date November 10, 2014

Revision Date(s) 11/10/14; 08/12/13

Replaces N/A

Coverage Guideline

Compounded medications may be considered medically necessary when ALL of the following criteria are met:

  1. The primary active ingredient in the compounded medication must be a legend medication AND
  2. The active ingredients must be in therapeutic amounts, based on FDA indication or adequate medical and scientific evidence AND
  3. The safety and effectiveness of the compounded medication and its route of administration (including delivery system) is supported by FDA indication or adequate medical and scientific evidence. (Such documentation is the responsibility of the prescriber to provide.) AND
  4. If a compounded medication is similar to a commercially available product, but differs from the commercially available products in dosage, dosage form, and/or omission of a sweetener, dye, flavoring or preservative, clinical documentation is required from the prescriber supporting the need for the compound AND
  5. If any active ingredient in the compound otherwise requires prior authorization, the member must meet criteria established for medical necessity for that ingredient.

Coverage for compounded medications will not be covered under the following circumstances:

  1. Any compound that does not contain a legend drug otherwise covered by the plan OR
  2. Compounds used for cosmetic, performance enhancing or experimental/investigational purposes OR
  3. Compounds using legend ingredients for non-FDA approved indications or uses that are not compliant with Premera Policy for Off-Label Use of Drugs and Biologic Agents (see Related Coverage Guidelines/Policies below) OR
  4. Compounded formulations that use drugs withdrawn or removed from the market for safety reasons OR
  5. Compounded formulations that use an unproven route of administration to deliver a drug product. OR
  6. Prescription ingredients compounded for purposes of convenience only.
  1. Exceptions include:
  1. Formulation for those members who have difficulty or inability to swallow standard oral dosage forms who require the use oral liquid or non-oral routes of administration.
  1. Examples include but not limited to: patients requiring the use of nasogastric tubes or children who require prescription medication for which no liquid formulation is commercially available.
  • Formulations for those who have documented allergies or sensitivities to one or more of the following: dyes, preservatives, excipients or other inactive ingredients found in commercial preparations.
  1. Compounded implantable hormone replacement pellets or granules (such as estrogen-based implantable pellets) are considered investigational:
  1. Rationale: The FDA's Fertility and Maternal Health Drugs Advisory Committee unanimously agreed to terminate compassionate investigative new drug (IND) programs for estrogen pellets as a last-resort treatment of menopausal disorder.
  2. The Committee noted “the risk of bleeding and infection, the lack of information on release rates, difficulty in reversibility of the drug, increased feasibility of over-dosage of the drug, and increased risk of non-compliance with safety measures [such as] the addition of progestin.”

Related Coverage Guidelines / Policies


Opioid and Non-Opioid Analgesics


Off-Label Use of Drugs and Biologic Agents




Medical policies are systematically developed guidelines that serve as a resource for Company staff when determining coverage for specific medical procedures, drugs or devices. Coverage for medical services is subject to the limits and conditions of the member benefit plan. Members and their providers should consult the member benefit booklet or contact a customer service representative to determine whether there are any benefit limitations applicable to this service or supply. This medical policy does not apply to Medicare Advantage.

Applies to all pharmacy benefit contracts that include Point of Sale/Prior Authorization Edits.

Applies to all medical benefit contracts.

Additional Information

Pharmacy compounding is the practice in which a licensed pharmacist combines, mixes, or alters ingredients in response to a prescription to create a medication tailored to the medical needs of an individual patient. Pharmacy compounding, if done properly, can serve an important public health need if a patient cannot be treated with an FDA-approved medication. The end product of the compounding practice is referred to as a compounded medication or compounded formulation.

Compounded medications may replace those that are temporarily unavailable due to drug shortages, or those that are not commercially available in terms of dosage forms or combinations of medications. These forms may serve a useful function for patients who are unable to swallow standard oral dosage forms and may require liquid forms to continue their therapy.

Unlike FDA-approved medications, compounded medications are not clinically evaluated for safety or efficacy. Compounding pharmacies are not subject to statutes governing good manufacturing practices. They are may be required to comply with United States Pharmacopeia Chapters 795 and 797 which specifies conditions for safe compounding practices for non-sterile and sterile compounded medications. The FDA generally defers to state boards of pharmacy to enforce these guidelines.

Coverage is subject to the coverage limitations and exclusions of the member’s contract. Medical necessity of covered medications is governed by approved FDA indications as well as Policy 5.01.549, Off-Label Use of Drugs and Biologic Agents. (See Related Coverage Guidelines / Policies)


  1. Food and Drug Administration Pharmacy Compounding Last accessed July 31, 2013.
  2. Lyon J, Drug shortage compounding: the only safe medication source in a time of crisis Int J Pharm Compd. 2012 Nov-Dec;16(6):456-60.
  3. Lam MS, Extemporaneous compounding of oral liquid dosage formulations and alternative drug delivery methods for anticancer drugs Pharmacotherapy. 2011 Feb;31(2):164-92.
  4. Gudeman J, Jozwiakowski M et al. Potential Risks of Pharmacy Compounding Drugs R D 2013;13(1)1-8.





New policy added to Prescription Drug section. Policy approved with 90-day provide notification hold. The policy is effective February 11, 2013.


Policy effective date delayed and is now April 1, 2013.


Replace policy. Policy updated within the Policy Guidelines, clarifying criteria added, removed and rearranged; Description section removed; Rationale section significantly updated; references added, removed, renumbered and updated. Policy effective date remains 4/1/13.


Minor Update – Clarification was added to the policy that it is managed through the member’s pharmacy benefit; this is now listed in the header and within the coding section.


Annual review. Covered to Benefit Coverage Guideline template. Coverage information added to address hormone pellets; considered investigational. Notation in header section removed indicating coverage is managed by the pharmacy benefit.

Disclaimer: This medical policy is a guide in evaluating the medical necessity of a particular service or treatment. The Company adopts policies after careful review of published peer-reviewed scientific literature, national guidelines and local standards of practice. Since medical technology is constantly changing, the Company reserves the right to review and update policies as appropriate. Member contracts differ in their benefits. Always consult the member benefit booklet or contact a member service representative to determine coverage for a specific medical service or supply. CPT codes, descriptions and materials are copyrighted by the American Medical Association (AMA).
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