Written by Shulem Rosenbaum and the Roth&Co Editorial Team
Late in the afternoon at an unassuming facility in Nevada, Neal Friedman scans a new batch of active pharmaceutical ingredients (APIs) slated for sterile compounding. As Chief Operating Officer at Indigo Health Innovations, a 503B outsourcing facility, he’s part of a small but critical segment of the U.S. pharmaceutical world — one responsible for supplying customized meds that big manufacturers often overlook.
The pallets before him have been steadily rising in price. “API prices from India and China have increased with the new tariffs,” Friedman says, “and we can’t just swap in a new supplier. Our entire production line would need fresh FDA validation. That’s a process measured in months, if not a year.”
It’s an exasperating logistical maze, but Friedman also sees a silver lining. “Yes, tariffs raise costs in the short run,” he concedes, “but if it actually brings more manufacturing stateside, that’s good for everybody. This is national security. Look at what happened during COVID — one disruption overseas, and we were scrounging for basic IV solutions.”
The President agrees. A May 5, 2025, Fact Sheet issued by the White House quotes President Trump’s pithy assessment of America’s global position in the pharmaceutical space. “We don’t want to be buying our pharmaceuticals from other countries because if we’re in a war, we’re in a problem, we want to be able to make our own.”
Tariffs Bite, But Push for Domestic Supply Gains Momentum
Friedman’s story is one of many playing out nationwide as compounding pharmacies grapple with new U.S. trade policies. In early 2025, President Donald Trump announced his intentions to impose sweeping tariffs on pharmaceutical imports to pressure drugmakers into moving production stateside. That threat quickly got the attention of Big Pharma. By March, Merck had opened a $1 billion vaccine plant in North Carolina. Eli Lilly announced plans to invest at least $27 billion to build four new U.S. manufacturing plants, and Pfizer said it might shift overseas production into its American factories. Merck committed to spending $8 billion domestically by 2028.
For compounders on the ground, these investments offer a glimmer of future relief. Over 80% of APIs used in U.S. drugs currently come from facilities in China and India, a reliance that leaves compounders vulnerable. “We’ve been uncomfortably dependent on overseas suppliers for years – COVID-19 made that clear,” Friedman says. Industry groups like the American Hospital Association have warned that blanket tariffs could inadvertently “jeopardize the availability of vital medications” if not carefully calibrated.
Friedman acknowledges the short-term pain: “When shipping and ingredient costs spike, we can’t immediately pass that on to patients or hospitals.” Long-term, though, he sees potential gain. The tariff-induced urgency is reinforcing calls to diversify and domesticate the drug supply chain. In Congressional hearings on chronic drug shortages this year, hospital leaders urged lawmakers to “identify essential drugs needing more domestic manufacturing capacity.”
For compounders like Indigo Health, such moves could be game changers. “If Pfizer starts making key ingredients here, we’d gladly buy American,” Friedman says. The caveat: it will take time for those new facilities to come online. In the interim, outsourcing facilities must navigate a tightrope, balancing higher import costs against fixed healthcare reimbursement rates.
A Regulatory Labyrinth — and Hopes for Reform in Washington
On a busy morning in Queens, New York, Samantha Koegel fields phone calls at ARX Specialty Pharmacy, a 503A facility she helps run as COO. ARX serves patients, compounding everything from custom hormone therapies to preservative-free topicals.
Koegel has witnessed regulations steadily mounting barriers for compounders. “Every time we turn around, there’s a new requirement,” she sighs. A prime example: The FDA recently ended its “interim” category for new bulk substances, preventing 503A pharmacies from using ingredients not yet formally approved. “If a patient needs something not on the FDA’s shortlist, our hands are tied for years.”
Now, however, she sees opportunity. With Trump’s administration prioritizing deregulation and Robert F. Kennedy Jr., leading HHS, Koegel feels unexpectedly optimistic. “I never thought I’d be cheering for an FDA shake-up like this,” she laughs. Her optimism is well-founded. Only days after our conversation, President Trump signed an Executive Order to reduce approval times for U.S. drug manufacturing plants by cutting “duplicative and unnecessary” requirements, streamlining reviews, and providing early support to manufacturers.
“Imagine if the FDA worked with us to fill drug gaps instead of boxing us out,” Koegel says, pointing to the current record of 323 active shortages. She recalls how, during COVID-19, the FDA temporarily allowed compounders to supply critical medications to hospitals. “Why not create an Emergency Authorization pathway for compounded drugs during shortages? With faster approvals or equipment funding, we could triple our output – that’s huge for supply resilience.”
The PBM Squeeze: Long-Term Care’s Unseen Cost Crisis
Even as tariffs and regulations dominate headlines, many pharmacists insist another force has a bigger impact: pharmacy benefit managers, or PBMs — the powerful middlemen who negotiate drug prices and reimbursements. “To be blunt, PBMs are the primary cost drivers in our world, not tariffs,” says John Maguire (a pseudonym), CEO of a large LTC pharmacy in the Midwest who requested anonymity.
Maguire’s critique comes down to basic math. An average long-term care pharmacy spends over $15 in labor and specialized packaging per prescription, but Medicare Part D plans — managed by PBMs — often pay only very low dispensing fees. “We lose money on most generics we dispense because the PBMs price generics too low,” he notes. According to the Senior Care Pharmacy Coalition, the Part D payment model is “broken,” forcing LTC pharmacies to fill prescriptions below cost while allowing PBMs to reap profits.
From his vantage point, tariffs on foreign APIs are a minor factor. The larger problem, Maguire argues, is that a handful of PBMs dominate the market, dictating terms to manufacturers, pharmacies, and payers alike. A recent Federal Trade Commission report highlighted that the six largest PBMs control nearly 95% of all U.S. prescriptions. “That’s basically oligopoly power,” Maguire says. “They decide how much we get paid for a medication, and we have zero say.”
Maguire welcomes Washington’s increasing scrutiny of PBMs, with lawmakers targeting practices like spread pricing and hidden rebate schemes. “It’s heartening to see Congress and the FTC finally shine a light on this,” he says, ranking PBM reform above even tariff relief in importance.
Despite his PBM concerns, Maguire finds hope elsewhere. “I’ll give credit where it’s due — companies like Lilly, Pfizer, and Merck pumping billions into U.S. facilities is a smart move,” he says. He believes domestic production will reduce supply disruptions that lead to price spikes. “When Big Pharma actually does something right — like bringing manufacturing back home — it deserves praise. But we need a system that passes those benefits along.”
Toward a Resilient Future
As America’s compounding pharmacies navigate these converging pressures, three solutions emerge from industry leaders: domestic manufacturing incentives to strengthen supply chains, streamlined regulatory frameworks that maintain safety while enabling swift responses to shortages, and meaningful PBM reforms to ensure sustainable economics.
The cautious optimism of these professionals stems from seeing their concerns finally acknowledged at the highest levels. With a president pushing for American pharmaceutical production, an HHS secretary challenging industry influence, and a Congress attentive to both patient costs and pharmacy viability, the pieces for meaningful reform appear to be aligning.
The narrative of America’s compounders in 2025 is one of friction yielding to hope. As Samantha Koegel aptly puts it: “The system is finally acknowledging what’s broken. Now we have a chance to fix it — to create a pharmacy supply chain that’s more local, a regulatory system that’s more agile, and a market that’s actually fair.” The road ahead remains uncertain, with tariffs, regulatory promises, and PBM oversight hanging in the balance. Yet for the first time in years, these specialized pharmacies can envision a path forward — one where resilience and innovation outweigh the longstanding burdens of foreign dependence, regulatory rigidity, and middleman economics.
This material has been prepared for informational purposes only, and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.
