A very short definition would be to take either a current dosage for (ie a pill, cream, solution, etc.) or simply a medication alone and making a new dosage form with either one or more medications. For example, making a lolipop out of children's medicine, promethazine gel, etc.
Compounding can also involve making IV's. Many hospitals make their own IV's and need someone to mix them and even TPN's. Most retail pharmacist do not do compounding, except for some of the independents who specialize in it.....
Sorry, but retail pharmacists DO compound! I've made quite a few dermatological compounds, progesterone suppositories, and veterinary LVP's. I would agree with the statement that independents tend to do a lot of compounding.
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