Meningitis outbreak raises questions over Medicare methods

Inconsistency allows compound business to flourish, critics say

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WASHINGTON -- Medicare is coming under scrutiny in the meningitis outbreak that has rekindled doubts about the safety of the nation's drug supply.

The giant health insurance program for seniors long ago flagged compounded mass-market drugs produced without U.S. Food and Drug Administration oversight as safety risks. In 2007, Medicare revoked coverage of compounded inhaler drugs for lung disease.

But Medicare doesn't seem to have consistently used its own legal power to deny payment, and critics say that has enabled the compounding business to flourish.

Now, program officials are scrambling to find out how many Medicare beneficiaries are among the more than 270 people sickened in 16 states -- including Pennsylvania, Ohio and Maryland -- in a still-growing outbreak that has claimed 21 lives.

The illnesses have been linked to an injectable steroid used to treat back pain, made by the New England Compounding Center, a Massachusetts specialty pharmacy. The medication was contaminated with a fungus.

A senior lawmaker and consumer advocates are raising questions about Medicare's role, including an apparent lack of coordination between Medicare and the FDA, the two most powerful agencies within the federal Health and Human Services Department. In response, a department spokesman says Congress needs to provide the FDA with stronger powers.

The meningitis outbreak has called attention to the role of compounding pharmacies in supplying medications routinely used by hospitals and doctors to treat patients. Regulated primarily by states, the pharmacies specialize in customizing doses for individual patients who have allergies to ingredients in an FDA-approved drug, or who might need a smaller dosage than what's available commercially. But some pharmacies have pushed into full-scale manufacturing.

Medicare has long been aware of the risks. "By compounding drugs on a large scale, a company may be operating as a drug manufacturer within the meaning of [federal law], without complying with requirements of that law," Medicare's coverage manual, a reference for contractors that handle payments, says.

That situation, adds the manual, fails Medicare's basic standard, that treatments must be "reasonable and necessary" in order to be covered. "This means, in the case of drugs, the FDA must approve them for marketing," the manual says.

It goes on to say billing contractors should wait for instructions from Medicare before cutting off payment in specific cases where the FDA has determined that a company is producing compounded drugs in violation of the law.

"Medicare indicates in its own policy documents that it can cut off payments for compounded drugs produced under manufacturinglike conditions," said Sen. Charles Grassley, R-Iowa, who over the years has pushed for stronger government oversight of the pharmaceutical industry. "Medicare should explain whether it uses this step and, if not, why not."

Medicare officials are looking into whether the program paid for drugs that have sickened patients.

"If the FDA determines a company is producing compounded drugs in violation of [federal law], Medicare will not reimburse for drugs produced in that facility," HHS spokesman Tait Sye said. "The FDA's regulatory authority over compounding pharmacies is more limited by statute than it is for typical drug manufacturers. We urge Congress to strengthen the FDA's authority."

FDA records show that in 2006, the agency issued a warning letter to the New England Compounding Center for producing anesthetic creams, but officials were unable to say if Medicare was alerted.

In a separate case, Medicare seems to have taken sweeping action on its own without much prodding from the FDA. In 2007, Medicare stopped coverage for compounded inhalation drugs used to treat lung disease. "The absence of testing for safety and effectiveness has the potential of putting a patient at increased risk of injury, illness or death," said an information bulletin at the time from Noridian, a major Medicare payment contractor.

Medicare's defenders say the agency may be reluctant to act for a number of reasons. Cutting off compounding pharmacies could aggravate drug shortages. Also it could open Medicare to a political counterattack from industry, even charges of rationing.

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