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 drugs produced for the mass market without oversight from the Food and Drug Administration 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 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 in a section dealing with compounded drugs.

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,” says the manual.

It goes on to say that 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 manufacturing-like 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. Every avenue for explaining how this health crisis occurred and preventing others like it needs exploration,” he added.

Joyce Lovelace of Albany, Ky., says she doesn’t understand how the outbreak could have happened. Eddie Lovelace, her husband of 55 years, died of a stroke after receiving injections of the steroid implicated in the outbreak as a treatment for pain from an auto accident.

“I’m 100 percent behind not paying … whether it’s Medicare, Blue Cross, or whatever,” she said. “Somebody dropped the ball and as a result my husband is gone.” Eddie Lovelace, 78, a long-serving judge, was still working at the time of his death and Medicare was not his primary insurance.

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,” said HHS spokesman Tait Sye. “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.

“Compounded drugs are not considered interchangeable with FDA-approved products,” said an information bulletin at the time from Noridian, a major Medicare payment contractor. “The absence of testing for safety and effectiveness has the potential of putting a patient at increased risk of injury, illness or death.”

Michael Carome, deputy director of Public Citizen’s health research group, says Medicare’s policy on compounded drugs seems “internally contradictory.”

“They do appear to have a policy for which the default setting is that Medicare does not cover drugs that have not been approved by the FDA,” said Carome. “That essentially applies to many, if not all, drugs made by compounding pharmacies.”

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.

But Carome, a physician who once served in an HHS regulatory office, says the alternative is that compounding will continue with little federal oversight and recurring outbreaks.

If Medicare had expanded its compounding crackdown beyond just lung disease medications, “that might have prevented the widespread use of these drugs,” Carome said. “Without coverage, things don’t get used.”

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