Denial of Medicare Payment for Compounded Drugs Produced in Violation of

50.4.7 - Denial of Medicare Payment for Compounded Drugs Produced in Violation of Federal Food, Drug, and Cosmetic Act (Rev. 1, 10-01-03) B3-2049.4.C.6 The Food and Drug Administration (FDA) has found that, from time to time, firms established as retail pharmacies engage in mass production of compounded drugs, beyond the normal scope of pharmaceutical practice, in violation of the Federal Food, Drug, and Cosmetic Act (FFDCA). By compounding drugs on a large scale, a company may be operating as a drug manufacturer within the meaning of the FFDCA, without complying with requirements of that law. Such companies may be manufacturing drugs, which are subject to the new drug application (NDA) requirements of the FFDCA, but for which FDA has not approved an NDA or which are misbranded or adulterated. If the FDA has not approved the manufacturing and processing procedures used by these facilities, the FDA has no assurance that the drugs these companies are producing are safe and effective. The safety and effectiveness issues pertain to such factors as chemical stability, purity, strength, bioequivalency, and biovailability. Section 1862(a)(1)(A) of the Act requires that drugs must be reasonable and necessary in order to by covered under Medicare. This means, in the case of drugs, the FDA must approve them for marketing. Section 50.4.1 instructs A/B MACs (A) and (B)to deny coverage for drugs that have not received final marketing approval by the FDA, unless instructed otherwise by CMS. The Medicare Benefit Policy Manual, Chapter 16, “General Exclusions from Coverage,” §180, instructs A/B MACs (B) to deny coverage of services related to the use of noncovered drugs as well. Hence, if DME or a prosthetic device is used to administer a noncovered drug, coverage is denied for both the nonapproved drug and the DME or prosthetic device. In those cases in which the FDA has determined that a company is producing compounded drugs in violation of the FFDCA, Medicare does not pay for the drugs because they do not meet the FDA approval requirements of the Medicare program. In addition, Medicare does not pay for the DME or prosthetic device used to administer such a drug if FDA determines that a required NDA has not been approved or that the drug is misbranded or adulterated. The CMS will notify the A/B MAC (B) when the FDA has determined that compounded drugs are being produced in violation of the FFDCA. The A/B MAC (B) does not stop Medicare payment for such a drug unless it is notified that it is appropriate to do so through a subsequent instruction. In addition, if the A/B MAC (B) or Regional Offices (ROs) become aware that other companies are possibly operating in violation of the FFDCA, the A/B MAC (B) or RO notifies: Centers for Medicare & Medicaid Services Center for Medicare Management 7500 Security Blvd. Baltimore, MD 21244-1850