Page 73 - Medicare Benefit Policy Manual

less than effective. This includes any other drug product that is identical, similar, or
related. Payment may not be made for a less than effective drug.

Because the FDA has not yet completed its identification of drug products that are still on
the market, existing FDA efficacy decisions must be applied to all similar products once
they are identified.

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