Dr. Steven Galson, a top official at the Food and Drug Administration, told the Senate Health, Education, Labor and Pensions Committee that in 2001 the agency had done a "limited" survey of drugs from 12 such pharmacies, including hormones, antibiotics, steroids and drugs to treat glaucoma, asthma and erectile dysfunction.

And he shed some light on the risks from an industry now at the heart of today's unprecedented meningitis outbreak.

Ten of the 29 drugs failed one or more quality tests, including nine that failed potency testing, some with less than 70 percent of their declared potency. By contrast, in its analyses of more than 3,000 samples from drug manufacturers, who are subject to FDA oversight, only four had quality problems.

"They had ample warning of problems in this industry," said Sarah Sellers, a pharmacist who worked in compounding before joining the FDA in 2005 to work on compliance issues surrounding compounding.

Now, as the deaths and illnesses mount from fungal meningitis linked to a contaminated steroid injection, the question of why early concerns about pharmacy compounding did not change U.S. law is a top focus for patients, regulators and lawmakers.

The FDA has traced the steroid injections to New England Compounding Center, or NECC, a Framingham, Massachusetts compounding pharmacy founded in 1998.

Shortly after Galson testified in 2003, Congress killed an attempt to establish an FDA oversight committee on pharmacy compounding. It was the first in a series of failures to regulate this little-known side of the pharmaceutical industry, which has fought back through Capitol Hill lobbying and political donations.

Much of the lobbying comes from grassroots mobilization of compounding pharmacists. Through programs such as "Compounders on Capitol Hill," they fan out to their senators and representatives to impress on politicians and their staffers the need for compounding.

"They mobilize their members, they scare patients and parents, and they flood Capitol Hill," said Sandra Fusco Walker, director of patient advocacy at Allergy & Asthma Network Mothers of Asthmatics. "They are dedicated to making sure they never have FDA oversight."

Fusco Walker first tangled with the industry in 2004, when drugs produced by a compounding pharmacy for use in special inhalers called nebulizers turned out to have contamination and potency problems. She and her allies succeeded in getting insurers not to reimburse for compounded nebulizer drugs, essentially driving compounders out of that business.

SMALL-TOWN POLITICS

The International Academy of Compounding Pharmacists, the industry's Texas-based trade association, has long argued that existing regulations are more than adequate to protect patients.

"Compounding pharmacies are regulated by state boards of pharmacy and we also have an accrediting body," David Miller, chief executive of IACP, told Reuters. Heavy-handed federal oversight could strangle an industry that "serves a vital function," he said, including providing drugs that major manufacturers have stopped producing.

Small-town politics proved key to defeating the 2003 effort, which would have added a provision for the FDA advisory panel in a bill on the government's Medicare health plan for the elderly.

The IACP, which represents more than 2,700 pharmacists and others involved in compounding, ranging from those working in corner drugstores to owners of sizable operations including NECC, rallied its members.

It targeted lawmakers central to the decision-making process like Republican Representative Tom DeLay, whose Texas district was home to the IACP's Missouri City headquarters. DeLay was also House Majority leader from 2003 until 2005, when he resigned in the face of money-laundering charges for which he was later convicted.

The next serious attempt at regulation came in 2007, when Democratic Senator Edward Kennedy and Republican colleagues introduced the Safe Drug Compounding Act. It would have given the FDA authority to restrict when doctors could order injectable drugs from compounders, limit interstate distribution of compounded drugs, and establish requirements for sterile compounding.

The American Pharmacists Association, IACP and seven related professional organizations warned Kennedy and colleagues who were spearheading the bill that it would "negatively impact patient access to necessary compounded prescription medications," according to a March 2007 letter reviewed by Reuters.

A spokesman for IACP, David Ball, said no one from that era remains in any leadership positions at the group, but did not respond to questions about the current leaders' positions on the Kennedy bill.

The IACP raised its lobbying spending to $260,000 that year, from $20,000 in 2001 and $80,000 in 2005, according to the Center for Responsive Politics, which tracks such spending. It spent $116,189 in 2011 and $55,131 so far this year, according to the Center.

Compounders also enlisted parents of autistic children, who besieged Kennedy's office, arguing that compounding pharmacies were the sole source of treatments for the condition, such as the unproven therapy chelation to remove toxic metals from the body. Kennedy's bill never reached the floor.

The bill's proponents "saw the opposition and decided it wasn't going anywhere," said Fusco Walker.

'I'M SPECIAL' MEDICATION

For critics of the industry, it is no small irony that Kennedy's bill would have required the FDA to track three characteristics common to the tainted drugs linked to the current outbreak. The pharmacy under investigation, NECC, provided injectable drugs, shipped them across state lines and promised they met sterile conditions.

"There is a compounding pharmacy in every congressional district in the country, and compounders were on the Hill every year marching whenever there was a bill that would have increased federal oversight of them," said pharmacist Sellers, now president of Q-Vigilance, a consulting firm that advises pharmaceutical companies on safety.

Sellers resigned from the FDA in 2007, frustrated that bills such as Kennedy's went nowhere. Absent federal oversight of compounders, state boards of pharmacy, which typically have half a dozen inspectors for thousands of pharmacies, oversee them.

The FDA has asked Congress for greater regulatory authority, particularly after a 2002 Supreme Court decision stripped it of much of what it had.

"FDA's legal authority to regulate compounded drugs is complex and has been challenged vigorously by the compounding industry both in courts and Congress," said FDA spokeswoman Erica Jefferson.

The practice of compounding dates to the earliest pharmacies. Under U.S. law, compounding pharmacies can assemble the raw ingredients of any medication, whether or not it has been approved by the FDA, but are supposed to do so one prescription at a time, not in industrial-scale runs.

But as the Senate heard testimony in 2003 about thousands of patients injured or killed by bad batches of compounded drugs, demand for the products was growing from patients seeking more personalized therapies and from healthcare providers dealing with shortages of important medications.

A former NECC employee told Reuters that the lot numbers on the contaminated steroid indicated that the 17,000-plus doses were made on three days, casting doubt on whether the company was producing one prescription at a time for a named patient, as the IACP says compounding pharmacies are supposed to.

"More and more people are saying ‘I'm special,' and can't take off-the-shelf medications," said Bill Zolner, chief scientific officer of Eagle Analytical Services, which performs quality and safety testing for compounding pharmacies and last tested a sample from NECC in 2008.

Some patients have allergies to a coloring agent or other inactive ingredient in a drug produced by a pharmaceutical company, for instance. Compounding pharmacies can make medications without the allergen.

Other patients seek a more natural product. For example, some women who receive hormone replacement therapy to treat menopause symptoms do not want the standard Premarin, made from the urine of pregnant mares, but instead search for biologically closer alternatives. A compounding pharmacist can produce human progesterone, for instance, from a plant compound, synthesizing a chemical identical to that in a woman's body.

"Progesterone is not available from pharmaceutical companies because it's not patentable," said Zolner. "So you get it from a compounding pharmacy."

Drug shortages have also boosted business for compounding pharmacies. Zolner estimates that thousands of medicines still in use have become harder to find after losing the patent protection that kept them profitable, meaning that brand-name and even generic drugmakers have turned to making other products.

"When even hospitals faced drug shortages - including for life-sustaining drugs - they had to turn to compounding pharmacies," said Joe Cabaleiro, executive director of the Pharmacy Compounding Accreditation Board (PCAB), which was founded in January 2006 by IACP and other pharmacy groups in the wake of concerns about the safety of drugs from compounding pharmacies.

The active ingredients for such drugs are often available, and far smaller compounders can still do a decent business producing the medications.

"If there is one reason why we see more use of (compounding pharmacies) in a hospital setting, it's because of drug shortages," including of cancer medications and anesthesia, said Leigh Briscoe-Dwyer, the chief pharmacy and medication safety officer for North Shore - LIJ Health System on New York's Long Island, adding that she and her staff do extensive due diligence on a compounding pharmacy before ordering from one.

"If I can't get a product from my normal channel but a drug compounder is able to compound that preparation for me, it's a way that we can get medications without interrupting care," she said.

BENIGN NEGLECT

Compounders have also enjoyed benign neglect from global pharmaceutical makers, who lobbied against a 1997 law that exempted drugs compounded by pharmacists from the usual safety and efficacy requirements.

"After that we didn't hear from big pharma again," said Sellers. "They haven't been very active on this issue because they haven't seen compounders as enough of a threat."

The Pharmaceutical Research and Manufacturers of America, the trade group for the pharmaceutical industry, declined to comment on compounding pharmacies.

Historians estimate that about 80 percent of prescriptions were compounded until the 1950s, when the post-World War II boom in drug manufacturing led to the eventual domination of mass-produced products by FDA-regulated manufacturers.

By 2006, some 30 million prescriptions were written for compounded products, or as many as 5 percent of annual prescriptions, found an analysis by a researcher at Kaiser Permanente. An estimated 3,000 to 5,000 compounding pharmacies operate in the United States, said Cabaleiro.

The problems have not been far behind. From 2001 to 2007, 120 patients in 11 states contracted bacterial and viral infections, including hepatitis C and meningitis, from drugs produced by compounding pharmacies; four died.

The death toll spiked in 2011, when nine patients died from bloodstream infections they developed after receiving intravenous medications prepared by a compounding pharmacy.

Even top hospitals were affected. When scientists at Johns Hopkins University investigated bacterial infections in six intensive care unit patients, they traced it to contaminated fentanyl, the powerful painkiller, from a compounding pharmacy.

"We assume any drug bought in large quantities by a healthcare facility comes from an FDA-approved and licensed manufacturer," said epidemiologist Lisa Maragakis, assistant professor of medicine at Hopkins, who led a 2009 study of the fentanyl case.

When she shared her finding with hospital pharmacists, they said they could not stop ordering from compounders: they were the only source of the fentanyl doses the ICU needed.

Such outbreaks led to the formation of the accreditation board in 2006. If a compounding pharmacy requests accreditation, PCAB will conduct an on-site inspection to assess, among other things, workers' competence, equipment, record keeping, air quality and clean-room qualities, said Cabaleiro.

Of the thousands of compounding pharmacies, 162 had been accredited; NECC is not among them.

"We've tried very hard to get the word out" to doctors and hospitals, among others, about the importance of using an accredited pharmacy, Cabaleiro said. "But it seems the market hasn't demanded accreditation."

(Additional reporting by Bill Berkrot; Editing by Michele Gershberg, Mary Milliken and Jim Loney)

• A Permanent Economic Emergency