(Reuters) — Massachusetts Gov. Deval Patrick on Friday proposed new state rules to more closely regulate the type of pharmacy at the heart of a U.S. meningitis outbreak that has killed 39 people.

The proposed legislation would require special licenses for compounding pharmacies, allow the state Board of Pharmacy to fine companies that violate its rules and require out-of-state pharmacies that ship drugs to Massachusetts to be licensed by the state.

The aim is to more closely monitor companies that cross the line from mixing the raw materials of drugs for individual prescriptions and those that begin to operate more like large-scale manufacturers.

An injectible steroid produced by the Framingham, Mass.-based New England Compounding Center was linked to an outbreak of bacterial meningitis that has sickened 656 people in 19 states, according to the Centers for Disease Control and Prevention.

"The regulations that we have in place and governing authority hasn't kept up with an industry that's changed," Gov. Patrick told reporters on Friday. "It's really built around the corner drug store, but we've seen and experienced with NECC that businesses that call themselves pharmacies are actually doing a form of manufacturing."

Federal investigators have found multiple violations of standard sterility practices at NECC, which has closed and, on Dec. 21, filed for bankruptcy protection.

Companies registered as pharmacies are regulated by the individual states, while drug manufacturers face the tighter oversight of the U.S. Food and Drug Administration. Gov. Patrick's legislation calls on Massachusetts to more closely work with the FDA to ensure that larger pharmacies do not escape oversight.

The state has since ordered the temporary shutdown of four other compounding pharmacies where investigators found problems.

The FDA last month urged states to crack down on loopholes that allowed compounding pharmacies to produce drugs on an industrial scale without drawing FDA scrutiny.