A working paper by Jacobson et al. (2014) not only provides the answer, but describes how reimbursement policy change over the past decade.
Although Medicare did not offer a drug benefit for oral drugs (pills) until 2006, Medicare Part B, which covers physician services, has from inception covered physician-administered drugs such as IV chemotherapy, anti-nausea, and pain medicine used in cancer treatment. Rather than writing a prescription for these drugs that the patient fills at a pharmacy, the physician injects or infuses these drugs in an office or clinic and then bills Medicare for them.
The way CMS pays for these drugs, however, has changed over time. The Medicare Prescription Drug, Improvement and Modernization Act (MMA) of 2003 reduced reimbursement rates for these (Part B) drugs including oncology products.
Prior to the reform, Medicare reimbursed physicians and outpatient hospital clinics for these drugs as a percentage of the average wholesale price (AWP), a list price, published in several catalogues, that reflects neither wholesale nor average prices. From 1998 to 2003, reimbursements were 95% of AWP. To smooth the transition to a new payment system, the MMA reduced reimbursements to 85% of AWP in 2004…The reform replaced the AWP-based system with a new average sales price (ASP) payment system, whereby Part B drugs are reimbursed based on the national average of manufacturers’ sales prices, including rebates, from two quarters prior plus a 6% mark-up.
- Mireille Jacobson, Tom Y. Chang, Joseph P. Newhouse, Craig C. Earle. PHYSICIAN AGENCY AND COMPETITION: EVIDENCE FROM A MAJOR CHANGE TO MEDICARE CHEMOTHERAPY REIMBURSEMENT POLICY. NBER Working Paper 19247 http://www.nber.org/papers/w19247