In January 1, 2004, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) provided that the payment limits for most drugs and biologicals not paid on a cost or prospective payment basis are based on 85 percent of the Average Wholesale Price (AWP) reflected in the published compendia as of April 1, 2003, for those drugs and biologicals furnished on and after January 1, 2004. There were exceptions to this general rule.

Prior to 2004, section 4556 of the Balanced Budget Act (BBA) of 1997 established a new methodology for Medicare to pay for drugs covered under Part B. Under this provision, effective January 1, 1998, Medicare payment for drugs was based on the lower of the actual charge on the Medicare claim or 95 percent of the average wholesale price (AWP). In enacting this legislation, the Congress confirmed the concept of using a single national price by using the AWP, a term which CMS had previously defined in its regulations (42 C.F.R. §405.517) as a national price.

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