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Purpose. Future trends in the Medicare population and drug expenditures, the organizational structure of the Medicare program, and recent changes in Medicare rules and rates for pharmaceutical reimbursement are described. Summary. Large increases in the number of Medicare beneficiaries and drug spending are anticipated in the future. Medicare Part A provides insurance benefits for hospital inpatients, nursing home patients, home health care patients, and hospice care patients. Part B provides benefits for physician services, durable medical equipment, oral chemotherapy, and end-stage renal disease services. For hospitals, Part B rules are followed for ambulatory services, but these services are administered through the Part A Outpatient Prospective Payment System. The average sales price plus 6% is now used for pharmaceutical reimbursement, although physician-owned clinics may participate in a competitive acquisition program under Part B. Payments are the same for generic drugs and brand name products, although they differed in the past. Pharmaceutical reimbursement is available for uses listed in compendia approved by the Centers for Medicare & Medicaid Services and possibly some other authoritative sources. Conclusion. Medicare rules and rates for pharmaceutical reimbursement have undergone substantial changes in recent years and will continue to change in the future, with a potentially large impact on health systems and patients. [ABSTRACT FROM AUTHOR]