OBJECTIVE: Significant changes in Medicare reimbursement for outpatient oncology services are included as part of the Medicare Modernization Act of 2003. The objective of this study was to identify the “true cost” associated with the drug-related handling for the preparation and delivery of chemotherapy doses. METHODS: Two academic medical outpatient infusion centers (Universities of Utah and Wisconsin) and two community cancer centers in the U.S. (Fairfax, Virginia and Montgomery, Alabama) provided data used to estimate all “fixed costs” associated with the preparation of chemotherapy including drug storage, space, insurance management, inventory and waste management, pharmacy staff payroll, equipment, supplies, information resources and shipping. These costs were annualized and then divided by the number of chemotherapy doses given at each site per year. A Time-and-Motion study was also performed to determine what tasks were conducted by pharmacy staff and how much time was spent in the preparation of the top fifteen chemotherapeutic drugs and regimens used across the four sites. Pharmacy staff were observed as to the time spent in each task relative to the total time in an average shift to determine the proportion of total work hours dedicated to the preparation of the selected chemotherapy drugs. RESULTS: The total average fixed costs for the preparation of chemotherapy doses across all sites was $36.03 (range $32.08 for Virginia and $67.19 for Utah). Data from the four centers was projected to the 3,990,495 million estimated chemotherapy infusions administered to a national Medicare population in 2003 resulting in a total annual cost to Medicare for chemotherapy preparation of $143,777,535. Pharmacists were observed to spend the majority of their day (90 % or higher) on tasks directly related to the preparation of these agents. CONCLUSIONS: Preparation costs for chemotherapy are significant and need to be considered in determining reimbursement rates for administration.