Objective: The goal of the study was to test the effects of step therapy on pharmaceutical and medical utilization and costs . This study examined the effect of step therapy for antidepressant and antihypertensive medications. Methods: The data was extracted from the MarketScan database, representing the health care experience of enrollees in employer-sponsored, commercial health plans. The sample consisted of employees and dependents of 4 employers (2-step therapy and 2 controls) who were continuously enrolled in the MarketScan database from 2003 through the third quarter of 2006 and who used antidepressants (N=15,552 step therapy; N=45,244 control) or antihypertensives (N=11,851 step therapy; N=30,822 control) at least once during the study period. An analytic file was created using a panel data framework, yielding 15 observations or quarters of data per patient. Chi-square and Student's t-tests were computed to compare demographic and clinical characteristics as well as outcome variables between the step therapy and comparison groups after step therapy had been implemented for plans with step therapy. Multivariate generalized estimating equation (GEE) models were used to estimate the effects of step therapy on spending and utilization while controlling for important covariates and adjusting for clustering by patient. Results: Step therapy had the intended effect of increasing generic prescribing and lowering brand prescribing. Overall, medication costs were reduced in the step therapy plans in the initial period following implementation. However, inpatient, outpatient, and emergency room utilization and costs were higher in the step therapy plans after step therapy was implemented relative to the comparison groups. Medication discontinuation rates for the targeted drugs increased in step therapy plans. Conclusion: Implementation of step therapy produces intended and unintended results. The intended results of reducing drug costs are found to co-occur with unintended results that may adversely affect patients as evidenced by higher ER and inpatient utilization.