OBJECTIVES: Type 2 Diabetes is associated with severe complications such as heart disease, stroke, high blood pressure, kidney disease etc. Approximately 17 million people suffer from diabetes accounting to 6.2% of the population in the United States. According to the American Diabetes Association, the total cost of diabetes to the society is 98 billion dollars. Type 2 diabetes accounts for about 90-95% of all the diagnosed cases of diabetes. This study examines the various physician and patient factors, which influence the diagnostic test prescribing for diabetes in ambulatory patients. METHODS: Patient factors such as age, sex, race, geographical location and payment source and Physician factors such as specialty, geographic location and referral status were used to determine their influence on the number of diagnostic tests prescribed. Data from the National Ambulatory Medical Care Survey (NAMCS) 2000 were utilized. Patients with principal diagnosis of type 2 diabetes (ICD-9-CM code 250.00) were analyzed using multiple linear and binomial logit regression models. RESULTS: The numbers of diagnostic tests performed were independent of patients' age, sex and geographic region (R2=0.117). Blacks and Hispanic patients were prescribed more diagnostic tests compared to other races (R2=0.346). Patients with Federal source of payments (Medicaid and Medicare) were prescribed more diagnostic tests than other patients (R2=0.245). Numbers of diagnostic tests were not influenced by whether the patient was referred (R2=0.037). Various physician specialties also had no influence on the number of diagnostic tests prescribed (R2=0.054). CONCLUSIONS: The numbers of diagnostic tests prescribed are significantly influenced by patients' race and source of payments. Diagnostic tests constitute a significant portion of the cost of diabetes therapy. Further research, reviewing the causes of the significant differences seen in this study would help control/reduce the cost of diabetes therapy.