OBJECTIVE: To examine the relationship between patient's payment type and prescription drug costs for diabetic outpatients at a regional hospital in southern Thailand. METHODS: Patient's profile and prescription for 1454 outpatients who used anti-diabetic drugs between August and September 2002 were collected. The patient's type of payment was divided into two groups, which were patients who paid out-of-pocket and patients who did not pay for their prescriptions. Descriptive and linear regression analyses were used to examine the relationship. RESULTS: Results showed that average drug costs per prescription between patients who paid out-of-pocket and patients who did not pay for their prescriptions were significantly different (p<0.05). The average anti-diabetic drug cost of the patients who paid out-of-pocket was 643.38 Baht ($US 1= 40Baht) and their average total drug cost was 1853.12 Baht, while the average anti-diabetic drug cost of the patients who did not pay for their prescriptions was 437.91 Baht and their average total drug cost was 990.94 Baht. In drug cost per day basis, the results showed that the average anti-diabetic drug costs per day between two patient groups were not significantly different (p>0.05). However, their average total drug costs per day were significantly different (p<0.05). The average total drug cost per day of the patients who paid out-of-pocket was 26.76 Baht, while it was 17.56 Baht for the patients who did not pay for their prescriptions. Linear regression results showed that the patient's type of payment significantly influenced both anti-diabetic and total drug cost per prescription and cost per day. CONCLUSIONS: A significant relationship between patient's payment type and prescription drug costs for diabetic patients was found. The patients who paid out-of-pocket likely obtained more expensive prescription drugs than did the patients who did not pay for their prescriptions.