This study estimates the impact of patient financial incentives on the use and cost of prescription drugs in the context of differing physician payment mechanisms. A large data set was developed that covers persons in managed care who pay varying levels of cost sharing and whose physicians are compensated under two different models: independent practice association (IPA)-model and network-model health maintenance organizations (HMOs). Our results indicate that higher patient copayments for prescription drugs are associated with lower drug spending in IPA models (in which physicians are not at risk for drug costs) but have little effect in network models (in which physicians bear financial risk for all prescribing behavior).