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This paper describes the effects of health financing systems (insurance) on outpatient drug use in rural China. 1320 outpatients were interviewed (exit interview) in the randomly selected county, township and village health care facilities in five counties in three provinces of central China. The interview was face to face. Questions were asked by a trained interviewer and were answered by patient him/herself. The main finding was that health insurance appeared to influence drug use in outpatient services. The average number of drugs per visit was 2.56 and drug expenditures per visit was 16.9 yuan. Between insured and uninsured (out-of-pocket) groups, there were significant differences in the number of drugs and drug expenditures per visit. The insured had a lower number of drugs and a higher drug expenditure per visit than the uninsured, implying the use of more expensive drugs per visit than the uninsured. There were also significant differences in the number of drugs and drug expenditures per visit between the types of insurance. One third of the drugs were anti-infectives, most of which were penicillin, gentamycin, and sulfonamides. The results imply that uninsured patients do not receive the same care as the insured do even if they have the same needs. The fee-for-service financing for hospitals and health insurance have changed health providers' and consumers' behaviour and resulted in the increase of medical expenditure.