SINCE October 1962 a reduced-charge outof-hospital drug benefit has been available to the membership of the Oregon region of the Kaiser Foundation Health Plan. The out-ofhospital drug benefit was an attempt to broaden the plan's scope and to increase its value to the membership. The plan, which presently has more than 83,000 members enrolled, provides comprehensive nmedical care services in a prepaid group practice setting. Its membership in the Oregon region is quite diverse, including the full range of occupational and socioeconomic groups, and has grown from 25,000 in the last 10 years. Services are centered at a hoispital complex. The hospital was opened in 1959 and has 141 beds for short-term patients. A building project is underway to increase the hospital's capacity by 36 beds for short-term patients and to add a 72-bed extended care unit. The complex provides the full range of ancillary servi,ces for both inpatients and clinic piatients including pharmacy, X-ray, physical therapy, optical, audiology, and laboratory services. Physicians' services are provided at a central clinilc integrated into the hospital complex and at two neighborhood clinics located in population centers in outlying parts of 'the metropolitan area. A pharmacy is operated as an adjunct to each clinic. The Permanente Clinic, a partnership of full-time physicians providing the physicians' service, includes more than 60 board-certified or board-eligible specialists in all maj or specialties, including psychiatry. The Permanente Clinic is paid a negotiated capitation fee per member per month by the health plan, and its total income is redistributed in a manner determined by its partners. Health plan benefits include physicians' care in the hospital, home, or office, hospitalization, surgery, special nursing, laboratory, X-ray, physical therapy, emergency service, immunizations, routine physical examinations, and some mental health services. However, before October 1962 the members had to pay out oif pocket nearly full market price for all drugs prescribed for outpatients. The plan's management has been concerned with the members' drug costs since totally prepaid drugs coverage had been dropped from the plan in the early days of its struggle for survival and growth. In the 17 years between the end of World War II and the inception of this benefit, drug costs obviously had become more burdensome for many members. Prescription price difsicounting had little effect in the Portland area and therefore drug prices had been maintained at a relatively high level. The plan pharmacies, by pricing prescriptions only slightly below the general market level, were earning considerable revenue for the plan-$112,000 during 1961 or 18 cents per member per month. During 1962 it was decided to reduce the cost Mr. Greenlick is director of medical care research and Dr. Saward is medical director, Kaiser Foundation Hospital, Portland, Oreg.