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The prescribing behavior to prescribe high-priced drugs has been hypothesized to be related to the increasing drug expenditures in China, but little empirical evidence exists. The purpose of this study was to examine whether Chinese physicians, driven by financial incentives, tend to prescribe high-priced drugs. The 2000–2008 drug data in the Yangtze River Basin Hospitals' Drug Use Analysis System were analyzed to examine the prescription patterns of penicillins and cephalosporins in Shanghai. Among the top-100 drugs (by volume), cephalosporins cost as 1.1– 2.3 times as penicillins and their volume was 1.7–18.2 times. Revenues generated from prescribing cephalosporins were 3.4–24.2 times as those from prescribing penicillins. The tendency of prescribing relatively high-priced drugs was observed given the same chemical name, dosage, and specification but different trade names. Furthermore, high-priced drugs remained on the top-100 list with increasing volumes, while some lower-priced drugs exited from the list due to decreases in volumes. Facing the policy dilemmas, the Chinese government needs to implement a new financially rewarding system in which hospitals and physicians are able to achieve financial gains in a cost-effective way including prescribing similar drugs with lower prices. Reforming hospitals' payment methods is necessary and feasible to reshape financial incentives of healthcare providers. The combination of the global budget policy and financial incentive measures would be likely to change providers' prescribing behaviors towards a cost-effective direction. [ABSTRACT FROM AUTHOR]