There are escalating national pressures to analyze pharmaceutical outcomes and to develop drug-related clinical guidelines. These interests coincide with passage of the Medicaid Rebate Law (OBRA, 1990), which mandates the implementation of prospective and retrospective drug utilization review (DUR) programs by Medicaid in 1993. This report investigates DUR programs that target outpatient drug therapies. The authors present a conceptual framework that identifies the factors influencing drug prescribing and the range of potential patient outcomes. Current types of DUR interventions and their applications are described, in addition to problems that hinder implementation or evaluation of DUR programs. DUR evaluation studies are reviewed, and a critique identifies the limitations of available DUR research. The authors recommend an expanded DUR policy research agenda, strongly suggesting that priority be given to studies in the following areas: DUR criteria development and validation; prevalence of prescribing problems and their association with patient outcomes; efficacy, toxicity and costs of therapeutic alternatives; and DUR program evaluation. The overall conclusion is that the state of the science pertaining to DUR is not well developed. The potential of DUR may not be realized due to the lack of resources needed to design, implement, and evaluate effective programs. Instead, DUR efforts may be limited to cost-containment issues without due consideration of quality-of-care outcomes. The authors call for rigorous evaluation efforts to inform DUR design and implementation, thereby assuring more rational prescribing and enhancing patient outcomes.