OBJECTIVES: Approximately one in eight practices in primary care in England are 'dispensing practices' with an in-house dispensary providing medication directly to patients. These practices can generate additional income by negotiating lower prices on higher cost drugs, while being reimbursed at a standard rate. They, therefore, have a potential financial conflict of interest around prescribing choices. We aimed to determine whether dispensing practices are more likely to prescribe high-cost options for four commonly prescribed classes of drug where there is no evidence of superiority for high-cost options. DESIGN: A list was generated of drugs with high acquisition costs that were no more clinically effective than those with the lowest acquisition costs, for all four classes of drug examined. Data were obtained prescribing of statins, proton pump inhibitors (PPIs), angiotensin receptor blockers (ARBs) and ACE inhibitors (ACEis). Logistic regression was used to calculate ORs for prescribing high-cost options in dispensing practices, adjusting for Index of Multiple Deprivation score, practice list size and the number of doctors at each practice. SETTING: English primary care. PARTICIPANTS: All general practices in England. MAIN OUTCOME MEASURES: Mean cost per dose was calculated separately for dispensing and non-dispensing practices. Dispensing practices can vary in the number of patients they dispense to; we, therefore, additionally compared practices with no dispensing patients, low, medium and high proportions of dispensing patients. Total cost savings were modelled by applying the mean cost per dose from non-dispensing practices to the number of doses prescribed in dispensing practices. RESULTS: Dispensing practices were more likely to prescribe high-cost drugs across all classes: statins adjusted OR 1.51 (95% CI 1.49 to 1.53, p<0.0001), PPIs OR 1.11 (95% CI 1.09 to 1.13, p<0.0001), ACEi OR 2.58 (95% CI 2.46 to 2.70, p<0.0001), ARB OR 5.11 (95% CI 5.02 to 5.20, p<0.0001). Mean cost per dose in pence was higher in dispensing practices (statins 7.44 vs 6.27, PPIs 5.57 vs 5.46, ACEi 4.30 vs 4.24, ARB 11.09 vs 8.19). For all drug classes, the more dispensing patients a practice had, the more likely it was to issue a prescription for a high-cost option. Total cost savings in England available from all four classes are £628 875 per month or £7 546 502 per year. CONCLUSIONS: Doctors in dispensing practices are more likely to prescribe higher cost drugs. This is the largest study ever conducted on dispensing practices, and the first contemporary research suggesting some UK doctors respond to a financial conflict of interest in treatment decisions. The reimbursement system for dispensing practices may generate unintended consequences. Robust routine audit of practices prescribing higher volumes of unnecessarily expensive drugs may help reduce costs.