Background: Expenditure on medications represents significant proportion of the total hospital budget. Establishing an effective drug cost management program is a priority area for hospitals that must begin with determining the current costs and pattern of use of medications. Objectives: The aim of the present study is to determine the cost and pattern of drug utilization at the study hospital in order to identify cost reduction opportunities. Methods: A descriptive retrospective design was used to examine the cost and pattern of drug utilization for all admissions during the period from: 1^st January 2006 to 30^th June 2006 in a university hospital in Eastern Saudi Arabis. Electronic patient data as well as manual drug cost data were obtained and merged to create the analysis  database. Results: The study revealed that the total drug cost at the study hospital was SR 11,823,666.9 (mean per admission = SR 2123.5 and median per admission= SR 357.3) during the study period. Antibiotics were responsible for 35.8% of the total inpatient drug costs followed by blood products which accounted for 20.6% of the total inpatient drug costs. Further investigation of both groups revealed that the combination of piperacillin and tazobactam represented 4.5% of prescribed drugs and accounted for almost half of the inpatient antibiotic costs (SR 2,064,916.8) and 17.4% of the total hospital's inpatient drug costs. Human albumin and intravenous immunoglobulin were responsible for the majority of cost of blood products. Conclusions: Piperacillin and tazobactam, human albumin, and intravenous immunoglobulin other than Rho (D) immunoglobulin are responsible for high percentage of drug expenditure at the study hospital while being prescribed to a limited number of patients. Designing a drug cost management program to target these three drugs will increase the likelihood of achieving significant cost reduction.