The researchers investigated the variation in Medicaid services and payments and explored the implications of these variations for cost containment options. They compared the services received and cost of care for Medicaid beneficiaries across state Medicaid programs and across hospital referral regions (HRRs) within states. Specifically, the researchers determined: (1) how much variation there is across states, across HRRs within states, and in Medicaid expenditures per beneficiary; (2) the extent to which variation in expenditures per beneficiary is due to variation in the rate of use of services, and the extent to which it is a result of variation in the rate of payment per unit of service; and (3) whether variation in the use of services and in expenditures per beneficiary is related to variations in the quality of care or the outcomes of care for Medicaid beneficiaries. The objective of this study was to provide policymakers with an understanding of the impact of policy choices regarding benefit limits and payment rates on costs and utilization, and their implication for quality of care.