This paper examines the relationship between Medicaid pharmacy benefit restrictions and reports of prescription cost barriers by beneficiaries, and the relationship between prescription cost barriers and hospitalizations. The analysis uses data for adult Medicaid beneficiaries from the 2000–2001 and 2003 Community Tracking Survey household surveys, combined with data on states’ Medicaid pharmacy benefit restrictions and characteristics of local health-care markets. Estimation results show that state Medicaid restrictions are associated with a higher incidence of reported drug cost barriers and that Medicaid recipients who report prescription cost barriers experience a greater number of hospitalizations.