OBJECTIVE: To examine the impact of a policy restricting reimbursement for Medicaid anti-ulcer drugs on anti-ulcer drug use and peptic-related hospitalizations. DATA SOURCES/STUDY SETTING: In addition to U.S. Census Bureau data, all of the following from Florida: Medicaid anti-ulcer drug claims data, 1989-1993; Medicaid eligibility data, 1989-1993; and acute care nonfederal hospital discharge abstract data (Medicaid and non-Medicaid), 1989-1993. STUDY DESIGN: In this observational study, a Poisson multiple regression model was used to compare changes, after policy implementation, in Medicaid reimbursement for prescription anti-ulcer drugs as well as hospitalization rates between pre- and post-implementation periods in Medicaid versus non-Medicaid patients hospitalized with peptic ulcer disease. PRINCIPAL FINDINGS: Following policy implementation, the rate of Medicaid reimbursement for anti-ulcer drugs decreased 33 percent (p < .001). No associated increase occurred in the rate of Medicaid peptic-related hospitalizations. CONCLUSIONS: Florida's policy restricting Medicaid reimbursement for anti-ulcer drugs was associated with a substantial reduction in outpatient anti-ulcer drug utilization without any significant increase in the rate of hospitalization for peptic-related conditions.