Spending on outpatient prescription drugs in Medicaid—the joint federal-state program that finances medical services for certain low-income adults and children—has accounted for a substantial and growing share of Medicaid expenditures. Medicaid’s total spending on outpatient prescription drugs grew from $4.6 billion in fiscal year 1990 to $40 billion in fiscal year 2004—or from 7.0 to 14.2 percent of Medicaid’s total expenditures for medical care. State Medicaid programs do not directly purchase prescription drugs; instead, they reimburse retail pharmacies for covered outpatient prescription drugs dispensed to Medicaid beneficiaries. For some outpatient multiple-source prescription drugs, state Medicaid programs may only receive federal matching funds for reimbursements up to a maximum amount known as a federal upper limit (FUL).