OBJECTIVES: To quantify the effect of medication adherence in 9 chronic conditions on inpatient hospitalization among Medicaid enrollees. METHODS: We analyzed Medicaid claims data from the Centers for Medicare & Medicaid Services on over 1.3 million adults (ages 18-64) in 10 state Medicaid programs from 2008-2010. The impact of medication adherence—defined as having a proportion of days covered ≥ 0.80—was assessed for 9 chronic conditions: congestive heart failure, hypertension, dyslipidemia, diabetes, asthma/chronic obstructive pulmonary disease (COPD), depression, schizophrenia/bipolar disorder, seizure disorder, and gastroesophageal reflux disease. For patients diagnosed with each condition, multivariate models of the number of inpatient hospitalizations were estimated as a function of medication adherence and other important covariates such as the Charlson Comorbidity Index. The specified models also included person-specific fixed effects to eliminate potential confounding due to unobserved, time-invariant factors associated with both adherence and hospitalization. All models were stratified by two bases of Medicaid eligibility: blind/disabled and other adults. RESULTS: For all chronic conditions, medication adherence was associated with significant (p<0.01) reductions in the number of hospitalizations among the blind/disabled. Adherent patients had between 0.12 (7%) for asthma/COPD and 0.66 (40%) for schizophrenia/bipolar disorder fewer annual hospitalizations than non-adherent patients. In the other adult cohort, adherence was significantly (p<0.10) related to decreased hospitalization in 6 of the 9 conditions—ranging from 0.05 (5%) fewer hospitalizations for hypertension to 0.25 (20%) fewer for schizophrenia/bipolar disorder). CONCLUSIONS: We conclude that medication adherence leads to substantial decreases in the number of inpatient hospitalizations by adults in Medicaid. Our work suggests that programs designed to bolster compliance among the 70 million Medicaid enrollees may return substantial economic benefits in terms of medical cost offsets. Other policy levers, however, such as increased patient cost-sharing for prescription drugs may yield the unintended consequences of increased hospitalization and higher medical costs.