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In 1990, in an effort to control Medicaid's increasing outlays for prescription drugs, Congress significantly changed the way that Medicaid pays for outpatient drugs. Medicaid had been paying near retail prices for outpatient drugs, while other purchasers, such as hospitals and health maintenance organizations (HMO), were able to negotiate big discounts with drug manufacturers. The new legislation required drug manufacturers to give state Medicaid programs rebates for outpatient drugs on the basis of the lowest prices available to any purchaser. In a September 1991 report (GAO/HRD-91-139), GAO discussed changes in prescription drug prices charged the Department of Veterans Affairs and the Defense Department. This report focuses on changes in drug prices charged hospitals and HMOs. GAO found that drug price changes experienced by HMOs and hospitals varied considerably since the enactment of the Medicare rebate provisions. Some prices increased substantially, while others declined. Price increases tended to be more common and more significant for outpatient drugs than for inpatient drugs, but few other clear patterns emerged. GAO could not determine the extent to which the price hikes were due to the new law.