W i t h t h e m e di c a r e drug benefit approaching its third year of operation, there is considerable interest in understanding its effects on beneficiaries' coverage, out-of-pocket spending, and access to needed medications. The Part D benefit was enacted to respond to the welldocumented problems facing beneficiaries who lacked drug coverage, particularly those with modest means or high out-of-pocket spending. 1 Since the enactment of the Medicare drug benefit, researchers and policymakers have predicted a range of outcomes and identified a number of issues that were expected to arise. 2 Thus far, the empirical evidence has focused primarily on Part D and low-income subsidy (LIS) participation rates, enrollment by plan type and benefit design, and satisfaction rates, with limited information on actual experiences. H e a l t h T r a c k i n g

Background: Hospitals face increasing pressure to lower cost of care while improving quality of care. It is unclear if efforts to reduce hospital cost of care will adversely affect quality of care or increase downstream inpatient cost of care. Methods:We conducted an observational crosssectional study of US hospitals discharging Medicare patients for congestive heart failure (CHF) or pneumonia in 2006. For each condition, we examined the association between hospital cost of care and the following variables: process quality of care, 30-day mortality rates, readmission rates, and 6-month inpatient cost of care.Results: Compared with hospitals in the lowest-cost quartile for CHF care, hospitals in the highest-cost quartile had higher quality-of-care scores (89.9% vs 85.5%) and lower mortality for CHF (9.8% vs 10.8%) (PϽ.001 for both). For pneumonia, the converse was true. Compared with lowcost hospitals, high-cost hospitals had lower quality-of-care scores (85.7% vs 86.6%, P=.002) and higher mortality for pneumonia (11.7% vs 10.9%, PϽ.001). Low-cost hospitals had similar or slightly higher 30-day readmission rates compared with high-cost hospitals (24.7% vs 22.0%, PϽ.001 for CHF and 17.9% vs 17.3%, P=.20 for pneumonia). Nevertheless, patients initially seen in lowcost hospitals incurred lower 6-month inpatient cost of care compared with patients initially seen in hospitals with the highest cost of care ($12 715 vs $18 411 for CHF and $10 143 vs $15 138 for pneumonia, PϽ.001 for both). Conclusions:The associations are inconsistent between hospitals' cost of care and quality of care and between hospitals' cost of care and mortality rates. Most evidence did not support the "penny wise and pound foolish" hypothesis that low-cost hospitals discharge patients earlier but have higher readmission rates and greater downstream inpatient cost of care.