At the request of Senator Daniel Patrick Moynihan, the General Accounting Office (GAO) examined the causes of interstate variations in Medicaid spending and the growth in overall spending. Using published and unpublished information, the GAO identified trends and wide variations among states in Medicaid spending and compared eligibility criteria used, the scope of services offered, and reimbursement to providers. Medicaid spending in New York was compared to national averages and studies analyzing the underlying causes of variations were reviewed. The results of the GAO investigation revealed that growth in spending for Medicaid during fiscal years 1965-1980 was primarily caused by increasing use and an expanding Medicaid population. Growth in spending in fiscal years 1981-1983 was attributable primarily to inflation. The distribution of payments within the Medicaid program has shifted from acute care for the disabled and Aid to Families With Dependent Children to long-term care for the elderly and chronically ill. The Medicaid literature suggests that similar people in similar circumstances but in different states are treated unequally in terms of both Medicaid eligibility and generosity of benefits. Interstate variations appear to be caused by variations in the availability of financial resources across states and by the social and political variables which influence the ways states choose to structure their Medicaid programs. (Sixteen data tables are included.) (NB)