We conducted a cross-sectional retrospective review of 1996 Kentucky Medicaid Pharmacy claims data to examine the prevalence of potentially inappropriate drug use in 64,832 Medicaid recipients aged 65 years and older who received a prescription. Twenty-seven percent of patients received at least one potentially inappropriate agent. Prevalence was higher for nursing home residents (33%) than for community dwellers (24%). Amitriptyline (7.6%), propoxyphene (6.5%), doxepin (4.0%), and indomethacin (2.3%) were the most prescribed potentially inappropriate agents. Education programs and interventions aimed at optimizing the prescribing and dispensing of the most appropriate drugs are needed.