Patients facing serious or life-threatening illnesses account for a disproportionately large share of Medicaid spending. We examined 2004-07 data to determine the effect on hospital costs of palliative care team consultations for patients enrolled in Medicaid at four New York State hospitals. On average, patients who received palliative care incurred $6,900 less in hospital costs during a given admission than a matched group of patients who received usual care. These reductions included $4,098 in hospital costs per admission for patients discharged alive, and $7,563 for patients who died in the hospital. Consistent with the goals of a majority of patients and their families, palliative care recipients spent less time in intensive care, were less likely to die in intensive care units, and were more likely to receive hospice referrals than the matched usual care patients. We estimate that the reductions in Medicaid hospital spending in New York State could eventually range from $84 million to $252 million annually (assuming that 2 percent and 6 percent of Medicaid patients discharged from the hospital received palliative care, respectively), if every hospital with 150 or more beds had a fully operational palliative care consultation team.