Objective To evaluate the effect of Medicaid bed‐hold policies on hospitalization of long‐stay nursing home residents. Data Sources A nationwide random sample of long‐stay nursing home residents with data elements from Medicare claims and enrollment files, the Minimum Data Set, the Online Survey Certification and Reporting System, and Area Resource File. The sample consisted of 22,200,089 person‐quarters from 754,592 individuals who became long‐stay residents in 17,149 nursing homes over the period beginning January 1, 2000 through December 31, 2005. Study Design Linear regression models using a pre/post design adjusted for resident, nursing home, market, and state characteristics. Nursing home and year‐quarter fixed effects were included to control for time‐invariant facility influences and temporal trends associated with hospitalization of long‐stay residents. Principal Findings Adoption of a Medicaid bed‐hold policy was associated with an absolute increase of 0.493 percentage points (95% CI: 0.039–0.946) in hospitalizations of long‐stay nursing home residents, representing a 3.883 percent relative increase over the baseline mean. Conclusions Medicaid bed‐hold policies may increase the likelihood of hospitalization of long‐stay nursing home residents and increase costs for the federal Medicare program.