Recombinant human erythropoietin (rHuEPO) is a new drug for treating anemia associated with end stage renal disease (ESRD). In a study of rHuEPO diffusion, costs, and effectiveness, we analyze ESRD program data and all claims submitted to Medicare for reimbursement of rHuEPO administered to ESRD dialysis patients. Access to rHuEPO was rapid and extensive during the first year of Medicare coverage. Dosing of rHuEPO and achieved hematocrit were lower than expected based on the results of clinical trials. rHuEPO cost Medicare $144 million in its first year. The analysis of insurance claims data allowed effective monitoring of access, costs, and effectiveness of this new biotechnology.