On April 1, 1988, the Health Care Financing Administration (HCFA) directed all carriers to have a uniform policy and allow physicians the use of "dialysis procedure codes" for the supervision of inpatient dialysis services to End Stage Renal Disease (ESRD) beneficiaries. In the year following this change, inpatient dialysis services provided by physicians increased from 12.7 percent ($38.8 million) to over 16 percent ($62.8 million) of all allowed charges. Allowed charges for other inpatient medical care services also increased from $66.2 million to $77 million. Physicians who provide routine care for dialysis patients had a 24.7 percent increase in their total allowed charges for inpatient physician services. Our most conservative estimate of the effect of the policy change is that it increased charges by 4 percent, and other factors accounted for some of the remaining 20 percent. Although the services that the physician provides for a hospitalized patient are more intensive than monitoring outpatient dialysis, the large difference between reimbursement rates for inpatient hospital and outpatient physician services is a significant incentive to provide services in the hospital.