We used Medicare data bases and US Census data to address two questions critical to the use of Medicare files for epidemiologic research. First, we examined the degree to which the population enrolled in the Medicare program is similar to the elderly resident population of the United States, as estimated by the US Census. We found small differences in the total population estimates but substantial differences by age and race. Second, we found that among Medicare enrollees, physician claims identify a small proportion of hip fracture cases which are not documented in the hospital discharge files. This proportion varies by age, region, and state within the United States. Calculation of rates based on Medicare hospital discharge data, and probably other hospital discharge data sets as well, must take these limitations into account. Use of all available Medicare data files can overcome these limitations.