The Medicare diagnosis-related group (DRG) prospective payment system is now entering its 6th year, with no reported major adverse effects on the health status of the American people. Currently 13 states are using DRG prospective "all-payer systems" for hospital reimbursement; other state may adopt DRG all payer systems. In DRG all-payer systems, Medicare, Medicaid, Blue Cross, and other commercial insurers pay by the DRG mode; New York state has been all-payer since January 1, 1988. This study simulated DRG all-payer methods on a large sample (n = 558) of adult nephrology patients for a 2-year period using both federal and New York DRG reimbursements now in effect. Both Medicare and Medicaid patients had (on average) longer hospital lengths of stay and higher total hospital costs compared with patients from Blue Cross and other commercial payers. Medicare and Medicaid patients also had greater severity of illness than patients from Blue Cross or other payers. However, all payers (ie, Medicaid, Blue Cross, Medicare, and commercial insurers) generated significant financial risk under our DRG all-payer scheme. These data suggest that federal, state, and private payers may be underreimbursing for the care of hospitalized nephrology patients using the DRG prospective hospital payment scheme. As DRG payment rates are further reduced compared with the real hospital costs of treating patients, both the access to and the quality of care for many nephrology patients may be jeopardized.