This analysis was performed to examine whether Medicare claims accurately document underlying rheumatologic diagnoses in total hip replacement (THR) recipients. We obtained data on rheumatologic diagnoses including rheumatoid arthritis (RA), avascular necrosis (AVN), and osteoarthritis (OA) from medical records and from Medicare claims data. To examine the accuracy of claims data we calculated sensitivity and positive predictive value using medical records data as the "gold standard" and assessed bias due to misclassification of claims-based diagnoses. The sensitivities of claims-based diagnoses of RA, AVN, and OA were 0.65, 0.54, and 0.96, respectively; the positive predictive values were all in the 0.86-0.89 range. The sensitivities of RA and AVN varied substantially across hospital volume strata, but in different directions for the two diagnoses. We conclude that inaccuracies in claims coding of diagnoses are frequent, and are potential sources of bias. More studies are needed to examine the magnitude and direction of bias in health outcomes research due to inaccuracy of claims coding for specific diagnoses.