This paper reviews the relative strengths and weaknesses of outcome and process measures as performance indicators in health care. Differences in outcome may be due to case mix, how the data were collected, chance, or quality of care. Health care is only one determinant of health and other factors have important effects on health outcomes, such as nutrition, environment, lifestyle and poverty. The advantages of process measures are that they are more sensitive to differences in the quality of care and they are direct measures of quality. However, outcome measures are of greater intrinsic interest and can reflect all aspects of care, including those that are otherwise difficult to measure such as technical expertise and operator skill. Outcome indicators can be improved if efforts are made to standardize data collection and case mix adjustment systems are developed and validated. It is argued that this is worth doing only where it is likely that variations in health care might lead to significant variations in health outcome and where the occurrence of the outcome is sufficiently common that the outcome indicator will have the power to detect real differences in quality. If these conditions are not met, then alternative strategies such as process measurement and risk management techniques may be more effective at protecting the public from poor quality care.