We discuss some of the challenges facing hospitals in developed nations, with special attention to the need to monitor and evaluate hospital performance. In particular, there is a need for quality indicators that measure the effects of treatment, and are risk-adjusted, so that valid comparisons of outcomes can be made across hospitals that treat different types of patients. Until recently, only very crude quality indicators have been available for comparing the performance of different hospitals. We describe three risk-adjusted indices for comparing the outcomes of hospital care, focusing on the construction and validation of these measures. We discuss the uses of these tools for identifying problems and for monitoring outcomes of care within a hospital, including screening medical records for peer review, identifying variations in outcomes across various subgroups of physicians, and comparing changes in outcomes following various changes in the delivery system. Possible applications at the regional, national and international levels are then discussed, with special emphasis on the use of these tools for measuring the size of the gap between the efficacy of a technology, as determined through randomized controlled trials under stringent protocols, and the effectiveness of the same technology once it is exported, and then used under true practice conditions in another country.