Great strides have been made in the creation of programs aimed at improving the safety and quality of health care in the United States, including measurement systems and corresponding standards in the ambulatory setting that are used for public reporting or pay-for-performance. The diversity of physician practices in the United States makes measurement challenging. In many parts of the country, substantial proportions of both primary care and specialist physicians continue to practice in solo or small group practices. This article reviews the practice landscape in the United States; describes performance measurement challenges in small practice settings, including financial and staffing implications; discusses statistical issues that affect assessment of practice quality; and describes potential solutions to the issues raised. Challenges of performance measurement in small practice settings include lack of infrastructure and health information technology, lack of support staff, and increased burden. These issues are compounded by the difficulty of assessing a smaller number of patients spread over multiple payers. To overcome some of these challenges, design and measure selection recommendations for the performance assessment system are presented and practice-level and health plan-level interventions are suggested that might facilitate the inclusion of small practice settings in performance assessment programs. Because a high proportion of U.S. physicians practice in small settings, programs and policies based on physician performance measurement should incorporate features that facilitate the inclusion of these physicians.