The assessment of health care quality has become more important with the increase in information available to the general public, which includes Medicare's “Hospital Compare” website (U.S. Department of Health & Human Services 2008) and the publication of hospital infection rates in Pennsylvania (Pennsylvania Health Care Cost Containment Council 2008). One proposed measure is risk-adjusted readmission rates. Early research (Ashton et al. 1997) suggested that lower-quality providers incompletely evaluate or manage a patient in 13 studies, leading to higher readmission rates. Similar results were noted more recently for coronary artery bypass graft surgery (Hannan et al. 2003). However, recently published work in congestive heart failure (Kossovsky et al. 2000; Luthi et al. 2004; Fonarow et al. 2007;) did not find such an association, leading to questions about the value of readmission rates as a quality measure (Clarke 2004). There are several potential reasons for these conflicting results. Hospitals may have different admission criteria for patients with a given disease, both for the initial hospitalization and for the readmission (Goodman et al. 1994). Available risk-adjustment models may not adequately control for these differences. The prevalence of readmissions may be too low to detect a difference between hospitals. Finally, most studies did not account for the outpatient facility where the patient receives care after discharge. Outpatient care may influence a patient's risk of readmission, as demonstrated by research on medication discrepancies (Coleman et al. 2005) or other interventions (Rich et al. 1995; Benbassat and Taragin 2000;). However, no study has examined the combined effect of inpatient and outpatient facilities on readmission rates. To properly evaluate risk-adjusted readmission rates as an inpatient quality of care measure, we must examine a population of patients with high readmission rates, uniform admission criteria, and valid measures of inpatient care as a “test case.” Prematurely born infants are such a group. Besides their high overall readmission rates, (Cavalier et al. 1996; Furman et al. 1996; Joffe et al. 1999; Smith et al. 2004; Morris, Gard, and Kennedy 2005; Underwood, Danielsen, and Gilbert 2007;) all infants born under 34 weeks gestational age (GA) are admitted to a neonatal intensive care unit (NICU), which eliminates differences in admission criteria. Prior work has also suggested that higher quality NICUs have higher volumes and lower complication rates than their peers (Phibbs et al. 1996; Lorch et al. 2007; Phibbs et al. 2007;). Premature infants, who are interesting in their own right, also can serve as an analog for patients with other chronic illnesses, such as congestive heart failure. The goal of this study, then, was to assess risk-adjusted readmission rates as a measure of inpatient quality of care by studying their role in NICUs. The specific aims were to (1) determine the statistical significance and explained variation in risk-adjusted readmission rates attributable to the NICU when outpatient facilities are omitted—the most commonly used analysis; (2) determine the change in explained variation when outpatient facilities were added to the analysis; and (3) measure the association between readmission rates and characteristics of a high-quality NICU or outpatient facility (Phibbs et al. 1996; Lorch et al. 2007; Phibbs et al. 2007;). To answer these three aims, we will present the results of three separate analyses using data from a retrospective, population cohort of premature infants with complete follow-up data through 1 year after discharge. The first, “naive” analysis determines the variation in readmission rates attributable to the NICU while ignoring outpatient facilities (aim 1). We then add outpatient facilities to the naive model and determine the variation explained by NICUs and outpatient facilities (aim 2). The third aim of this study will clarify which previously validated facility-quality metrics are associated with lower readmission rates.