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There is growing interest in the quality of health care and in using quality measures to direct patients to hospitals and providers offering high quality, low cost health care. The dilemma is that, while there is an increasing need for quality indicators as a result of a changing health care environment, this changing environment has important implications for the use of some of these measures. Since 1970s, a growing body of research in the U.S. has addressed the empirical relationship between the number of patients with a specific diagnosis of surgical procedure and their outcomes after treatment in a particular hospital or by a particular physician “volume-outcome” studies). In this paper, we examine the policy implications of using hospital and physician volume information as an “indicator” of quality in a rapidly changing health care environment with new players and new incentives. We begin by describing the evolution of the use of volumes within both regulatory and market-oriented contexts in the U.S. We then discuss policy considerations and cautions in using volumes, along with suggestions for future resarch, Our purpose is to point out potential problems and clarify confusions about the use of volumes, so that policymakers and clarify confusions about the use of volumes, so that policymakers and proctitioners can be sensitive to the potential minefields they are traversing. ©1997 Elsevier Science Ltd.