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Evidence-based selective referral strategies are being used by an increasing number of insurers to ensure that medical care is provided by high-quality providers. In the absence of direct-quality measures based on patient outcomes, the standards currently in place for many conditions rely on indirect-quality measures such as patient volume.To assess the potential usefulness of volume as a quality indicator for very low-birth-weight (VLBW) infants and compare volume with other potential indicators based on readily available hospital characteristics and patient outcomes.A retrospective study of 94 110 VLBW infants weighing 501 to 1500 g born in 332 Vermont Oxford Network hospitals with neonatal intensive care units between January 1, 1995, and December 31, 2000.Mortality among VLBW infants prior to discharge home; detailed case-mix adjustment was performed by using patient characteristics available immediately after birth.In hospitals with less than 50 annual admissions of VLBW infants, an additional 10 admissions were associated with an 11% reduction in mortality (95% confidence interval [CI], 5%–16%; P<.001). The annual volume of admissions only explained 9% of the variation across hospitals in mortality rates, and other readily available hospital characteristics explained an additional 7%. Historical volume was not significantly related to mortality rates in 1999–2000, implying that volume cannot prospectively identify high-quality providers. In contrast, hospitals in the lowest mortality quintile between 1995 and 1998 were found to have significantly lower mortality rates in 1999–2000 (odds ratio [OR], 0.64; 95% CI, 0.55–0.76; P<.001) and hospitals in the highest mortality quintile between 1995 and 1998 had significantly higher mortality rates in 1999–2000 (OR, 1.37; 95% CI, 1.16–1.64; P<.001). The percentage of hospital-level variation in mortality in 1999–2000 that was forecasted by the highest and lowest quintiles based on patient mortality was 34% compared with only 1% for the highest and lowest quintiles of volume.Referral of VLBW infants based on indirect-quality indicators such as patient volume may be minimally effective. Direct measures based on patient outcomes are more useful quality indicators for the purposes of selective referral, as they are better predictors of future mortality rates among providers and could save more lives.