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The Agency for Healthcare Research and Quality (AHRQ) has constructed Inpatient Quality Indicator (IQI) mortality measures to measure hospital quality using routinely available administrative data. With the exception of California, New York State, and Wisconsin, administrative data do not include a present-on-admission (POA) indicator to distinguish between preexisting conditions and complications. The extent to which the lack of a POA indicator biases quality assessment based on the AHRQ mortality measures is unknown.To examine the impact of the POA indicator on hospital quality assessment based on the AHRQ mortality measures using enhanced administrative data from California, which includes a POA indicator.Retrospective cohort study based on 2.07 million inpatient admissions between 1998 and 2000 in the California State Inpatient Database. The AHRQ IQI software was used to calculate risk-adjusted mortality rates using either (1) routine administrative data that included all the International Classification of Diseases (ICD)-9-CM codes or (2) enhanced administrative data that included only the ICD-9-CM codes representing preexisting conditions.The inclusion of the POA indicator frequently results in changes in the quality ranking of hospitals classified as high-quality or low-quality using routine administrative data. Twenty-seven percent (stroke) to 94% (coronary artery bypass graft) of hospitals classified as high-quality using routine administrative data were reclassified as intermediate- or low-quality hospitals using the enhanced administrative data. Twenty-five percent (congestive heart failure) to 76% (percutaneous coronary intervention) of hospitals classified as low-quality hospitals using enhanced administrative data were misclassified as intermediate-quality hospitals using routine administrative data.Despite the fact that the AHRQ IQIs were primarily intended to serve as a screening tool, they are being increasingly used to publicly report hospital quality. Our findings emphasize the need to improve the “quality” of administrative data by including a POA indicator if these data are to serve as the information infrastructure for quality reporting.