OBJECTIVES: To understand how managed care plans use performance measures for quality improvement and to identify the strengths and weaknesses of currently used standardized performance measures such as the Health Plan Employer Data and Information Set (HEDIS) and the Consumer Assessment of Health Plans (CAHPS) survey. DATA SOURCES/STUDY SETTING: Representatives (chief executive officers, medical directors, and quality-improvement directors) from 24 health plans in four states were surveyed. The overall response rate was 58.3 percent, with a mean of 1.8 respondents per plan. STUDY DESIGN: This exploratory qualitative research used a purposive sample of respondents. Two study authors conducted separate one-hour tape-recorded telephone interviews with multiple respondents from each health plan. PRINCIPAL FINDINGS: All managed care organizations interviewed use performance measures for quality improvement but the degree and sophistication of use varies. Many of our respondent plans use performance measures to target quality-improvement initiatives, evaluate current performance, establish goals for quality improvement, identify the root cause of problems, and monitor performance. CONCLUSION: Performance measures are used for quality improvement in addition to informing external constituents, but additional research is needed to understand how the benefits of measurement can be maximized.