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The aim of this discussion paper is to examine the advantages and drawbacks of employing targets, or performance indicators, to improve the performance of those delivering health care services. The paper is based on an examination of two target-setting policies initiated by Government: the 1992 Health of the Nation strategy and the 1990 General Practitioners' Contract. It is argued that the introduction of both the General Practitioners' Contract and the Health of the Nation have indeed been accompanied by improvements in performance, however, there are a number of problems with targets. They tend to focus on those things that are most easily measured, and they may foster complacency on the part of providers who have already achieved upper target limits, and defensiveness on the part of those performing badly. National targets may skew local priorities; they may also be unrealistic and unattainable for particular, less privileged population groups. They may serve to widen inequalities in health, and can exacerbate the 'inverse care law' by encouraging providers to direct their efforts at the more advantaged sections of society, where such efforts are more likely to pay off in terms of overall improvements in the target level achieved. Finally, the achievement of some targets will not necessarily result in better health outcomes. The paper concludes that a target-setting approach to improving the quality of care must be based on the use of appropriate indicators, and must take account of differences between more and less advantaged sections of society.