This study assessed the relationship between the Health Care Financing Administration adjusted mortality rate for a hospital and the errors in care found by the peer review process. The three data sets used were: (1) the 1987-1988 completed reviews from 38 peer review organizations (PROs) of 4,132 hospitals and 2,035,128 patients; (2) all 1987 hospital mortality rates for Medicare patients as adjusted by HCFA for patient mix; and (3) the 1986 American Hospital Association Survey. The PRO data were used to compute the percentage of cases reviewed from each hospital confirmed by a reviewing physician to have a quality problem. The average percentage of confirmed problems was 3.73 percent with state rates ranging from 0.03 percent to 38.5 percent. The average within-state correlation between the problem rate and the adjusted mortality rate for all PROs was .19 (p < .0001), but the correlations were much higher for relatively homogeneous groups of hospitals, .42 for public hospitals and .36 for hospitals in large metropolitan statistical areas (MSAs). These results suggest that the HCFA adjusted hospital mortality rate and the PRO-confirmed problem rate are related methods to compare hospitals on the basis of quality of care. Both methods may compare quality better if used within a group of homogenous hospitals.