The hospital standardized mortality ratio (HSMR) is a widely used generic measure for assessing quality of hospital care in many countries. However, the validity of HSMR as a quality indicator is still controversial. We critically reviewed characteristics of HSMR and suggested how to use HSMR as a quality indicator in the Korean setting. The association between HSMR and other quality measures of hospital care is inconclusive. In addition current HSMR model has shortcomings in risk adjustment because of the lack of clinical data, accuracy of disease coding, coding variation among hospitals, end-of-life care issues, and so on. Therefore, HSMR should be used as an indicator for improvement, not for judgement such as public reporting and pay-for-performance. More efforts will be needed to tackle practical and methodological weaknesses of HSMR in the Korean setting.