The uses, advantages, and limitations of ambulatory care databases are discussed, and processes for extracting and using the data are described. Claims databases allow health systems, including managed care organizations, to generate descriptive statistics on patients, providers, and diseases; to conduct comprehensive cost and resource-use analyses; and to build economic models of diseases. The use of health care databases has several advantages over clinical trials, including lower data collection costs, shorter times for analysis, larger numbers of patients, and less inconvenience to patients and providers. These databases allow the effectiveness of a treatment, instead of its efficacy, to be assessed and drug-switching patterns within disease categories to be detected. This information can be used for determining the cost and outcome implications of new treatments and formulary changes, as well as for monitoring disease management programs. Limitations of health care databases include the omission of services not covered by health plans, the risk of coding errors, the absence of indicators of disease severity, and the lack of data that would assist with clinical outcome analysis. Medical and pharmacy claims data do not contain all the information contained in patients' medical records. Despite their limitations, ambulatory care databases are useful for describing patient, provider, and disease characteristics. The databases are also useful for predicting and estimating the implications of a change in the formulary, measuring the effects of treatment guidelines, and monitoring disease management programs.