OBJECTIVE To examine whether quality of care differed for veterans in Department of Veterans Affairs (VA) nursing homes and those on contract in community nursing homes, and whether the VA was contracting with nursing homes providing better quality of care than other nursing homes. METHODS Observational study using administrative databases from 1997 to 1999. METHODS Ten VA and 650 community nursing homes in New York state. METHODS Four thousand seven hundred sixty-three veteran and 195,438 nonveteran residents of these nursing homes. METHODS Risk-adjusted rates of pressure ulcer development, functional decline, behavioral decline, and mortality. RESULTS Veterans in VA nursing homes were significantly (P< .05) less likely to develop a pressure ulcer (odds ratio (OR)=0.63) but more likely to experience functional decline (OR=1.6) than veterans in community nursing homes. Residents of community nursing homes with VA contracts were significantly (P< .05) less likely to develop a pressure ulcer (OR=0.91) but more likely to die than residents in noncontract homes. Few nursing homes were consistently among the best or worst performers on all measures; only seven of 650 nursing homes were in the top or bottom decile and 34 in the top or bottom quartile for each measure. CONCLUSIONS Large purchasers and providers of nursing home care such as the VA are unlikely to find information on quality of care useful in making decisions on whether they should "make" or "buy" care. Nursing homes performing well on one quality measure may perform poorly on another, and it is difficult to identify nursing homes that are consistently among the best or worst. Other consumers may encounter similar difficulties when using data on nursing home quality.