The second phase of the ADHC Evaluation Study was designed to assess ADHC provided under contract by community ADHC programs. Outcomes for the 163 patients enrolled in this prospective cohort evaluation were compared with those of patients assigned to ADHC provided directly by VA (VA-ADHC) and customary care in the randomized trial phase of the study. In spite of identical admission criteria, contract ADHC patients were significantly different from VA-ADHC and customary care patients on several characteristics and were more impaired in health status at study intake. They were also more impaired in physical health status at 12 months, even after controlling for baseline differences. There were no significant differences in any other patient or care giver health outcomes. Contract ADHC patients were more satisfied than customary care patients in nursing homes (but not more satisfied than patients in home care), whereas VA-ADHC patients were more satisfied than those in contract ADHC. It is suggested that differences in physical function are due to differences in patient health status at intake rather than a detrimental effect of contract ADHC.