That veterans aged 65 years and older are eligible to receive care either in the Veteran Affairs (VA) health care system or in the private sector under Medicare confounds the analysis of veterans' health services utilization and outcomes in two ways. First, changes in eligibility or financial barriers to access with regard to either system influence veterans' decisions about where to seek needed care. Second, analyses of VA care for elderly veterans that rely solely on VA data sources underestimate both overall utilization and treatment complications. Similarly, failure to consider the contribution of health care delivery in the VA system may confound analyses of health care utilization by the Medicare-eligible population. To study the magnitude of such confounding influences, we linked the Medicare and VA health care administrative databases for residents of New England and New York. Results indicated that, for ten surgical procedures commonly performed in the elderly, as well as for hospitalizations resulting from acute myocardial infarction and hip fracture, VA patients receive from 17.6% to 37.4% of hospital care outside the VA system. Private hospitalizations account for 5.5% to 19.5% of the care received by veterans within 6 months after an initial episode of care in a VA hospital. It was also found that initial hospitalizations for study conditions in the VA accounted for 3.6% of all such hospitalizations among elderly Medicare-eligible men. Although overall hospital utilization appears to be underestimated in VA data sources, it was found that ascertaining mortality from sources available within the VA produced excellent results when compared with deaths recorded in the Medicare enrollment files. A national, merged VA-Medicare data base is feasible and would enhance the validity of analyses of health care delivery both for elderly veterans and for the Medicare population.