Many health care system, including that of the Department of Veterans Affairs (VA), are facing dramatic changes as they adapt to state-level reform legislation and move into managed care environments. As new costing systems are designed and as researchers seek to conduct cost-effectiveness studies to guide health policy, it is critical to examine the assumed validity of the measurement procedures on which these costing systems are based. The foundation for VA health care costing is the cost distribution report, which is created by combining data on expenditures and workload with local service chiefs' estimates of program staffing and resource use. To evaluate the accuracy of the cost distribution report, the authors compared data from the report to cost data obtained in three multisite studies. Substantial differences were found between the cost distribution report and these independent sources, suggesting that researchers should not place uncritical reliance on the cost distribution report. The accuracy of costing data in information systems being implemented by VA will be limited to the extent they rely on the existing VA cost distribution system. Several strategies can be used in studies with a cost component to compensate for imperfect cost distribution systems.