The authors tested the hypothesis that the Department of Veterans Affairs (VA) hospitals would have substantial overutilization of acute care beds and services because of policies that emphasize inpatient care over ambulatory care. Reviewers from 24 randomly selected VA hospitals applied the InterQual ISD* (Intensity, Severity, Discharge) criteria for appropriateness concurrently to a random sample of 2,432 admissions to acute medical, surgical, and psychiatry services. Reliability of hospital reviewers in applying the ISD* criteria was tested by comparing their reviews with those of a small group of expert reviewers. Validity of the ISD* criteria was tested by comparing the assessments of master reviewers with the implicit judgments of panels of nine physicians. The physician panels validated the ISD* admission criteria for medicine and surgery (74% agreement with master reviewers, kappa > 0.4), whereas the psychiatry criteria were not validated (66% agreement, kappa 0.29). Hospital reviewers reliably used all three criteria sets (> 83% agreement with master reviewers, kappa > 0.6). Rates of nonacute admissions to acute medical and surgical services were > 38% as determined by the hospital and master reviewers and by the physician panels. Nonacute rates of continued stay were > 32% for both medicine and surgery services. Similar rates of nonacute admissions and continued stay were found for all 24 hospitals. Reasons for nonacute admissions and continued stay included lack of an ambulatory care alternative, conservative physician practices, delays in discharge planning, and social factors such as homelessness and long travel distances to the hospital. Using criteria that the authors showed to be reliable and valid, substantial overutilization of acute medicine and surgical beds was found in a representative sample of VA hospitals. Correcting this situation will require changes in physician practice patterns, development of ambulatory care alternatives to inpatient care, and modification of current VA policies determining eligibility for care.