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The purpose of this study was to identify patterns of resource allocation that relate to resident outcomes in nursing homes. Data on structure, staffing levels, salaries, cost, case mix, and resident outcomes were obtained from state‐level, administrative databases on 494 nursing homes. We identified two sets of comparison groups and showed that the group of homes with the greatest percentage of improvement in resident outcomes had higher levels of registered nurse (RN) staffing and higher costs. However, comparison groups based on best–worst average outcomes did not differ in resource allocation patterns. Additional analysis demonstrated that when controlling for RN staffing, resident outcomes in high‐ and low‐cost homes did not differ. The results suggest that, although RN staffing is more expensive, it is key to improving resident outcomes. © 1998 John Wiley & Sons, Inc. Res Nurs Health 21: 297–313, 1998