Objectives: To describe the health status of veterans receiving care in a veterans integrated service network (VISN).Design: Cross‐sectional survey with prospective follow‐up.Setting: Former Upper Midwest VISN 13 (now a part of VISN 23), a regional Veterans Affairs (VA) network comprising five inpatient facilities and associated outpatient clinics.Participants: All veterans in VISN 13 who had at least one inpatient or outpatient encounter between October 1, 1997, and March 31, 1998.Measurements: Health‐related quality of life (HRQOL) assessed using subscales and component summaries from the 36‐item short form for veterans (SF36‐V), functional status assessed according to limitations in activities of daily living (ADLs), healthcare utilization assessed according to outpatient visits and hospitalizations, and death.Results: Of 70,334 eligible veterans, 40,508 responded and reported baseline HRQOL significantly lower than that of the general U.S. population for the physical (35.6, P<.001) and mental (46.4, P<.001) component summary scores (PCS and MCS, respectively) of the SF36‐V. Many reported complete inability or some difficulty in completing ADLs such as getting in and out of a chair (35.1%) and walking (45.3%). More than 58% indicated some degree of difficulty with at least one of the ADLs. In multivariate analysis, PCS and MCS were significantly associated with subsequent use of inpatient and outpatient care and with mortality.Conclusion: The low quality of life and associated high rates of health services utilization in VA patients imply a need for innovative strategies to improve the HRQOL and functional status of this population.