The decision to institutionalize a patient with dementia is complex and is based on patient and caregiver characteristics and the sociocultural context of patients and caregivers. Most studies have determined predictors of nursing home placement primarily according to patient or caregiver characteristics alone.To develop and validate a prognostic model to determine the comprehensive predictors of placement among an ethnically diverse population of patients with dementia.The Medicare Alzheimer's Disease Demonstration and Evaluation study, a prospective study at 8 sites in the United States, with enrollment between December 1989 and December 1994 of 5788 community-living persons with advanced dementia.Time to nursing home placement throughout a 36-month follow-up period, assessed by interview and review of Medicare records, and its association with patient and caregiver characteristics, obtained by interview at enrollment.Patients were divided into a development (n = 3859) and validation (n = 1929) cohort. In the development cohort, the Kaplan-Meier estimates of nursing home placement throughout 1, 2, and 3 years were 22%, 40%, and 52%, respectively. After multivariate adjustment, patient characteristics that were associated with nursing home placement were as follows: black ethnicity (hazard ratio, 0.60; 95% confidence interval [CI], 0.48-0.74), Hispanic ethnicity (HR, 0.40; 95% CI, 0.28-0.56) (both ethnicities were inversely associated with placement), living alone (HR, 1.74; 95% CI, 1.49-2.02), 1 or more dependencies in activities of daily living (HR, 1.38; 95% CI, 1.20-1.60), high cognitive impairment (for Mini-Mental Status Examination score < or =20: HR, 1.52; 95% CI, 1.33-1.73), and 1 or more difficult behaviors (HR, 1.30; 95% CI, 1.11-1.52). Caregiver characteristics associated with patient placement were age 65 to 74 years (HR, 1.17; 95% CI, 1.01-1.37), age 75 years or older (HR, 1.55; 95% CI, 1.31-1.84), and high Zarit Burden Scale score (for highest quartile: HR, 1.73; 95% CI, 1.49-2.00). Patients were assigned to quartiles of risk based on this model. In the development cohort, patients in the first, second, third, and fourth quartile had a 25%, 42%, 64%, and 91% rate of nursing home placement at 3 years, respectively. In the validation cohort, the respective rates were 21%, 50%, 64%, and 89%. The C statistic for 3-year nursing home placement was 0.66 in the development cohort and 0.63 in the validation cohort.Patient and caregiver characteristics are both important determinants of long-term care placement for patients with dementia. Interventions directed at delaying placement, such as reduction of caregiver burden or difficult patient behaviors, need to take into account the patient and caregiver as a unit.