Official guidance on out-of-area placements creates incentives that could lead to people being placed against their own best interests, with negative consequences for them and for the 'receiving' authorities.Information was collected for 30 people through interviews with them, their families, home managers and care managers. Interviews concerned resident needs, reasons for placement, the homes, care management arrangements, resident quality of life and social inclusion. Information on care standards was abstracted from official records.The main reasons for out-of-area placement were insufficient local services of acceptable quality, financial incentives and loss of family contact through prior institutionalization. The effects varied, with the most disabled people experiencing worst outcomes. Some aspects were worse than comparison studies (choice, community involvement, number of homes meeting all the national minimum standards), some were the same (participation, family visiting and other contact), and one was better (visits to families). Variation was also evident in the involvement of social services staff from the placing authority and in ease of access to local healthcare resources.Social services and health authorities should develop services locally that can support people with the full range of individual needs. Perverse incentives should be removed, perhaps by increasing the application of direct payments and personalized budgets.