Nursing home medical-record documentation of daily-care occurrence may be inaccurate, and information is not documented about important quality-of-life domains. The inadequacy of medical record data creates a barrier to improving care quality, because it supports an illusion of care consistent with regulations, which reduces the motivation and ability of providers to identify areas for improvement. Observational protocols designed for use by survey and quality-assurance staff can provide the independent information necessary for improving both medical record accuracy and residents' quality of life. Unfortunately, observational protocols currently used in survey and quality-assurance activities are not designed in a manner that is consistent with the scientific principles that guide observational measurement. The purpose of this article is to describe the steps to develop a standardized and scientifically defensible observational system to assess nursing home care quality.