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Abstract Background The present study investigates the suitability of various treatment outcome indicators to evaluate performance of mental health institutions that provide care to patients with severe mental illness. Several categorical approaches are compared to a reference indicator (continuous outcome) using pretest-posttest data of the Health of Nation Outcome Scales (HoNOS). Methods Data from 10 institutions and 3189 patients were used, comprising outcomes of the first year of treatment by teams providing long-term care. Results Findings revealed differences between continuous indicators (standardized pre-post difference score ES and ΔT) and categorical indicators (SEM, JTRCI, JTCS, JTRCI&CS, JTrevised) on their ranking of institutions, as well as substantial differences among categorical indicators; the outcome according to the traditional JT approach was most concordant with the continuous outcome indicators. Conclusions For research comparing group averages, a continuous outcome indicator such as ES or ΔT is preferred, as this best preserves information from the original variable. Categorical outcomes can be used to illustrate what is accomplished in clinical terms. For categorical outcome, the classical Jacobson-Truax approach is preferred over the more complex method of Parabiaghi et al. with eight outcome categories. The latter may be valuable in clinical practice as it allows for a more detailed characterization of individual patients.