Purpose All Dutch hospitals are obliged to report their 5-year ipsilateral breast tumor recurrence (IBTR) rate after breast cancer surgery. Experts decided that these rates should not exceed 5 %. This study determined the value of IBTR as an indicator to compare quality of care between hospitals. Methods All patients with breast cancer (pT1–3, any N, M0) who underwent surgery in 1 of 92 Dutch hospitals from 2003 to 2006 were identified in the Netherlands Cancer Registry. Data of recurrence was retrieved from hospital records. Five-year IBTR rates for breast-conserving surgery (BCS) and mastectomy were calculated by using the Kaplan–Meier method. Hospital variation was presented in funnel plots. Multivariate analysis was used to assess hospital characteristics associated with IBTR rates. Results A total of 40,892 breast cancer patients were included. The overall 5-year IBTR rate was 2.85 % (95 % confidence interval 2.68–3.03) and was significantly lower for BCS than for mastectomy (2.38 vs. 3.45 %, p < 0.001). IBTR rates decreased over time in both groups. Rates varied between 0.77 and 5.70 % between hospitals. When random variation is taken into account, only extremely high IBTR rates can be detected as deviant from the target value of 5 %. Adjusting for tumor and patient characteristics, analyses showed that a higher volume of mastectomies is associated with lower IBTR rates. Conclusions Our population-based findings show that IBTR rates in the Netherlands are low and have improved over time. The 5-year IBTR rate as an indicator for quality of care of individual hospitals is of limited value.