OBJECTIVE: To compare the hospital costs of caring for medical patients on a special unit designed to help older people maintain or achieve independence in self-care activities with the costs of usual care. DESIGN: A randomized controlled study. PARTICIPANTS: A total of 650 medical patients (mean age 80 years, 67% women, 41% nonwhite) assigned randomly to either the intervention unit (n = 326) or usual care (n = 324). MEASURES: The hospital's resource-based cost of caring for patients was determined from the hospital's cost-accounting system. The cost of the intervention program was estimated and included in the intervention patients' total hospital cost. RESULTS: The development and maintenance costs of the intervention added $38.43 per bed day to the intervention patients' hospital costs. As a result, the cost per day to the hospital was slightly higher in the intervention patients than in the control patients ($876 vs $847, P = .076). However, the average length of stay was shorter for intervention patients (7.5 vs 8.4 days, P = .449). As a result, the hospital's total cost to care for intervention patients was not greater than caring for usual-care patients ($6608 in intervention patients vs $7240 in control patients, P = .926). Sensitivity analysis demonstrated that the cost of the intervention program would need to be 220% greater than estimated before intervention patients would be more expensive then control patients. There were no examined subgroups of patients in whom care on the intervention unit was significantly more expensive than care on the usual- care unit. Ninety-day nursing home use was lower in intervention than control patients (24.1% vs 32.3% P = 034). Ninety-day readmission rates (36.7% vs 41.1%, P = .283) and caregiver strain scores (3.3 vs. 2.7, P = .280) were similar. CONCLUSION: Caring for patients on an intervention ward designed to improve functional outcomes in older patients was not more expensive to the hospital than caring for patients on a usual-care ward even though the intervention ward required a commitment of hospital resources.