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For patients recovering from severe acute illness, admission to a long-term acute care hospital (LTAC) is an increasingly common alternative to continued management in an intensive care unit (ICU).To examine the effectiveness of LTAC transfer in patients with chronic critical illness.Retrospective cohort study in United States hospitals from 2002 to 2006.Medicare beneficiaries with chronic critical illness, defined as mechanical ventilation and at least 14 days of intensive care.Survival, costs, and hospital readmissions. We used multivariate analyses and instrumental variables to account for differences in patient characteristics, the timing of LTAC transfer, and selection bias.A total of 234,799 patients met our definition of chronic critical illness. Of these, 48,416 (20.6%) were transferred to an LTAC. In the instrumental variable analysis, patients transferred to an LTAC experienced similar survival compared with patients who remained in an ICU [adjusted hazard ratio=0.99; 95% confidence interval (CI), 0.96 to 1.01; P=0.27). Total hospital-related costs in the 180 days after admission were lower among patients transferred to LTACs (adjusted cost difference=−$13,422; 95% CI, −26,662 to −223, P=0.046). This difference was attributable to a reduction in skilled nursing facility admissions (adjusted admission rate difference=−0.591; 95% CI, −0.728 to −0.454; P<0.001). Total Medicare payments were higher (adjusted cost difference=$15,592; 95% CI, 6343 to 24,842; P=0.001).Patients with chronic critical illness transferred to LTACs experience similar survival compared with patients who remain in ICUs, incur fewer health care costs driven by a reduction in postacute care utilization, however, invoke higher overall Medicare payments.