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Many jurisdictions are facing increased demand for intensive care. There are two long-term investment options: intensive care unit (ICU) versus step-down or intermediate care unit (IMCU) capacity expansion. Relative cost-effectiveness of the two investment strategies with regard to patient lives saved has not been studied to date.We expand a generic system dynamics simulation model of emergency patient flow in a typical hospital, populated with empirical evidence found in the medical and hospital administration literature, to estimate the long-term effects of expanding ICU versus IMCU beds on patient lives saved under a common assumption of 2.1% annual increase in hospital arrivals. Two alternative policies of expanding ICU by two beds versus introducing a two-bed IMCU are compared over a ten-year simulation period. Russel equation is used to calculate total cost of patients’ hospitalization. Using two possible values for the ratio of ICU to IMCU cost per inpatient day and four possible values for the percentage of patients transferred from ICU to IMCU found in the literature, nine scenarios are compared against the baseline scenario of no capacity expansion.Expanding ICU capacity by two beds is demonstrated as the most cost-effective scenario with an incremental cost-effectiveness ratio of 3684 (US $) per life saved against the baseline scenario. Sensitivity analyses on the mortality rate of patients in IMCU, direct transfer of IMCU-destined patients to the ward upon completing required IMCU length of stay in the ICU, admission of IMCU patient to ICU, adding two ward beds, and changes in hospital size do not change the superiority of ICU expansion over other scenarios.In terms of operational costs, ICU beds are more cost effective for saving patients than IMCU beds. However, capital costs of setting up ICU versus IMCU beds should be considered for a complete economic analysis.