This paper examines the role of a hospital Step-Down Unit (SDU) on patient flows and patient outcomes. An SDU provides an intermediate level of care for semi-critically ill patients who are not sick enough to require intensive care but not stable enough to be treated in the general medical/surgical ward (ward). Using data from 10 hospitals from a single hospital network, we use an instrumental variable approach to estimate the impact on patient outcomes of routing patients to the SDU following Intensive Care Unit (ICU) discharge. Our empirical findings suggest that SDU care is associated with reduced in-hospital mortality of 6%, shortened hospital length-of-stay of 1.08 days, a reduced ICU readmission rate of 4%, and a reduction in the hospital readmission rate of 8%. We use our empirical findings to calibrate a simulation model of critical care patient flows and examine how the size of an SDU may impact patient outcomes, even when there is ample capacity in the ICU. There is substantial debate in the medical community regarding whether SDU care is beneficial and, if so, how many SDU beds are needed. This work takes an important first step in addressing these issues.