Objectives Hospital admission in older adults is associated with unwanted outcomes such as readmission, institutionalization, and functional decline. To reduce these outcomes, the Netherlands introduced an alternative to hospital-based care: the Acute Geriatric Community Hospital (AGCH). The AGCH is an acute care unit situated outside of a hospital focusing on early rehabilitation and comprehensive geriatric assessment. The objective of this study was to evaluate if AGCH care is associated with decreasing unplanned readmissions or death compared with hospital-based care. Design Prospective cohort study controlled with a historic cohort. Setting and Participants A (sub)acute care unit (AGCH) and 6 hospitals in the Netherlands; participants were acutely ill older adults. Methods We used inverse propensity score weighting to account for baseline differences. The primary outcome was 90-day readmission or death. Secondary outcomes included 30-day readmission or death, time to death, admission to long-term residential care, occurrence of falls and functioning over time. Generalized logistic regression models and multilevel regression analyses were used to estimate effects. Results AGCH patients (n = 206) had lower 90-day readmission or death rates [odds ratio (OR) 0.39, 95% CI 0.23-0.67] compared to patients treated in hospital (n = 401). AGCH patients had a lower risk of 90-day readmission (OR 0.38, 95% CI 0.21-0.67) but did not differ on all-cause mortality (OR 0.89, 95% CI 0.44-1.79) compared with the hospital control group. AGCH patients had lower 30-day readmission or death rates. Secondary outcomes did not differ. Conclusions and Implications AGCH patients had lower rates of readmission and/or death than patients treated in a hospital. Our results support further research on the implementation and cost-effectiveness of AGCH in the Netherlands and other countries seeking alternatives to hospital-based care.