Background: Short-stay hospitalization in older patients is frequently associated with a loss of function, which can lead to a need for postdischarge assistance and longer-term institutionalization. Because little is known about this adverse outcome of hospitalization, this study was conducted to (1) determine the discharge and 3-month postdischarge functional outcomes for a large cohort of older persons hospitalized for medical illness, (2) determine the extent to which patients were able to recover to preadmission levels of functioning after hospital discharge, and (3) identify the patient factors associated with an increased risk of developing disability associated with acute illness and hospitalization. Methods: A total of 1279 community-dwelling patients, aged 70 years and older, hospitalized for acute medical illness were enrolled in this multicenter, prospective cohort study. Functional measurements obtained at discharge (Activities of Daily Living) and at 3 months after discharge (Activities of Daily Living and Instrumental Activities of Daily Living) were compared with a preadmission baseline level of functioning to document loss and recovery of functioning. Results: At discharge, 59% of the study population reported no change, 10% improved, and 31% declined in Activities of Daily Living when compared with the preadmission baseline. At the 3-month follow-up, 51% of the original study population, for whom postdischarge data were available (n=1206), were found to have died (11%) or to report new Activities of Daily Living and/or Instrumental Activities of Daily Living disabilities (40%) when compared with the preadmission baseline. Among survivors, 19% reported a new Activities of Daily Living and 40% reported a new Instrumental Activities of Daily Living disability at follow-up. The 3-month outcomes were the result of the loss of function during the index hospitalization, the failure of many patients to recover after discharge, and the development of new postdischarge disabilities. Patients at greatest risk of adverse functional outcomes at follow-up were older, had preadmission Instrumental Activities of Daily Living disabilities and lower mental status scores on admission, and had been rehospitalized. Conclusions: This study documents a high incidence of functional decline after hospitalization for acute medical illness. Although there are several potential explanations for these findings, this study suggests a need to reexamine current inpatient and postdischarge practices that might influence the functioning of older patients.