This paper summarizes a Shattuck Hammond Partners study, released in late 2000, that found marked erosion in California hospitals' financial health. The study examined the revenue and expense dynamics that contributed to this erosion and explored future challenges, some of which are unique to California's regulatory environment, in the context of the hospital industry's current financial performance. The study concluded that California hospitals face a potential crisis--defined as the potential nonviability of a large portion of its hospital infrastructure--and explored the policy questions and implications of this situation.