This report addresses financial problems faced by the four medical schools belonging to the State University of New York (SUNY) which operate their own teaching hospitals and conduct graduate medical education (GME) programs. These hospitals necessarily have higher costs than do nonteaching hospitals. Prior to 1997, the higher costs were absorbed by all payers in the state. Subsequently, changes in federal and state legislation, deregulation of rates, and changes in Medicare, led to reduced reimbursement to hospitals, incentives to reduce the number of residents, and to shift funds from specialty to primary care programs. The study addressed two questions for the period January 1, 1995 to February 28, 1999: (1) whether the three teaching hospitals had adequately planned for the reductions in funding; and (2) whether they had reduced the number of residents in their GME programs and increased the percentage of residents who were in primary care programs. The study concluded that for a variety of reasons, SUNY had not planned for reduced funding, nor had it reduced the number of residents or shifted residents from specialty to primary care programs. Two appendixes list the major contributors to the report and the comments of SUNY officials. (RH)