The number of state hospital beds nationwide has been reduced to 40 per 100,000 population; in California, nonforensic state hospital beds have decreased to 8.3 per 100,000. The main effects of this reduction are becoming more evident. Most seriously affected have been the new generation of chronically and severely mentally ill persons who have reached adulthood since deinstitutionalization. Those who need intermediate or long-term hospitalization and cannot receive it may become even more desperate and psychotic; may avoid treatment entirely; and may turn to drug abuse and become homeless or incarcerated in jail. Moreover, the small number of long-stay beds can lead to a breakdown in the public mental health system and attempts to avoid responsibility for persons who need both acute and long-term hospitalization. This avoidance can be manifested by raising admission criteria for acute treatment or shifting responsibility to other systems. The authors recommend providing intermediate and long-stay hospitalization to the extent needed.