This article provides a framework for analyzing how downsizing and reengineering have affected healthcare organizations. These approaches are reviewed, and key tools that have been used, such as across-the-board cuts, reorganizing, and redesigning, are described. Examples are drawn from healthcare as well as other business sectors. The consequences of cost reduction strategies for an organizations's performance in terms of costs, quality of services, and satisfaction of consumers and employees are explored. The case is made that an organization's context--that is, its culture, level of trust, and leadership--is an important factor that influences the effect of cost-cutting strategies. Characteristics of organizations where downsizing has a better chance of succeeding also are described.