The countries emerging from the Soviet sphere of influence in the early 1990s inherited Soviet style hospital-dominated health care systems. The countries that were part of the Soviet Union, in particular, had much higher levels of provision, as assessed by numbers of hospital beds, than the countries of western Europe. This capacity has been reduced, forced in large part by shrinking health budgets, but the development of a modern, co-ordinated, hospital system that is appropriate to the health needs of populations has proved difficult to achieve. A paradigm that assumed that most treatment would take place in hospital, supported by powerful vested interests in the health bureaucracy and medical profession, produced many obstacles to change. A tradition in which change took place through bureaucratic central plans took no account of the many actors in the policy process, the steps required to implement change, and the need to involve more people in the new and more pluralist context. This paper explores the experiences of attempts to restructure hospital systems in countries of central and eastern Europe and the former Soviet Union. It identifies a series of challenges that have often been addressed inadequately. These are a failure to take account of the specific context within which reform is taking place, an over reliance on market mechanisms to bring about change, insufficient recognition of the wide range of stakeholders involved, a failure to ensure that incentives and policies are aligned, and a lack of appropriate human resources to implement change.