This is a time of considerable uncertainty about the future of medical education. There are threats to medical school finances from state and federal levels. While medical schools derive only an average of about 11% of total revenues from state and local sources, these funds potentially give states the basis for imposing specific mandates on medical schools, in areas such as enrollment levels, curriculum content, and a desired specialty mix of graduates. Medical schools appear to be changing at varying rates in response to the health care system, including the growth of managed care. While the total number of full-time faculty members continues to increase, there are regional differences. It is unclear how the faculty size and composition ultimately will be affected or what implications this will have for educational programs. A number of medical schools are expanding into the community to ensure a patient base, and educational opportunities for medical students appear to be increasing in the community, including some limited use of managed care organizations. as educational settings. Medical school practice sites in the community have the potential to exacerbate "town-gown" tensions in the increasingly competitive health care environment. This, in turn, could jeopardize community-based medical education by the large number of practicing physicians who serve as volunteer faculty members and who are a valuable resource. Care will need to be taken to minimize these tensions as much as possible. As the health care system becomes even more competitive, concerns are being raised about whether volunteer faculty will continue to serve without compensation. The ability to begin to compensate community physicians who serve as teachers could be affected by decreasing medical school revenues from patient care, which, in the past, have been used to support activities such as community-based education. This is a time for strong and visionary academic leadership: medical schools must not only adapt to a changing health care system, but also maintain excellence in education, research, and patient care. This annual article will continue to describe the efforts of educational programs to do so.