Having previously escaped V.F.D. (Village of Fowl Devotees) in the previous book, the three Baudelaire children (Violet, Klaus, and Sunny) are walking alone and hungry. Soon, however, they encounter a general store called Last Chance General Store, and are kindly taken in by the shopkeeper, who lets them send a telegram to Mr. Poe. The newspaperman then arrives and gives The Daily Punctilio newspapers to the shopkeeper, who recognizes the picture of the three Baudelaires (credited as the murderers of Count Olaf) immediately. Both the shopkeeper and the newspaperman pursue the children through the store and are about to catch them when a van suddenly pulls up, allowing the Baudelaires to jump in and escape.
Inside the van, the children meet a group of singing people called the Volunteers Fighting Disease, who sing to sick people at Heimlich Hospital to cheer them up. Since they never read The Daily Punctilio newspaper, the children figure it is alright to travel with them, and head to the hospital. Once they arrive, Babs (a voice on the intercom) says that people are needed to file files in the Library of Records. The children are eager to the job, so they head to Babs' office, where they are given the job. Luckily, Babs does not even see them because she is just a voice on a small intercom speaker. In the Library of Records, the children meet Hal, the keeper of the library, and help him file papers. Since they have nowhere to sleep, the Baudelaires decide to secretly sleep in the unfinished wing of the hospital. Reviewing the notes of the Quagmires, they discover the existence of the Snicket File and successfully retrieve the thirteenth page. On it there is a picture of their parents, Jacques Snicket, and another man whom they do not recognize. Alongside the photograph reads: Because of the evidence discussed on page 9, experts now suspect that there may in fact be 1 survivor of the fire, but the survivor's whereabouts are unknown. At that moment, however, Esme Squalor (Count Olaf's evil girlfriend) appears and begins knocking down the shelves to crush the children. Klaus and Sunny manage to escape up a chute with the page, but Violet is too big to go through and is captured.
Klaus and Sunny soon discover that Mattathias (Count Olaf) and his associates are going to perform a craniectomy on Violet, and decide that they need to hurry and find her. Retrieving the list of patients from the singing volunteers, the two Baudelaires hide in a closet and try to find Violet, but she is not on the list. Thinking of the Quagmires' notes, they realize that Mattathias is using anagrams for his false names (Al Funcoot and Flacutono and Lucafont, some previous names, being anagrams of Count Olaf), and try to find Violet, who is really Laura V. Bleediotie. Masquerading as Dr. Tocuna and Nurse Flo (the two white-faced women), Klaus and Sunny go into contact with the hook-handed man (as O. Lucafont) and the bald man (as Flacutono) and find Violet lying unconscious on a hospital gurney, wearing an ugly surgical gown. The party heads to the operating theater, where Klaus and Sunny stall the cranioectomy by describing the past of the knife. Hal appears at that moment and accuses them of setting fire to the Library of Records, while Esme turns up with the real Dr. Tocuna and Nurse Flo and exposes them. With the group about to capture them, Klaus and Sunny escape on the gurney, which still has the unconscious Violet lying on her back upon it. After racing around the hospital trying to escape for a time, the Baudelaires decide to hide inside a closet again, while the fire in the hospital grows. Violet eventually wakes up. As Babs announces that the Baudelaires are hiding in the unfinished wing of the hospital, Violet invents a bungee jump cord from rubber bands, and the Baudelaires all escape safely out of the hospital. Trying to escape the fires of the outside of the hospital, the children hide in the trunk of Count Olaf's car secretly along with Olaf and his associates (all except the one that looks like neither a man or a woman, who was posing a guard, who was killed in the fire). All the Baudelaires do is hope to go someplace better while Olaf's car rides off.