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The hospital was founded in the late 1890s in the city of Atlanta, GA. Through the years, it went through major restructuring and rebuilding. The hospital was supposed to be evacuated at the time of the outbreak, but police officers and doctors alike were forced to remain there during the bombing of Atlanta.
During or after the outbreak, the building became occupied by numerous members of the Atlanta Police Department. These police officers remained more or less operational for an extended period of time, essentially becoming some of the few remnants of pre-apocalyptic civil authorities.
At some point, their commander, Captain Hanson made decisions that resulted in loss of life. Lieutenant Dawn Lerner "dealt with" him and took over the leadership position.
After the food ran out, the survivors began to go on runs throughout the city to obtain food. Lerner refused to take in any other survivors, until Steven Edwards (a doctor) found a child with napalm burns. Dawn agreed to take the boy in and cure him, on the condition that, after recovering, he would work off his debt for the resources invested in keeping him alive by working at the hospital. This was the start of how the group set up a system to "rescue" survivors for treatment, only to, afterward, force them to do manual labor to keep the hospital running; they then trapped the survivors with debt by charging them for their upkeep, including food. However their rescue system wasn't above murder as when they encountered Noah they intentionally left his dad behind to die, so he couldn't be a threat later.
Dawn also turns a blind a eye to some of the officers, such as Gorman, who force female patients into sexual slavery, in an attempt to keep them protecting the hospital and following her orders.
The name of this episode comes from the old name of the area of town the hospital is built on.
The hospital is shown to be led by a policewoman named Dawn Lerner, who maintains a strict atmosphere for both officers and patients. The officers guarding the hospital seem to have retained the uniforms and weapons they were issued before the outbreak, although their behavior has changed since. Still, they appear to view themselves as legitimate authorities. Beth Greene is brought to this hospital after being separated from Daryl Dixon in rural Georgia.
Eventually, Beth and Noah, also a prisoner, formulate a plan to escape the hospital, but in the end Noah is the only one to escape. Shortly afterwards, an unconscious Carol Peletier is brought to the hospital.
One day after the events at the end of "Slabtown" Beth is still at the hospital. After trying unsuccessfully to intervene when one of the officers wants to switch off Carol's life-support she does succeed in getting her some treatment. Carol is still unconscious at the end of the episode.
Beth is seen organizing and tidying things up in Dawn's office, under supervision by Dawn who is in the background attempting to contact Officer Shepherd and Lamson about the gunfire, whilst exercising on a bike. They have a brief discussion about Hanson.
After the trade of Shepherd and Licari for Beth and Carol, Dawn demands Noah, which results in a heated dispute from both parties. Noah volunteers to stay which angers Beth, who then attempts to stab Dawn with a pair of scissors, only to be shot in the head by quick reflex from Dawn. After realizing the horrors of what she had done, Dawn mouths "No, I didn't mean to", but Daryl, in retaliation, pulls out a pistol and shoots Dawn in the head. After the other residents reject Rick's offer to leave with him, they part ways with Carol and Beth's corpse, intending to head to Virginia to return Noah to his home. The status of Grady is unknown after this but it can be presumed that given how long it has lasted, it is still active.
Despite Grady Memorial Hospital's status being unknown, Amber Dawn Fox and Teri Wyble who portray Officer Bello and Officer Amanda Shepherd respectively, both believe they are still alive and the hospital is still functioning now that Dawn is gone.
This was later debunked by Gregory Nicotero who, during a live Q&A, revealed that all the Grady Memorial residents died at some point.