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Background: Severe lung compromise from COVID-19, ARDS, and recently AH3N2 can progress to life-threatening hypoxia. Past experience led to standardized protocols that assumed similarity to SARS-CoV. Methods: COVID-19 pathophysiology and histopathological lung biopsy photomicrographs are analyzed. Results: Pneumolysis is defined as progressive alveolar–capillary destruction resulting from SARS-CoV-2 attack on pneumocytes. In the final stages preceding pneumolysis, molecular mechanisms in the lungs include apoptosis in alveolar epithelial type I and II cells, compromising alveolar regeneration, and necrosis, resulting in leakage of intracellular contents and amplifying inflammation. Pyroptosis, driven by inflammasome activity, further disrupts alveolar integrity in ARDS. Histopathological findings include Masson bodies, alveolar-coating cells with nuclear atypia, reactive pneumocytes and reparative fibrosis, intra-alveolar hemorrhage, moderate inflammatory infiltrates and abscesses, microthrombi, hyaline membrane remnants, and emphysema. The three theoretical pathophysiological stages of progressive hypoxemia (silent hypoxemia, gasping, and death zone) are shown. Conclusions: Silent hypoxemia rapidly progresses to critical hypoxemia. This progression results from progressive pneumolysis, inflammation, immune overexpression, autoimmunity, and HAPE-type edema, leading to acute pulmonary insufficiency. Long-lasting COVID-19 can result in fibrosis and, as a compensatory mechanism, polierythrocythemia. The proposed treatment (based on tolerance to hypoxia and the hemoglobin factor) includes prompt oxygen administration, control of inflammatory and immune responses, antibiotics, rehydration, erythropoietin and platelet aggregation inhibitors.