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Florida, like many other states, has embarked on an experiment with managed mental health care for Medicaid enrollees. Under a 1915(b) waiver, the state's Medicaid agency began a mental health carve-out demonstration in March 1996 in the Tampa Bay area. This qualitative case study seeks to ascertain the impact of the carve-out (and, by comparison, HMO arrangements) on the public mental health sector. Findings suggest that the carve-out demonstration has succeeded in creating a fully integrated mental health delivery system with financial and administrative mechanisms that support a shared clinical model. However, other findings raise concerns about the HMO model in terms of stability, access to care, efficiency, and more generally about the shifting of risk and public responsibility "downstream" to private organizations without sufficient governmental oversight. These findings may offer guidance for other states implementing major managed care policy initiative for disabled Medicaid enrollees.