This report analyzes the conversion to public sector managed mental health care in Texas. Movement towards managed mental health care in Texas is occurring on two levels -- financial and organizational. Financial changes involve efforts to reform Medicaid and restructure the Medicaid system into a managed care model. Organizational changes involve the state's efforts to reconfigure and clarify the roles of mental health authorities in the Texas public mental health system. Reform on both financial and organizational fronts is designed to address the problems of escalating costs of care and poor quality of care that are believed to be linked to unmanaged systems. This report provides information on the origins of these changes and how they are likely to be implemented in the creation of a model for public sector managed health care in Texas.