A letter report issued by the General Accounting Office with an abstract that begins "Between 1987 and 1997, the growth in mental health spending in the United States roughly paralleled the growth in overall health care spending. However, federal mental health spending grew at more than twice the rate of state and local spending. This led to the federal government's share surpassing that of state and local governments, while the share attributable to private sources declined slightly. The ability to care for more people in the community has been facilitated by the continued development of new medications that have fewer side effects and are more effective in helping people manage their illness. Furthermore, treatment approaches, such as assertive community treatment, supported employment, and supportive housing, provide the ongoing assistance that adults with serious mental illness (SMI) often need to function in the community. The Health Care Financing Administration (HCFA) has encouraged the use of community-based services for Medicaid beneficiaries with SMI by disseminating information on the use of new medications and treatment models, which can help people function better in the community. HCFA also supports states' use of Medicaid managed health care services. However, incentives associated with capitated payment can …