This report highlights the major issues discussed during a 2-day workshop on Medicaid funding for community-based mental health services for children and youth with severe emotional disturbances. The report opens with a brief description of the service needs of children and youth with severe emotional disturbances and the system of care that can meet those needs. It examines the role Medicaid can play in helping to finance services and some of the barriers state mental health planners face in using Medicaid funds. It describes the overall process that states must follow in developing a coordinated network of mental health and other services, with the emphasis on building a close working relationship with Medicaid agency personnel. The report then focuses on specific options states can use to expand the range of Medicaid-funded services available to children with severe emotional disabilities and describes the experiences some states have had using these Medicaid options. Appendixes contain a workshop agenda, a list of participants, and a description of services for children and adolescents from "Operation Help: A Mental Health Advocate's Guide to Medicaid" (Chris Koyanagi). (16 references) (JDD)