Since the Family and Children's Services Block Grant and the per diem rate methodology have not been effective, especially in the wake of the increasing number of children entering foster care, this policy brief explores ways in which New York State's child welfare system should allocate child welfare dollars to counties and providers to produce better outcomes for children and families and presents a funding proposal for child welfare services. A study of managed care approaches in use throughout the United States identified service models for consideration. Review of these models and a study of the state's child welfare needs resulted in the following recommendations: (1) New York State should fund the Maximum State Aid Rate per diems for all foster care services using the direct care parameters set by the state in its model budget for fiscal year 2001; (2) the state should establish and monitor performance outcomes to ensure quality of care and services for fiscal year 2001; and (3) New York State should develop a case rate payment system for foster care services. (Contains 19 references.) (SLD)