The United States leads the world in health care costs but ranks far below many developed countries in health outcomes. Finding ways to narrow this gap remains elusive. This article describes the response of one state to establish community health networks to achieve quality, utilization, and cost objectives for the care of its Medicaid recipients. The program, known as Community Care of North Carolina, is an innovative effort organized and operated by practicing community physicians. In partnership with hospitals, health departments, and departments of social services, these community networks have improved quality and reduced cost since their inception a decade ago. The program is now saving the State of North Carolina at least $160 million annually. A description of this experience and the lessons learned from it can inform others seeking to implement effective systems of care for patients with chronic illness.