Increased public demand for health services, combined with fiscal and operating restraints, has led to the need for programs that will operate efficiently and effectively to achieve their objectives. Establishing such programs requires an understanding of the factors that contribute to their development and implementation. This in turn requires a greater understanding of the policy formulation and policy implementation processes. This paper uses a case study of Michigan's State/Local Cost Sharing Program to explore how policy formulation links to and influences implementation; it considers the interaction between the administrative and political processes and how they are affected by shifting power relations, constituencies, and the environment, and how in turn these affect program leadership and operating policies. The paper develops a model as a framework for monitoring the course of the program through the policy cycle and recommends that the policy process be considered as dynamic, interactive, and evolutionary. The case study approach allows for a greater understanding of the phases of the process, their interaction, and their impact on specific policy outcomes.

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