Rural health networks are a potential way for rural health care systems to improve access to care, reduce costs, and enhance quality of care. Networks provide a means for rural providers to contract with managed care organizations, develop their own managed care entities, share resources, and structure practice opportunities to support recruitment and retention of rural physicians and other health care professionals. The results of early network development initiatives indicate a need for state officials and others interested in encouraging network development to agree on common rural health network definitions, to identify clearly the goals of network development programs, and to document and analyze program outcomes. Future network development efforts need to be much more comprehensive if they are to have a significant impact on rural health care. This article analyzes public policy issues related to integrated rural health network development, discusses current efforts to encourage network development in rural areas, and suggests actions that states may take if they desire to support rural health network development. These actions include adopting a formal rural health network definition, providing networks with alternatives to certain regulatory requirements, and providing incentives such as matching grants, loans, or technical assistance. Without public sector support for networks, managed care options may continue to be unavailable in many less densely populated rural areas of the country, and locally controlled rural health networks are unlikely to develop as an alternative to the dominant pattern of managed care expansion by large urban entities. Implementation of Medicare reform legislation could provide significant incentives for the development of rural health networks, depending on the reimbursement provisions, financial solvency standards, and antitrust exemptions for provider-sponsored networks in the final legislation and federal regulations.