Managed care presents the challenge to deliver health care services to populations from a fixed pool of dollars and be accountable for doing so. From a health plan and a community perspective, it is critical to have classification systems that adequately describe the health service needs of the population. This article describes the design and structure of the National Association of Children's Hospitals and Related Institutions Classification of Congenital and Chronic Health Conditions and illustrates its management applications from its first testing on a full-service, paid claims database. Capabilities and limitations of diagnosis-based classification systems and the International Classification of Diseases, Ninth Edition, Clinical Modification diagnosis codes that underpin such systems are discussed.