Problems pertaining to the treatment of emotionally disturbed and handicapped children and adolescents under the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS) are described, actions taken by the Department of Defense to correct these problems are assessed, and additional areas needing improvement are pointed out. The report is divided into five sections (sample topics are in parentheses): introduction (program administration and costs of care in CHAMPUS); better criteria and inspection procedures needed in approving facilities (progress and problems in approving psychiatric facilities); procedures needed to avoid inappropriate admissions and excessive lengths of stay (results of case reviews by medical advisors); improved controls over facility financial charges needed (facilities often not collecting sponsor's share); and the financial provisions of the program for the handicapped need to be reconsidered (cost-sharing requirements and current charges of facilities). Conclusions, recommendations to the Secretary of Defense, and Agency comments are provided for all but the introductory section. Appended are a letter from the Acting Assistant Secretary of Defense and a list of principal Department of Defense officials responsible for the activities discussed. (SBH)