The Veterans Health Administration (VHA) Western Region and associated medical schools formulated a set of recommendations for an improved ambulatory health care delivery system during a 1988 strategic planning conference. As a result, the Department of Veterans Affairs (VA) Medical Center in Sepulveda, California, initiated the Pilot (now Primary) Ambulatory Care and Education (PACE) program in 1990 to implement and evaluate a model program. The PACE program represents a significant departure from traditional VA and non-VA academic medical center care, shifting the focus of care from the inpatient to the outpatient setting. From its inception, the PACE program has used an interdisciplinary team approach with three independent global care firms. Each firm is interdisciplinary in composition, with a matrix management structure that expands role function and empowers team members. Emphasis is on managed primary care, stressing a biopsychosocial approach and cost-effective comprehensive care emphasizing prevention and health maintenance. Information management is provided through a network of personal computers that serve as a front end to the VHA Decentralized Hospital Computer Program (DHCP) mainframe. In addition to providing comprehensive and cost-effective care, the PACE program educates trainees in all health care disciplines, conducts research, and disseminates information about important procedures and outcomes. Undergraduate and graduate trainees from 11 health care disciplines rotate through the PACE program to learn an integrated approach to managed ambulatory care delivery. All trainees are involved in a problem-based approach to learning that emphasizes shared training experiences among health care disciplines. This paper describes the transitional phases of the PACE program (strategic planning, reorganization, and quality improvement) that are relevant for other institutions that are shifting to training programs emphasizing primary and ambulatory care.