This essay proposes that the division between biological and psychotherapy-oriented psychiatry originates in the discipline's reliance on two fundamentally different methods of inquiry, that is, the medical-biological and the empathic-narrative. These terms are defined and distinguished from psychotherapy and psychodynamic psychiatry, as well as from general humanistic qualities in medicine. The division within the field may be fueled by a lack of clarity with respect to these concepts. The author argues that the essence of psychiatry is defined by a balanced combination of both methods. Psychiatry does not consist only of basic methods, but also of rules and guidelines for clinical practice, and of knowledge and theories used in the application of the methods. The role expectations for psychiatry in the managed care environment are examined and their effects upon methods, theory, and practice are analyzed. Some suggestions for dealing with the challenges of health care reform are offered.