After a number of years of evolutionary changes to the New Zealand health system, the government announced a radical restructuring of all publicly funded health services in July 1991, to be implemented on 1 July 1993. The primary features of these changes are a splitting of the purchaser and provider roles, and a restructuring of health services along more business-like lines. The proposals have been highly contentious and have attracted little support from within the health sector. This paper outlines the (...) reasons for and nature of the reforms and explores some of the issues behind the changes. These include problems of pricing services for purchasing purposes, the potential conflict between financial and social objectives, and questions of accountability of purchasers and providers. Considerable uncertainty surrounding these and other issues means that any potential efficiency gains cannot be guaranteed. The costs of the reform process have, however, already been high, both in financial terms and in terms of their impact on the morale of health workers. (shrink)