The Commonwealth government’s domination of health policy in Australia prevails despite the fact that its formal constitutional powers with respect to hospitals are limited. When states require extra money for their hospital systems their first port of call is the Commonwealth. This chapter briefly reviews responsibility for health care spending in Australia to illustrate the different roles of the Commonwealth and the states/territories. Expenditure on nursing homes and medical services comes mainly from the Commonwealth government, while private hospital, dental services and other health profession funding comes from individuals—either via health insurance or as out-of-pockets contributions. States have a different litany of problems with Commonwealth/state relations. One of them is the ‘vertical fiscal imbalance’. Two broad, contrasting approaches to reform of Commonwealth/state relations are minor tinkering to redress the most egregious problems and attempts for major restructure. There needs to be a collapsing of some of the historic, highly specific programs into a smaller number of larger, more flexible programs.