From 1992 to 1999, the Kennett government in Victoria moved to competitive market models of service delivery and the measurement of service provision through casemix funding. Public hospital managers were given greater accountability for the costs and provision of service delivery and a new range of service providers, many from the private sector, entered the public health market. The decentralisation of the industrial relations system led to new developments in bargaining that brought both opportunities and problems. In the Victorian public health system there was an increasing emphasis on decentralisation in both service provision and employment relations. In this paper I suggest that there were contradictions in these developments for government, and new challenges and difficulties for employers, employees and trade unions.