This paper presents an outline of the socio-demographic features of the Australian Capital Territory (the ACT) and of its health care system. I describe how health care resources are allocated in the government sector, present a more detailed description of the way that hospital services are purchased, and summarise the government’s policy directions for health. I argue that the main directions are sensible, and particularly those that support more integrated care that is largely based in the community. There appear to be no major weaknesses in the budget-share output-based funding model used in the purchase of hospital services, although the rationale for some of the components might be clarified. In total, the ACT government appears to be on the right track. However, I argue that more rapid progress might be possible if there were greater collaboration between the Territory health authority and the relatively powerful private medical profession.