Funding for public health services in Australia is provided to the States and Territories from the Commonwealth. Contractual obligations for how these monies are allocated are detailed in the Australian Health Care Agreement 1998–2003, which has replaced the Medicare Agreement 1993–1998. Key issues identified in the new Agreement, which will impact on occupational therapy services, include arrangements for mental health services, palliative care initiatives, casemix, health system reform, and private health insurance. Particular implications stem from the proposed reforms to the health system. These include the quality agenda, outcome-based funding and evidence-based practice. Other themes identified include future opportunities for occupational therapists working in health services and the imperative to form collaborative partnerships with consumers and other health care providers. The Australian Health Care Agreement is analysed and suggestions given for strategic directions for occupational therapists to consider.