The health sector in Australia is, like the health sectors of most countries, large and growing. It had an annual average real growth rate of 4.5% over the last decade. As demand grows, with changes in demographics and in technology, even more will be expected in the future from a health care system that is fragmented, and perceived to be inefficient and ill prepared. Despite the importance of the health policy choices, Australia does not currently possess the modelling infrastructure required to help choose the most effective and equitable options. There has been almost no systematic approach in Australia to modelling the health system, its interaction with the broader economy and the impact of the system upon the distribution of costs and benefits. Rather, policy has been based upon ad hoc and partial analyses or, in some cases, upon no systematic evaluation of the evidence. Policy makers have been frustrated by a lack of adequate tools to help them assess the effectiveness and impact of possible policy changes. This paper is a preliminary part of an ongoing research project funded by the Australian National Health and Medical Research Council. The aim of the project is to build capacity and modelling infrastructure in the area of health services, including the development of the MONASH computable general equilibrium model to include sectoral and behavioural detail about the health sector.