The Italian National Health Service was established in 1978 as three-tier system, involving State, Regions, USLs (Unita sanitarie locali, Local Health Care Units). The division between the responsibility of determining the general features of health care policy and financing it, on one side (the State), and that of managing services, on the order side (Regions and USLs), was bound to lead to increasing levels of expenditure and large financial deficits. An important reform has been carried out over the last five years, aiming toward a more decentralized system, which, although still public, were based on competition among suppliers and free choice for consumers. We argue that although the reform seems to have been successful in containing public expenditure, it has left some important issues still unresolved: the relationship between patients' freedom of choice and competition among providers, and the definition of a model of rationing the bundle of health services financed by the public sector.