PIP: Stressing the importance of institutional reform, the author explores the meaning, and some of the practical implications, of health sector reform in less developed countries. He reviews the problems which reforms have to address and the policy objectives they are designed to achieve. What health sector reform is and why it is necessary are first considered. Then, with regard to movement toward a more coherent approach to health sector reform, there is discussion of the context, understanding health care systems, sources of ideas and experience, information versus institutions, and the key principles of institutional reform. A section on the issues and options to implementing reform is followed by consideration of the role of donor agencies. It is argued that the process of reform is not concerned only with defining priorities and refining policies, but also with reforming and restructuring the institutions through which health policies are implemented. While some organizational principles will probably be common to all reform programs, a prescriptive approach to institutional reform in inappropriate. The choice of reform options can be influenced by technical advice and analysis, but the decision to proceed, and the subsequent success of implementation, depends upon political support. Examples of institutional reform from several less developed countries are presented.