This report is a case study analyzing key issues--coverage, equity, sustainability--faced by the Brazilian health system in the state of Bahia, in the context of national reforms geared to the decentralization of health care. Thus, the report examines the instruments and the incentives in the system to: 1) improve the coverage of the key health interventions that influence the basic health outcomes of the population; 2) reduce the inequality in the distribution of publicly financed health care; and 3)) improve the fianncial sustainability of the health sector through greater efficiency and through improved mechanisms for cost control. Special attention is paid to implementation in Bahia of the latest and most ambitious of the national reforms based on those objectives: the Operational Regulations for Health Care, issued in early 2001 and referred to in this report by its Brazilian acronym, NOAS. NOAS is expected to have a significant impact on the organization of public health care over the next several years. Its main features are described in the Introduction. The structure of the report is as follows: the report has four chapters dealing, respectively, with public sector financing sources and allocation mechanisms in Bahia; Basic health care issues; reforming complex care; and conclusions, recommendation, and options for reform. There are two annexes. the first describes the key issues in health outcomes, and the epidemiological and demographic profile of the state. The second annex summarizes a benefit incidence study of public expenditures in Bahia.