The Swedish health system has entered a period of major structural transformation. Most county councils have begun to experiment with new service delivery mechanisms, and the governing Social Democratic Party has proposed wide-ranging reforms intended to improve the efficiency, quality, and responsiveness of all public human services. This paper draws upon key elements in the current Swedish debate to develop an alternative policy model for publicly operated health systems in general. We argue that the limitations of existing planning and market based policy models can be overcome by an approach constructed upon 'planned markets'. This alternative model involves restructuring publicly operated systems into an intentionally designed network of 'public firms' that engage in a socially as well as economically efficient process of 'public competition'. The model harnesses patient choice of provider as the driving mechanism to enhance both production efficiency and democratic participation within the Swedish health system.