Intergovernmental negotiations in Australia have been primarily driven by the financial dependency of the states on the Commonwealth, rather than by shared policy interests or concurrent responsibilities. This asymmetry in bargaining power ensures the Commonwealth is able to achieve many of its objectives in areas of concurrency or state jurisdiction, with or without the cooperation of the states. Prior to becoming Prime Minister, Kevin Rudd promoted an ethos of Cooperative Federalism. He also stated he had no intention of reducing the structural fiscal imbalance that is arguably the most effective means of levelling the playing field so that states could be equal partners at Council of Australian Governments meetings. This raises the question: What is Cooperative Federalism in practice? Further, is Cooperative Federalism possible without fundamental reform to federal financial arrangements? This paper explores how Cooperative Federalism has manifested (or not) in the areas of health reform and federal financial relations and finds that as a rhetorical tool, it has been very effective, if expensive, in extending Commonwealth control. As a policy reform tool it has maintained and added to existing institutions with most changes occurring at the level of policy settings. Has the quest for health reform undermined the spirit of both Cooperative Federalism and the Intergovernmental Agreement on Federal Financial Relations?