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Objectives The aims of this study were to: (1) examine institutional racism's role in creating health outcome discrepancies for Aboriginal and Torres Strait Islander peoples; and (2) assess the management of institutional racism in an Australian hospital and health service (HHS). Methods A literature review informed consideration of institutional racism and the health outcome disparities it produces. Publicly available information, provided by an Australian HHS, was used to assess change in an Australian HHS in five key areas of institutional racism: inclusion in governance, policy implementation, service delivery, employment and financial accountability. These findings were compared with a 2014 case study. Results The literature concurs that outcome disparity is a defining characteristic of institutional racism, but there is contention about processes. Transformative change was detected in the areas of governance, service delivery and employment at an Australian HHS, but there was no change in financial accountability or policy implementation. Conclusions The health outcomes of some racial groups can be damaged by institutional racism. An external assessment tool can help hospitals and health services to change. What is known about the topic? Institutional racism theory is still developing. An external assessment tool to measure, monitor and report on institutional racism has been developed in Australia. What does this paper add? This study on institutional racism has useful propositions for healthcare organisations experiencing disparities in outcomes between racial groups. What are the implications for practitioners? The deleterious effects of institutional racism occur regardless of practitioner capability. The role for practitioners in ameliorating institutional racism is to recognise the key indicator of poorer health outcomes, and to then seek change within their hospital or healthcare organisation.