The largely untapped potential of the health care payment system to change physician and health care system behavior has stimulated interest in both the scientific literature (2 - 3) and the popular press (4 - 6) for linking payments to performance on quality measures. Several health plans (3,7) and the Centers for Medicare & Medicaid Services are using explicit financial incentives for quality (8 - 9). The effectiveness of these programs has not been systematically evaluated, and despite enthusiasm about the potential for aligning financial incentives with high-quality health care, many fundamental questions about their optimal design, effectiveness, and implementation remain unanswered. For example, what types of clinical conditions or health care services should be the target of financial incentives to improve quality: chronic diseases, acute care, or preventive care services? How effective (and cost-effective) are financial incentives for quality? What are the optimum magnitude, frequency, and duration of financial incentives for quality? Should we reward achievement of an absolute threshold of performance, improvement over baseline performance, payment for each instance of a service regardless of the overall performance, or some combination of these? To whom should such incentives be directed: the patient (10), the health care provider, the provider group or hospital, or all of these parties? What types of quality measures should be rewarded: processes of care, outcomes, or both (11)? Are financial incentives for not providing inappropriate care (such as antibiotics for uncomplicated acute upper respiratory illnesses) effective? What is the optimum “package” of nonfinancial interventions (if any) to include with financial incentives for quality, for example, audit and feedback, recognition, clinical reminders, academic detailing, or information technology support (12 - 13)? Can we expect the effect of financial incentives to persist after they are stopped? Because any effective intervention will have some unanticipated effects, will important patient care activities that are not rewarded financially be neglected?