Purpose: Minnesota's Nursing Facility Performance-Based Incentive Payment Program (PIPP) supports provider-initiated projects aimed at improving care quality and efficiency. PIPP moves beyond conventional pay for performance. It seeks to promote implementation of evidence-based practices, encourage innovation and risk taking, foster collaboration and shared learning, and establish a solid case for investing in better quality from the perspective of the state, providers, and consumers. We explain PIPP rationale and design, describe projects and participating facilities, and present findings from interviews with project leaders. Design and Methods: Provider-initiated projects lasting from 1 to 3 years are selected through a competitive process and are funded for up to 5% of the daily operating per diem rate. Providers are at risk of losing up to 20% of their project funding if they fail to achieve targets on state nursing facility performance measures. Results: Minnesota has made a major investment in the PIPP by supporting 45 individual or collaborative projects, representing approximately 160 facilities and annual funding of approximately $18 million. Projects involve a wide range of interventions, such as fall reduction, wound prevention, exercise, improved continence, pain management, resident-centered care and culture change, and transitions to the community. Implications: The PIPP can serve as a model for other states seeking to promote nursing facility quality either in combination or in place of conventional pay-for-performance efforts.