This article describes a pay-for-performance system developed for Minnesota nursing homes. In effect, nursing homes can retain a greater proportion of the difference between their costs and the average costs on the basis of their quality scores. The quality score is a derived and weighted composite measure currently composed of five elements: staff retention (25 points), staff turnover (15 points), use of pool staff (10 points), nursing home quality indicators (40 points), and survey deficiencies (10 points). Information on residents' quality of life and satisfaction, derived from interviews with a random sample of residents in each Minnesota nursing home, is now available for inclusion in the quality measure. The new payment system was designed to create a business case for quality when used in addition to a nursing home report card that uses the same quality elements to inform potential consumers about the quality of nursing homes. Although the nursing home industry has announced general support for the new approach, it has lobbied the legislature to delay its implementation, claiming concerns about operational details.