This article evaluates the impact of the Centers for Medicare & Medicaid Services/Premier pay-for-performance demonstration project on performance improvement in three clinical areas in a multihospital health care system. The study compares a group of hospitals participating in this project against a control group of similar hospitals that did not participate. Although the incentives are extremely small, the findings show that participation in the pay-for-performance initiative had a significant impact on the rate and magnitude of performance improvement. The project led to marked improvement in the quality of clinical process delivery and accelerated the adoption of evidence-based practices.