In many low-income countries, performance of pyramidal health systems with a public purpose is not meeting the expectations and needs of the populations they serve. A question that has not been studied and tested sufficiently is, 'What is the right package of institutional mechanisms required for organisations and individuals working in these health systems?' This paper presents the experience of the Performance Initiative, an innovative contractual approach that has reshaped the incentive structure in place in two rural districts of Rwanda. It describes the general background, the initial analysis, the institutional arrangement and the results after 3 years of operations. At this stage of the experience, it shows that 'output-based payment + greater autonomy' is a feasible and effective strategy for improving the performance of public health centres. As part of a more global package of strategies, contracting-in approaches could be an interesting option for governments, donors and non-governmental organisations in their effort to achieve some of the Millennium Development Goals.