This report presents an approach to implementing payment incentives for improved quality of health service delivery in Republika Srpska (RS) and the Federation of Bosnia and Herzegovina (FBiH). It details a practical operational road map for implementing pay-for-performance (P4P) as a purchasing mechanism in health, proposes key design features, and identifies the key issues and areas that RS and the FBiH should focus on for successful implementation. It serves as an initial framework for the entity-level methodological documents to be developed under the Health Systems Improvement Project (HSIP) and the Multi-Donor Trust Fund (MDTF) for Health Systems Reform. It is motivated by the recognition that the impact of current provider payment methods on noncommunicable disease (NCD) prevention and care remains limited due to inadequate payment incentives for improved access and quality.An evidence-based, technically sound, and politically feasible approach is proposed. The approach builds on a comprehensive review and synthesis of lessons from past and ongoing implementation of financial incentives for improving effective coverage in health in other countries; an analysis of the current policy environment and political economy for reform; and the ensuing key institutional, legislative, and policy opportunities and bottlenecks; study tours to the Republic of Serbia and the United Kingdom (UK) by RS and the FBiH, respectively; and key informant interviews as well as consultations with various key stakeholders.