The Centers for Medicare and Medicaid Services and states are partnering to transform health care systems by creating and testing new models of care delivery and payment. Interviews with officials from states participating in the State Innovation Models (SIM) Initiative reveal that the readiness of providers and payers to adopt innovations varies, requiring different starting points, goals, and strategies. So far, effective strategies appear to include: building on past reform efforts; redesigning health information technology to provide reliable, targeted data on care costs and quality; and using standard performance measures and financial incentives to spur alignment of providers' and payers' goals. State governments also have policy levers to encourage efficient deployment of a diverse health care workforce. As federal officials review states’ innovation plans, set timetables, and provide technical assistance, they can also take steps to accommodate the budgetary, political, and time constraints that states are facing.