A substantial proportion of hospitalizations of nursing home (NH) residents may be avoidable. Medicare payment reforms, such as bundled payments for episodes of care and value-based purchasing, will change incentives that favor hospitalization but could result in care quality problems if NHs lack the resources and training to identify and manage acute conditions proactively. Interventions to Reduce Acute Care Transfers (INTERACT) II is a quality improvement intervention that includes a set of tools and strategies designed to assist NH staff in early identification, assessment, communication, and documentation about changes in resident status. INTERACT II was evaluated in 25 NHs in three states in a 6-month quality improvement initiative that provided tools, on-site education, and teleconferences every 2 weeks facilitated by an experienced nurse practitioner. There was a 17% reduction in self-reported hospital admissions in these 25 NHs from the same 6-month period in the previous year. The group of 17 NHs rated as engaged in the initiative had a 24% reduction, compared with 6% in the group of eight NHs rated as not engaged and 3% in a comparison group of 11 NHs. The average cost of the 6-month implementation was $7,700 per NH. The projected savings to Medicare in a 100-bed NH were approximately $125,000 per year. Despite challenges in implementation and caveats about the accuracy of self-reported hospitalization rates and the characteristics of the participating NHs, the trends in these results suggest that INTERACT II should be further evaluated in randomized controlled trials to determine its effect on avoidable hospitalizations and their related morbidity and cost.