To date, the Medicare Program has used functional status information (FSI) in patient assessment tools, performance assessment, payment mechanisms, and--most recently--in quality measures to inform consumer choice. This article explores the rationale for the collection of functional status data to promote innovative models of care and examines issues related to data collection for quality improvement, performance measurement, and payment. In this issue of the Health Care Financing Review, articles focus on collection and classification of functional status for payment and quality purposes.