OBJECTIVES: In mid 2007 the U.S. Centers for Medicare and Medicaid Services (CMS) implemented a Medicare quality incentive program for physicians and other professionals paid under the Medicare Physician Fee Schedule (PFS). This study examines the development and expansion of that program in to 2008 and beyond and illustrates its growing emphasis on disease management. METHODS: PQRI regulatory guidance was reviewed and analyzed for changes from the 2007 program. Criteria for successful compliance were arrayed according to the method of participation: claims-based, measures groups and registry reporting. A list of current PQRI resources was compiled. RESULTS:  The Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA), enacted on December 29, 2007 (Pub. Law 110-173), authorized the continuation of the Physician Quality Reporting Initiative (PQRI) for 2008 and 2009, and authorized CMS to establish greater flexibility within the program. In addition to the original claims-based reporting, new options include: 1) alternative reporting criteria and periods for the reporting of measures groups, and 2) submission of quality data through clinical data registries.  For 2008, eligible professionals who meet the criteria for satisfactory submission of quality measures data will earn an incentive payment of 1.5 percent of their total allowed charges for PFS covered professional services furnished during the 2008 calendar year. Financial incentives earned for 2008 reporting will be paid in mid-2009 from the Federal Supplementary Medical Insurance (Part B) Trust Fund.  For 2008 PQRI consists of 119 quality measures, a 61% increase over 2007. CONCLUSIONS: During 2008 PQRI requirements have diversified and expanded, allowing providers more choices in how they participate. The expanded options for data submission tend toward a more comprehensive, disease management perspective than did the initial 2007 process, and also include a measures group for preventive care.