Senate Finance Committee Chairman Max Baucus (D-MT) and ranking member Sen Charles Grassley (R-IA) on Nov 19, 2008, released a bipartisan discussion draft of legislation that would build on Medicare's existing inpatient hospital pay-for-reporting requirement and create a pay-for-performance or value-based purchasing (VBP) program. It is generally assumed that any major health and Medicare reform legislation will include a VBP program. Therefore, it is essential for healthcare executives to have at least a basic understanding of such a program. This column summarizes the basic policy approach taken in the discussion draft and highlights major issues for consideration. It also points out key differences between the Baucus-Grassley draft legislation and a discussion draft (HR 7027) introduced in September by Rep Jason Altmire (D-PA). The Baucus-Grassley discussion draft largely reflects a construct for VBP that was set forth by the Centers for Medicare & Medicaid Services in a November 2007 report to Congress.