Objectives.To create a more suitable payment system for medical rehabilitation, the authors developed a companion classification system to the original functional independence measure-function-related groups (FIM-FRGs), which classify patients having similar lengths of stay in a rehabilitation hospital or inpatient unit. The companion system presented here groups patients according to their gains in functional status during the rehabilitation stay.Methods.Data from 84,492 patients discharged from 252 rehabilitation facilities in 1992 were provided by the Uniform Data System for Medical Rehabilitation. Classification rules were formed using clinical judgment and a recursive partitioning algorithm. The gain-FRGs system used four predictor variables: (1) diagnosis leading to disability, admission scores on the (2) motor and (3) cognitive subscales of the FIM, and (4) patient age.Results.The gain-FRGs system contained 74 patient groups and explained 21% of the variation in functional gain for patients in a different set of records withheld for validation.Conclusions.The gain-FRGs system should be considered for prospective payment systems because it gives the provider an incentive to improve patient outcomes, which is missing in a payment system based on FIM-FRGs alone.