Diagnosis-related group (DRG)
A Diagnosis-Related Group (DRG) is a classification system used to determine hospital payments based on specific medical conditions for inpatient stays. Introduced in the 1980s, DRGs aim to control rising healthcare costs by providing a fixed payment for a patient's treatment rather than reimbursing for each individual service received. Payments are adjusted based on factors such as geographic location and patient demographics, ensuring that hospitals are compensated similarly for providing equivalent care. The system relies on standardized medical codes for diagnoses and procedures, allowing for consistent billing and payment across various healthcare providers.
While DRGs were designed to promote efficiency and equalize healthcare payments, concerns have arisen regarding the potential for hospitals to prioritize profits over patient care. For instance, since the payment is based on an average length of stay, hospitals may have an incentive to discharge patients prematurely to maximize profits, particularly if complications arise. In response to this, some insurers impose penalties for readmissions within a set time frame. Ultimately, when implemented effectively, DRGs can enhance resource utilization and maintain a standard of care across different healthcare settings.
On this Page
Subject Terms
Diagnosis-related group (DRG)
A diagnosis-related group (DRG) is a way of classifying the costs associated with an inpatient hospital stay based on specific medical conditions. It is a fixed-payment system used by insurers and government programs such as Medicare, which provides health insurance to American senior citizens and some disabled individuals. DRGs are intended to help make health care more efficient and affordable. However, some people question whether DRGs encourage providers to cut corners in order to increase profits.
Overview
DRGs originated in the 1980s as insurers and government payers sought ways to curb rising health care costs. Instead of paying for each individual service and supply a patient receives while in the hospital, a DRG takes into account all of the usual costs for the procedure or care the patient receives and pays one set amount. The amount is adjusted based to some degree on relative costs in the area where the facility is located, secondary diagnoses, and the age of the patient.
The system is based on the diagnosis code assigned to the condition the patient has. Every diagnosis has a specific numeric code. Every procedure, test, supply, or other medical service a patient receives also has a numeric code. When a patient is treated, his or her medical claim includes both diagnosis and procedure codes, and all providers use the same coding system. After much study, medical experts were able to identify the procedures that most often occur when a patient is in the hospital for treatment of specific diagnoses—a group of diagnosis-related procedures—as well as a fee for the average patient being treated for that diagnosis.
DRGs were designed as a way to control health care costs, reduce waste, and encourage efficiency. By identifying the average costs and paying hospitals based on that average, it was intended that people would get more equal care. A person having knee replacement surgery would receive the same tests, procedures, and supplies regardless of where the procedure was performed because the hospital was being paid based on the codes usually associated with the procedure. On the other hand, supplying uniform payments to providers would help even out what hospitals were paid for providing similar services. For instance, laboratory costs would be paid the same regardless of whether the hospital was in an expensive neighborhood or a low-income area.
Since the payment is based on averages, providers make a profit on some patients and could conceivably lose money on others. For example, one person admitted because of appendicitis might spend a single day in the hospital whereas another patient might have a complication that requires a three-day stay, yet the hospital will be paid the same. This has led to some speculation that hospitals rush people out in order to maximize their profits. To combat this, some insurance payers have instituted financial penalties if a patient is readmitted for a related condition within thirty days of their initial discharge.
When applied as intended, DRGs encourage hospitals to make careful decisions and use resources wisely. They also help ensure a certain standard of care for all patients regardless of where they receive treatment. DRGs are meant to give hospitals an incentive to provide quality care in the most efficient way possible.
Bibliography
Davis, Elizabeth. "DRG 101: What Is a DRG and How Does It Work?" VeryWell, 13 Aug. 2017, www.verywell.com/drg-101-what-is-a-drg-how-does-it-work-3916755. Accessed 20 Jan. 2018.
"Design and Development of the Diagnosis Related Group (DRG)." Centers for Medicare and Medicaid Services, www.cms.gov/ICD10Manual/version34-fullcode-cms/fullcode‗cms/Design‗and‗development‗of‗the‗Diagnosis‗Related‗Group‗(DRGs)‗PBL-038.pdf. Accessed 20 Jan. 2018.
"Diagnosis-Related Group (DRG)." American Health Lawyers Association, www.healthlawyers.org/hlresources/Health%20Law%20Wiki/Diagnosis-related%20group%20(DRG).aspx. Accessed 20 Jan. 2018.
"Diagnosis Related Group (DRG)." HMSA Provider Resource Center, hmsa.com/portal/provider/zav‗pel.fh.DIA.650.htm. Accessed 20 Jan. 2018.
"DRG Payment and the Use of Medical Technology." Princeton University, www.princeton.edu/~ota/disk3/1983/8306/830605.PDF. Accessed 20 Jan. 2018.
Mathauer, Inke, and Friedrich Wittenbecher. "Hospital Payment Systems Based on Diagnosis-Related Groups: Experiences in Low- and Middle-Income Countries." World Health Organization, 6 Aug. 2013, www.who.int/bulletin/volumes/91/10/12-115931/en/. Accessed 20 Jan. 2018.
"What Are Diagnosis Related Groups?" eHealthMedicare, www.ehealthmedicare.com/faq-what-are-diagnosis-related-groups/. Accessed 20 Jan. 2018.
"What Is a Diagnosis-Related Group (DRG)?" Value Healthcare Services, valuehealthcareservices.com/education/what-is-a-diagnosis-related-group-drg/. Accessed 20 Jan. 2018.