Diagnosis-related group

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Diagnosis-related group (DRG) is a system to classify hospital cases into one of originally 467 groups,[1] with the last group (coded as 470 through v24, 999 thereafter) being "Ungroupable". This system of classification was developed as a collaborative project by Robert B Fetter, PhD, of the Yale School of Management, and John D. Thompson, MPH, of the Yale School of Public Health.[2] The system is also referred to as "the DRGs", and its intent was to identify the "products" that a hospital provides. One example of a "product" is an appendectomy. The system was developed in anticipation of convincing Congress to use it for reimbursement, to replace "cost based" reimbursement that had been used up to that point. DRGs are assigned by a "grouper" program based on ICD (International Classification of Diseases) diagnoses, procedures, age, sex, discharge status, and the presence of complications or comorbidities. DRGs have been used in the US since 1982 to determine how much Medicare pays the hospital for each "product", since patients within each category are clinically similar and are expected to use the same level of hospital resources.[3] DRGs may be further grouped into Major Diagnostic Categories (MDCs). DRGs are also standard practice for establishing reimbursements for other Medicare related reimbursements such as to home healthcare providers.[citation needed]


The original objective of diagnosis related groups (DRG) was to develop a classification system that identified the "products" that the patient received. Since the introduction of DRGs in the early 1980s, the healthcare industry has evolved and developed an increased demand for a patient classification system that can serve its original objective at a higher level of sophistication and precision.[4] To meet those evolving needs, the objective of the DRG system had to expand in scope. Today, there are several different DRG systems that have been developed in the US. They include:[5]

  • Medicare DRG (CMS-DRG & MS-DRG)
  • Refined DRGs (R-DRG)
  • All Patient DRGs (AP-DRG)
  • Severity DRGs (S-DRG)
  • All Patient, Severity-Adjusted DRGs (APS-DRG)
  • All Patient Refined DRGs (APR-DRG)
  • International-Refined DRGs (IR-DRG)


The system was created[when?] by Robert Barclay Fetter and John D. Thompson at Yale University with the material support of the former Health Care Financing Administration (HCFA), now called the Centers for Medicare & Medicaid Services (CMS).[2][citation needed]

DRGs were first implemented in New Jersey, beginning in 1980 with a small number of hospitals partitioned into three groups according to their budget positions - surplus, breakeven, and deficit - prior to the imposition of DRG payment.[6]

The New Jersey experiment continued for three years, with additional cadres of hospitals being added to the number of institutions each year until all hospitals in New Jersey were dealing with this prospective payment system.[7]

DRGs were designed to be homogeneous units of hospital activity to which binding prices could be attached. A central theme in the advocacy of DRGs was that this reimbursement system would, by constraining the hospitals, oblige their administrators to alter the behavior of the physicians and surgeons comprising their medical staffs. Hospitals were forced to leave the “nearly risk-free world of cost reimbursement”[8] and face the uncertain financial consequences associated with the provision of health care.[9]

Moreover, DRGs were designed to provide practice pattern information that administrators could use to influence individual physician behavior.[6]

DRGs were intended to describe all types of patients in an acute hospital setting. The DRGs encompassed elderly patients as well as newborn, pediatric and adult populations.[10]

The prospective payment system implemented as DRGs had been designed to limit the share of hospital revenues derived from the Medicare program budget,[6] and in spite of doubtful results in New Jersey, it was decided in 1983 to impose DRGs on hospitals nationwide.[citation needed]

In that year, HCFA assumed responsibility for the maintenance and modifications of these DRG definitions. Since that time, the focus of all Medicare DRG modifications instituted by HCFA/CMS has been on problems relating primarily to the elderly population.[citation needed]

In 1987, New York state passed legislation instituting DRG-based payments for all non-Medicare patients. This legislation required that the New York State Department of Health (NYS DOH) evaluate the applicability of Medicare DRGs to a non-Medicare population. This evaluation concluded that the Medicare DRGs were not adequate for a non-Medicare population. Based on this evaluation, the NYS DOH entered into an agreement with 3M to research and develop all necessary DRG modifications. The modifications resulted in the initial APDRG, which differed from the Medicare DRG in that it provided support for transplants, high-risk obstetric care, nutritional disorders, and pediatrics along with support for other populations. One challenge in working with the APDRG groupers is that there is no set of common data/formulas that is shared across all states as there is with CMS. Each state maintains its own information.[citation needed]

In 1991, the top 10 DRGs overall were: normal newborn, vaginal delivery, heart failure, psychoses, cesarean section, neonate with significant problems, angina pectoris, specific cerebrovascular disorders, pneumonia, and hip/knee replacement. These DRGs comprised nearly 30 percent of all hospital discharges.[11]

The history, design, and classification rules of the DRG system, as well as its application to patient discharge data and updating procedures, are presented in the CMS DRG Definitions Manual (Also known as the Medicare DRG Definitions Manual and the Grouper Manual). A new version generally appears every October. The 20.0 version appeared in 2002.[citation needed]

In 2007, author Rick Mayes described DRGs as:

DRG changes[edit]

Name Version Start date Notes
MS-DRG 25 October 1, 2007 Group numbers resequenced, so that for instance "Ungroupable" is no longer 470 but is now 999.[citation needed] To differentiate it, the newly resequenced DRG are now known as MS-DRG.[citation needed]

Before the introduction of version 25, many CMS DRG classifications were "paired" to reflect the presence of complications or comorbidities (CCs). A significant refinement of version 25 was to replace this pairing, in many instances, with a trifurcated design that created a tiered system of the absence of CCs, the presence of CCs, and a higher level of presence of Major CCs. As a result of this change, the historical list of diagnoses that qualified for membership on the CC list was substantially redefined and replaced with a new standard CC list and a new Major CC list.[citation needed]

Another planning refinement was not to number the DRGs in strict numerical sequence as compared with the prior versions. In the past, newly created DRG classifications would be added to the end of the list. In version 25, there are gaps within the numbering system that will allow modifications over time, and also allow for new MS-DRGs in the same body system to be located more closely together in the numerical sequence.[citation needed]

MS-DRG 26 October 1, 2008 One main change: implementation of Hospital Acquired Conditions (HAC). Certain conditions are no longer considered complications if they were not present on admission (POA), which will cause reduced reimbursement from Medicare for conditions apparently caused by the hospital.[citation needed]
MS-DRG 27 October 1, 2009 Changes involved are mainly related to Influenza A virus subtype H1N1.[citation needed]
MS-DRG 31 October 1, 2013
MS-DRG 32 October 1, 2015 (as yet incomplete) Convert from ICD-9-CM to ICD-10-CM.[13]

See also[edit]


  1. ^ Mistichelli, Judith Diagnosis Related Groups (DRGs) and the Prospective Payment System: Forecasting Social Implications
  2. ^ a b Fetter RB, Shin Y, Freeman JL, Averill RF, Thompson JD (1980) Case mix definition by diagnosis related groups. Medical Care 18(2):1–53
  3. ^ Fetter RB, Freeman JL (1986) Diagnosis related groups: product linemanagement within hospitals. Academy of Management Review 11(1):41–54
  4. ^ Baker JJ (2002) Medicare payment system for hospital inpatients: diagnosis related groups. Journal of Health Care Finance 28(3):1–13
  5. ^ https://support.3mhis.com/app/answers/detail/a_id/9907/~/definitions-manuals
  6. ^ a b c Lessons of the New Jersey DRG Payment System
  7. ^ William C. Hsiao, Harvey M. Sapolsky, Daniel L. Dunn,and Sanford L. Weiner (1986). "Lessons of the New Jersey DRG payment system" (PDF). 
  8. ^ Eastaugh SR (1999) Managing risk in a risky world. Journal of Health Care Finance 25(3):10
  9. ^ Kuntz L, Scholtes S, Vera A (2008) DRG Cost Weight Volatility and Hospital Performance. OR Spectrum 30(2): 331-354
  10. ^ Nancy Bateman (2012). "The Business of Nurse Management: A Toolkit for Success". 
  11. ^ "Most Frequent Diagnoses and Procedures for DRGs, by Insurance Status". Agency for Health Care Policy and Research. Retrieved 2006-04-22. 
  12. ^ Mayes, Rick (January 2007). "The Origins, Development, and Passage of Medicare's Revolutionary Prospective Payment System" (abstract). Journal of the History of Medicine and Allied Sciences (Oxford University Press) 62 (1): 21–55. doi:10.1093/jhmas/jrj038. ISSN 1468-4373. PMID 16467485. Retrieved 2009-04-06. 
  13. ^ Centers for Medicare & Medicaid Services. "ICD-10 MS-DRG Conversion Project". 

External links[edit]