DRG stands for Diagnosis Related Group, which is a system used by Medicare and some health insurance companies to determine how much to pay for a patients hospital stay. DRGs are a way to classify hospital inpatient cases into groups that are expected to have similar costs, which helps determine the payment a hospital will receive for providing care to a patient. The DRG system has been adopted to replace the previous cost-based reimbursement system, which was based on the actual costs of providing care. DRGs were first developed in the late 1960s at Yale University as a patient classification scheme that provides a means of relating the type of patients a hospital treats (i.e., its case mix) to the costs incurred by the hospital.pdf).
DRGs are based on many factors, including the patients age, sex, principal diagnosis, and any additional diagnoses or procedures performed during the hospital stay. The DRG system provides a structural framework for the Centers for Medicare and Medicaid Services (CMS) to begin promoting higher quality of care standards throughout the U.S. healthcare industry. DRG continues to encourage hospitals to improve treatment efficiency and disincentivizes the over-treatment of patients for higher reimbursement rates which had become standard practice.
