DRG codes

Design and development of the Diagnosis Related Group (DRG)

Prospective payment rates based on Diagnosis Related Groups (DRGs) have been established as the basis of Medicare’s hospital reimbursement system. The DRGs are a patient classification scheme which provides a means of relating the type of patients a hospital treats (i.e., its case mix) to the costs incurred by the hospital. The design and development of the DRGs began in the late sixties at Yale University. The initial motivation for developing the DRGs was to create an effective framework for monitoring the quality of care and the utilization of services in a hospital setting. The first large-scale application of the DRGs was in the late seventies in the State of New Jersey. The New Jersey State Department of Health used DRGs as the basis of a prospective payment system in which hospitals were reimbursed a fixed DRG specific amount for each patient treated. In 1982, the Tax Equity and Fiscal Responsibility Act modified the Section 223 Medicare hospital reimbursement limits to include a case mix adjustment based on DRGs. In 1983 Congress amended the Social Security Act to include a national DRG-based hospital prospective payment system for all Medicare patients.

The evolution of DRGs

The evolution of the DRGs and their use as the basic unit of payment in Medicare’s hospital reimbursement system represents a recognition of the fundamental role which a hospital’s case mix plays in determining its costs. In the past, hospital characteristics such as teaching status and bed size have been used to attempt to explain the substantial cost differences which exist across hospitals. However, such characteristics failed to account adequately for the cost impact of a hospital’s case mix. Individual hospitals have often attempted to justify higher cost by contending that they treated a more “complex” mix of patients; the usual contention being that the patients treated were “sicker.” Although there has been a consensus in the hospital industry that a more complex case mix results in higher costs, the concept of case mix complexity had historically lacked a precise definition. The development of the DRGs provided the first operational means of defining and measuring a hospital’s case mix complexity.

The concept of case mix complexity

The concept of case mix complexity initially appears very straightforward. However, clinicians, administrators and regulators have often attached different meanings to the concept of case mix complexity depending on their backgrounds and purposes. The term case mix complexity has been used to refer to an interrelated but distinct set of patient attributes which include severity of illness, prognosis, treatment difficulty, need for intervention and resource intensity. Each of these concepts has very precise meaning which describes a particular aspect of a hospital’s case mix. •The concept of case mix complexity initially appears very straightforward. However, clinicians, administrators and regulators have often attached different meanings to the concept of case mix complexity depending on their backgrounds and purposes. The term case mix complexity has been used to refer to an interrelated but distinct set of patient attributes which include severity of illness, prognosis, treatment difficulty, need for intervention and resource intensity. Each of these concepts has very precise meaning which describes a particular aspect of a hospital’s case mix. Severity of illness.

Refers to the relative levels of loss of function and mortality that may be experienced by patients with a particular disease.  

Prognosis

Refers to the probable outcome of an illness including the likelihood of improvement or deterioration in the severity of the illness, the likelihood for recurrence and the probable life span.

Treatment difficulty

Refers to the patient management problems which a particular illness presents to the health care provider. Such management problems are associated with

DRG codes, such as DRG codes, form a manageable, clinically coherent set of patient classes that relate a hospital’s case mix to the resource demands and associated costs experienced by the hospital.

DRG codes

• DRG codes
• List of DRG codes

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