Diagnosis-related group (DRG) is a system to classify hospital cases into one of originally 467 groups, with the last group (currently coded as 999) being "Ungroupable". This system of classification was developed in the 1970s 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. The system is also referred to as "the DRGs", and its intent was to identify the "products" that a hospital provides. Examples include appendectomy, normal newborn (vaginal delivery), heart failure or psychoses.
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. 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.
Purpose
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. To meet those evolving needs, the objective of the DRG system had to expand in scope.
Several different DRG systems have been developed in the United States. They include:
- 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)
Other DRG systems have been developed for markets such as Latin America and ASIA, for example:
- AVEDIAN DRG Grouper (LAT-GRC)
Statistics
As of 2003, the top 10 DRGs accounted for almost 30% of acute hospital admissions.
In 1991, the top 10 DRGs overall were: normal newborn (vaginal delivery), heart failure, psychoses, Caesarean 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.
In terms of geographic variation, as of 2011 hospital payments varied across 441 labor markets.
History
The system was created in the early 1970s 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).
DRGs were first implemented in New Jersey, beginning in 1980 at the initiative of NJ Health Commissioner Joanne Finley 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. and face the uncertain financial consequences associated with the provision of health care. DRGs were designed to provide practice pattern information that administrators could use to influence individual physician behaviour.
The prospective payment system implemented as DRGs had been designed to limit the share of hospital revenues derived from the Medicare program budget. 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.
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.
In 2007, Rick Mayes described DRGs as:
United States state-based usage
DRGs were originally developed in New Jersey before the federal adoption for Medicare in 1983.
|-
|Description
|Value
|-
|Average length of stay
|3.8
|-
|Large urban labor-related rate
|$2,809.18
|-
|Large urban non-labor-related
|$1,141.85
|-
|Wage index
|1.4193
|-
|Standard Federal Rate: labor * wage index + non-labor rate
|$5,128.92
|-
|DRG relative weight (RW) factor
|1.8128
|-
|Weighted payment: Standard Federal Rate * DRG RW
|$9,297.71
|-
|Disproportionate Share Payment (DSH)
|0.1413
|-
|Indirect medical education (IME)
|0.0744
|-
|Total cost outlier reimbursement
|$0
|-
|Total operating payment: Weighted payment * (1 + IME + DSH)
|$11,303.23
|}
DRG changes
{| class=wikitable
!Name
!Version
!Start date
!Notes
|-
|MS-DRG
|align=center|25
|October 1, 2007
|Group numbers resequenced, so that for instance "Ungroupable" is no longer 470 but is now 999. To differentiate it, the newly resequenced DRG are now known as MS-DRG.
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.
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.
|-
|MS-DRG
|align=center|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.
|-
|MS-DRG
|align=center|27
|October 1, 2009
|Changes involved are mainly related to Influenza A virus subtype H1N1.
|-
|MS-DRG
|align=center|31
|October 1, 2013
|
|-
|MS-DRG
|align=center|32
|October 1, 2014
|
|-
|MS-DRG
|align=center|33
|October 1, 2015
|Convert from ICD-9-CM to ICD-10-CM.
|-
|MS-DRG
|align=center|34
|October 1, 2016
|Address ICD-10 replication issues introduced in Grouper 33. As of March 2017 NTIS.gov no longer lists MS-DRG software, and Grouper 34 can now be directly downloaded from CMS. Version 34 was revised twice to address replication issues, making the final release for fiscal year 2017 version 34 R3.
|-
|MS-DRG
|align=center|35
|October 1, 2017
|MS-DRGs 984 through 986 deleted and reassigned to 987 through 989. Diagnosis codes relating to swallowing eye drops moved from DRGs 124-125 (Other Disorders of the Eye) to 917-918 (Poisoning and Toxic Effects of Drugs). Grouper 34 issue addressed relating to the 7th character of prosthetic/implant diagnosis codes in the T85.8-series indicating "initial encounter", "subsequent encounter" and "sequel". Numerous other changes.".
|}
International
DRGs and similar systems have expanded internationally; for example, in Europe some countries imported the scheme from US or Australia, and in other cases they were developed independently. In England, a similar set of codes exist called Health Resource Groups. As of 2018, Asian countries such as South Korea, Japan, and Thailand have limited adoption of DRGs.
Latin American countries use a DRG system adapted to regionally extended medical classifications and nomenclatures. This DRG system is called AVEDIAN DRG GROUPER (LAT-GRC).
Indonesia
Indonesia implements a DRG-based prospective payment system called INA-CBG (Indonesia Case Based Groups) for its national health insurance program, Jaminan Kesehatan Nasional (JKN), managed by BPJS Kesehatan.
The system was first introduced in 2008 as INA-DRG, developed in collaboration with the University of Indonesia and United Nations University. In 2014, it was replaced by INA-CBG using grouper software developed by the Center for Casemix at Universiti Kebangsaan Malaysia (UKM). INA-CBG classifies inpatient episodes using ICD-10 diagnosis codes and ICD-9-CM procedure codes, assigning patients to one of approximately 1,077 case groups across three severity levels.
As of 2025, JKN covers over 270 million beneficiaries — the world's largest single-payer system — with more than 2,600 participating hospitals. Tariffs vary by hospital class (A through D), geographic region (five tariff regions), and severity level (I through III).
Indonesia announced a planned transition from INA-CBG to a domestically developed system called INA-DRG (Indonesia Diagnosis Related Groups) beginning in 2025, with full implementation targeted by 2027. The new system aims to use Indonesian hospital costing data and integrate with the national health information exchange platform, SATUSEHAT.
See also
- Case mix index
- Diagnosis code
- Healthcare Resource Group, UK's implementation
- International Classification of Diseases (ICD)
- Medical classification
- Ambulatory Patient Group, similar to DRG but for outpatient care
- Risk of mortality (ROM)
- Severity of illness (SOI)
- Pay for Performance
References
External links
- Official CMS website
- CMS Acute Inpatient Prospective Payment System
- DRG codes for FY2005, also referred to as version 23
- DRG codes for FY2010, also referred to as version 27
- MS-DRG Grouper version 35 (FY2018) Software, PC and Mainframe, supports versions 16-35
- Healthcare Cost and Utilization Project (Search engine can be used to find Definitions Manual)
- Agency for Healthcare Research and Quality (AHRQ).
- DRG definition.
- Most Frequent Diagnoses and Procedures for DRGs .
- Medical Billing and Coding Information Guide
- Diagnosis Related Groups (DRGs) and the Medicare Program - Implications for Medical Technology (PDF format). A 1983 document found in the "CyberCemetery: OTA Legacy" section of University of North Texas Libraries Government Documents department.
- Mayes, Rick, "The Origins, Development, and Passage of Medicare's Revolutionary Prospective Payment System" Journal of the History of Medicine and Allied Sciences Volume 62, Number 1, January 2007, pp. 21–55