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What is a Diagnosis-Related Group?

Mary McMahon
By
Updated May 17, 2024
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A diagnosis-related group (DRG) is a grouping of patients who are anticipated to have similar needs, based on their diagnoses, treatments so far, and profiles in terms of age and prospective discharge date. There are a number of different systems used for categorizing diagnosis-related groups in hospital and clinical settings, and they are used for activities like balancing a hospital's caseload and determining what kind of reimbursements hospitals are eligible for from government insurers, as well as private insurance companies. They can also be used to track patient outcomes and hospital caseloads.

A common classification system is the one used by Medicare in the United States, where there are more than 500 diagnosis-related groups. Each group is based on why a patient is in the hospital and what kind of procedures have been performed, with further considerations like age and complications. For example, “craniotomy for a patient greater than 17 years of age” is a diagnosis-related group. People in this group are expected to use similar levels of hospital resources.

For hospitals, balancing caseloads is important to make sure they have the staff, equipment, and facilities they need to provide appropriate case. Using a diagnosis-related group system, hospitals can monitor their patients and see what kinds of resources they have available. While every patient is different, people with similar underlying conditions and procedure histories tend to use similar levels of resources, ranging from personnel to imaging equipment.

Some insurance providers use a pay for performance system and track progress at facilities using diagnosis-related group systems to determine how much a facility should receive in compensation. One advantage to standardized systems like this is the elimination of falsified or inflated records; if everyone within a group is expected to consume the same amount of resources, a base payment can be provided for each member of the group to cover associated expenses. Looking at performance within these groups can also be useful for seeing how well a facility is meeting care goals.

These grouping systems are very large, recognizing the huge numbers of reasons people seek treatment and the potential for complications and comorbidities. Patients may move between diagnosis-related groups as a result of changes in their conditions or cases, as seen when a patient develops severe complications requiring more medical interventions. The diagnosis-related grouping of a patient is a matter for internal records, and patients are usually not told which diagnosis-related group they are in.

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Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGeek researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
By PinkLady4 — On Aug 22, 2011

I think that the fairest method of using Medicare funds and private insurance funds is to continue the system of grouping patients into categories of similar diagnosis and resources needed, when they are hospitalized.

Hospitals need to have data so they can plan for needed resources, employees,and care facilities. These categorizations also give information about trends in occurrence of certain conditions.

Another advantage to this type of system is that insurance companies get a good idea of how much it costs to treat a patient with "such and such" condition. This can help prevent doctors and hospitals from billing amounts that are way out of line.

By Monika — On Aug 22, 2011

@JessicaLynn - That makes sense. I'm sure they take stuff like that into account when they examine their data though.

I don't really like this diagnosis-related group idea as a form of compensation for a hospital though. I think hospitals should be compensated on an individual patients basis, based on what was actually done. Not based on what may need to be done!

By JessicaLynn — On Aug 21, 2011

I think diagnosis-related groups make a lot of sense from an administrative perspective. It does make sense to me that patients with similar diagnoses and treatments will use a similar amount of resources.

However, this doesn't account for random outliers. For example, out of ten patients that get the same surgery, what if one has serious complications from the procedure? That patient will surely use a lot more resources than the other nine in the diagnosis-related group!

By everetra — On Aug 21, 2011

@hamje32 - You can’t argue that hospitals aren’t always getting what they need for their services.

Medicare reimbursements have been drastically cut and hospitals have been taking a big hit while their overall healthcare costs have been rising.

It’s a good thing that at least the hospitals continue to see the Medicare patients. I’d let the doctors and administrators decide what it is they actually need.

I think we should reduce our overall deficit and focus on improving the economy; if we can grow the economy, more money should flow into the treasuries to continue to fund Medicare, and hopefully give it the much needed boost that it deserves.

By hamje32 — On Aug 21, 2011

@allenJo - I don’t believe that healthcare legislation is meant to usurp doctor’s authority.

Yes, the government will probably encourage doctors to revisit the scope of their treatments, but this is only because so many hospitals overcharge for basic services. Hospitals complain that they have to do this because parts of their fees are meant to pay insurance against possible malpractice lawsuits.

But I argue that the malpractice lawsuits could be seriously curtailed with tort reform that has some real teeth to it, and these costs could be shaved off what the hospitals pass down to the patients and the insurance companies.

In either case, I believe that the time has come to review all healthcare data and make a determination about where cuts should be made.

By allenJo — On Aug 20, 2011

I imagine that healthcare overhaul legislation might impact the whole notion of a diagnostic related group. For example, politicians often cite the need to streamline healthcare operations so that patients get the most cost effective and efficient treatments that they need, nothing more.

I can just imagine a bureaucrat stepping in and telling a doctor, “Why do you allocate resources X,Y,Z to this diagnosis related group when they could just get by with resources X alone?” In other words, the politicians will be telling the doctors what they actually need to treat patients in various conditions, ostensibly to reduce healthcare costs.

Given the poor track record that the government has in efficiencies and reducing costs, I don’t know if I want their involvement in this arena. Doctors are better suited to making these judgments in my opinion.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

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