Diagnosis-related Groups and Hospital Inpatient Federal Reimbursement

To understand the complex system of reimbursement for health care services, it is helpful to have a working knowledge of the historic context of diagnosis-related groups (DRGs), as well as their utility and increasing relevance. Congress implemented the DRG system in 1983 in response to rapidly increasing health care costs. The DRG system was designed to control hospital reimbursements by replacing retrospective payments with prospective payments for hospital charges. This article explains how these payments are calculated. Every inpatient admission is classified into one of several hundred DRGs that are based on the diagnosis, complications, and comorbidities. The Centers for Medicare & Medicaid Services (CMS) assigns each DRG a weight that the CMS uses in conjunction with hospital-specific data to determine reimbursement. A population's DRGs represent the resources needed to treat the medical disorders of that population. Hospital administrators use this information to budget and plan for the future. The Affordable Care Act and other recent legislation affect medical reimbursement by altering the DRG system. Radiologic procedures in particular are affected. This legislation will give DRGs an even larger role in determining reimbursements in the coming years.