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What is a diagnosis-related group (DRG)?

A diagnosis-related group (DRG) is a case-mix complexity system implemented to categorize patients with similar clinical diagnoses in order to better control hospital costs and determine payor reimbursement rates. For example, Medicare pays out a set amount based on a patient’s DRG as opposed to reimbursing the hospital for its total costs. This method encourages the hospital to minimize care costs.

Why are diagnosis-related groups (DRGs) important in healthcare?

The DRG system provides a structural framework for 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.