In the complex world of healthcare administration, the acronym “DRG” stands as a critical component of medical billing and hospital reimbursement. Diagnosis-Related Group, commonly referred to as DRG, is a way of setting payment tariff of hospitals where a method is offered to subsequently compensate facilities for the care extended to patients.
Among them, DRG systems have been developed to simplify the medical billing practices by bringing together the clients who are clinically alike in terms of diagnosed disease and resource consumption. As was mentioned in the previous section, initiated as cost control measures, DRGs have changed the financial and administrative functions of hospitals.
This article aims at providing an understanding of DRG in medical billing process; its functionality, significance, process of assignment of DRGs or the various ways DRGs affect healthcare systems: the positive and negative sides.
What is DRG in Medical Billing?
Debugging management information models is a group of hospital cases that the ministry has claimed should require similar hospital resources. One of these is the payment by weight of the average resources that may be used to treat patients within a given group. They get a predetermined sum for a specific case in a certain DRG, regardless of the total expenses on it.
DRG was adopted as a payment mechanism by Medicare and other insurance companies to establish payment for a patient’s hospital stay to the appropriate amount.
History and Purpose of DRG
The DRG system was developed in the early 1982 in the United States as an element of the Medicare PPS. Earlier, Medicare paid hospitals on a cost basis, which entailed inflated costs because every service was charged point-blank. DRGs were introduced to:
- Explain to the hospitals how to minimize frivolous service provision
- Promote efficiency
- Standardize reimbursements
- Map the expenses in the provision of both the current and future levels of healthcare.
DRGs are primarily intended to move health care from an unlimited fee-for-service payment system.
How DRGs Work in Medical Billing
As a patient is discharged, coders map over the dates of stays as well as the diagnoses and procedures provided to ICD codes. The details are taken to a grouper software where they are matched to a DRG in the following ways:
- Principal diagnosis
- Other conditions of the patient at the time of admission (co-morbidity or complications)
- Procedures performed
- Patient’s age and discharge status
After designation of DRG, this amount forms a basis for reimbursement that a hospital is given no matter the services rendered.
Key Components of DRG Assignment
To better understand DRG functionality, consider the following components:
| Component | Description | Role in DRG Assignment |
| Principal Diagnosis | The contracted ailment or disease that led to the patient to be admitted in the hospital. | Forms the foundation of the DRG classification. It identifies the base diagnosis group and conveys substantial effects on the final determination of DRGs. |
| Secondary Diagnoses | Complication refers to any condition that exists at the time the patient is admitted to the hospital or develops during the hospitalization, for instance, infection or pre-existing chronic illnesses. | It aids in the identification of any CCs or MCCs because they may elevate the DRG payment. |
| Procedures Performed | Treatments carried out on a patient while the patient is admitted to a facility, such as operations, investigations, or procedures. | These include procedures that are costly or complex since they can pull a case into a surgical DRG or a DRG of a higher level of payment. |
| Discharge Status | Describes the location to which the patient was discharged, i.e., home, skilled nursing home, patient expired, etc. | Amendments Some instances profit by DRG assignment (such as patient’s death or transfer to a different hospital may alter reimbursement or DRG classification). |
| Patient Demographics | It may involve the patient’s age, sex, and occasionally birth weight or neonatal status in case of a newborn patient. | Some DRGs differ depending on the patient’s age (if the patient is a child or an adult) or other factors, which allows for more accurate reimbursement depending on the profile of the patient. |
| Length of Stay (LOS) | Total days for which the patient was admitted and treated in the hospital during the concerned admission. | While not used in the DRG calculation, when assessing payments that are either high or low, or during investigations of the quality of services provided; short or long-stays may be triggers for further auditing and reconsideration of reimbursement. |
| Present on Admission (POA) Indicators | Discriminates between those secondary diagnoses that were present at the time of admission to the hospital and those that developed during the time of hospitalization. | Aids in fitting into the understanding of what constitutes the pre-existing and what constitutes the hospital-acquired conditions, which determine the DRG severity level and the audit results. |
| Major Diagnostic Category (MDC) | A bigger group classification system in which DRGs can be divided into as per the body system like cardiology, neurology and so on. | As previously mentioned, all DRGs are initially classified into one of the MDCs, but DRG-specific rules are nested; using MDCs provides a logical clinical specialty of DRG. |
These inputs go through a Medicare DRG grouper, returning a specific DRG and corresponding payment.
Types of DRG Systems
Two general classifications of DRG systems are known:
MS-DRGs (Medicare Severity Diagnosis-Related Groups)
MS-DRGs were introduced by the Centers for Medicare and Medicaid Services and encompass different levels of severity and consumption of resources. Each DRG includes:
- Without Complication/Comorbidity (CC)
- With CC
- With Major CC (MCC)
This means that the values can now give a better picture of the patient’s complexity than those derived from the RTI measure only.
APR-DRGs (All Patient Refined DRGs)
Some of states Medicaid and even several private insurers have adopted APR-DRGs that categorizes DRGs in regard to severity of illness and mortality risk. The former is used to improve performance evaluation as well as the results while latter is used to measure quality.
Example of DRG Billing in Practice
A patient with congestive heart failure at the age of 72 is admitted, prescribed some medications, and monitored. After a 4-day stay, coders determine:
- Principal Diagnosis: Congestive Heart Failure
- Secondary Diagnoses: Hypertension, Type 2 Diabetes
- Procedure: None
- Discharge Status: Home
If a “grouper” is used, this case may be grouped under DRG 291 – Heart Failure and Shock with a Major Clinical Complication (MCC).
The hospital is paid $8,000 for example for the treatment of the illness regardless of whether it cost $6,000 or $10,000 to facilitate the treatment.
DRG Codes and Reimbursement Table
A table of common DRG codes and their national average reimbursement:
| DRG Code | Description | Weight | Avg.. Reimbursement (USD) |
| 470 | Major Joint Replacement (w/o MCC) | 2.06 | $12,500 |
| 291 | Heart Failure & Shock (with MCC) | 1.24 | $8,000 |
| 194 | Simple Pneumonia & Pleurisy (w/CC) | 0.98 | $6,500 |
| 871 | Septicemia (with MCC) | 1.90 | $10,800 |
| 683 | Renal Failure (with CC) | 1.10 | $7,200 |
The DRG reimbursement values may have been provided on an annual basis at the national average level and could vary depending on several conditions. These factors include the hospital location, teaching status, cost-of-living index, and the proportion of low-income patients in the hospital. To do this, Medicare additionally adjusts the index payment through the use of a wage index specific to the hospital, payment for outliers, and quality performance points. Hence, two hospitals providing treatment to the same DRG-coded case may get varying amounts as reimbursements due to these institutional and geographical factors.
Advantages of Using DRGs
- Cost Control: DRGs aim at controlling costs since they offer a fixed sum for payment.
- Resource control: There is an inclination for hospitals to use limited resources efficiently in offering patient care.
- Standardization: Provides a uniform system for payments across healthcare providers.
- Transparency: It enables the payers as well as the hospital to estimate the billing and other necessary resources in a much better manner.
Limitations and Criticisms
To the above-mentioned advantages of DRGs, there are, however, the following criticisms:
- Incentive to admit less sever patients: The hospitals may have been admitting less critical patient in an effort to avoid costs associated with complications which are likely to attract high cost.
- Coding Complexity: This is true since it entails proper documentation and coding to be accurately coded to avoid being classified in the wrong category.
- Overgroup: There is a tendency to group patients who are so unlike each other from each other, as per their needs, but are still treated as one.
- Probability of Fraud: These institutions may decide to upcode so that they can be paid more money.
DRGs and Insurance Providers
Almost all health insurance organizations such as Medicare, Medicaid, and most private third-party payers reimburse inpatient hospitals under the DRG system. This is the reason why outpatient services rather often utilize APCs – Ambulatory Payment Classifications instead.
Depending on the type of insurance contract that patients have with their insurance companies, DRGs can be negotiated and may be different, but payment by each insurer will be made according to a fixed amount for particular diagnoses and operations.
Conclusion
The meaning of DRG in medical billing is significant for nursing and billing coders, billers, managers, and employees of healthcare facilities, as well as insurance companies. The average applied DRGs enhance the reimbursement process, optimize the operations, and control the expenditures in the industry.
There are also some difficulties associated with DRGs. The DRGs are still in existence today and are progressively being enhanced and incorporated in different value-based payment models.
Frequently Asked Questions
What does DRG stand for?
It is an acronym for Diagnosis-Related Group, which is a categorization of hospital cases for payment purposes.
Who uses DRGs?
Payment by DRGs is common in Medicare, Medicaid and a number of private insurances firms for hospital inpatient service.
How are DRGs assigned?
DRGs are determined by assessments of diagnosis, procedures, gender, age, discharge disposition, and comorbidities using a DRG grouper.
Do DRGs affect patient care?
These classifications may however increase the concern on efficiency and prompt discharges using DRGs. This is where quality metrics come in handy to offset such a risk.
Are DRGs used internationally?
Indeed, such systems have been implemented in several countries and some of them include Germany G-DRG, Australian AR-DRG, the Swiss DRG commonly referred to as SwissDRG.
What is the difference between MS-DRG and APR-DRG?
MS – DRGs is a classification that is used by Medicare and it depends on the patients’ reactivity level. APR-DRGs give a better distinction on the severity and risk of cases.
What happens if a patient’s treatment costs more than the DRG payment?
Thus, the responsibility is with the hospital, which makes them make necessary efforts to reduce the expenses further.
Can DRGs be appealed or adjusted?
Yes. Sometimes a hospital may want a case to be recoded or appeal if they feel that a case was assigned to a wrong level; this is will ensure that they get more reimbursement amount.
