What Is a DRG in Healthcare?

what is drg in healthcare

Do you run a hospital and need more information about diagnosis-related groups and their role in medication? Keep reading to learn more about the following questions:

  • What is a DRG in healthcare?
  • How do DRGs work?
  • What are the changes and updates in DRG coding?

For the most reliable financial measurement in healthcare, contact PracticeForces today.


What Is DRG in the Healthcare Industry?

The DRG definition in healthcare is “diagnosis-related groups.” It functions as a way of classifying healthcare and hospital expenses based on the patient’s diagnosis and treatment.

The DRG was first developed at Yale in the 1960s; since then, many insurance companies and Medicare have adopted it as an effective way to determine to what extent the insurance company pays for various medical expenses.


Why Is DRG Important?

To fully understand, “What is a DRG in healthcare?” you have to realize the importance of diagnosis-related groups for hospitals and medical insurance companies. These groups provide an important role in advanced care planning because they can group similar patients together and help the hospital plan the amount of reimbursement they’ll receive after providing treatment to a patient.

Currently, over 450 different DRGs exist, and the industry regularly adds more classifications.


Medicare’s Role

Medicare is the government’s federal insurance program that provides medical coverage to people aged 65 and older. The Centers for Medicare and Medicaid Services administers the program and thus sets payment rates for hospitals. 

Because it’s a government program, it aims to keep costs as low as possible. That’s why DRGs play such an important role. They allow administrators to adequately predict costs based on several criteria.

Some of the factors medical billing specialists use to predict costs include:

  • Severity of illness
  • Risk of death
  • Prognosis
  • Difficulty of treatment
  • Importance of intervention
  • Resources required


How a DRG Relates to ICD

The ICD is the international classification of diseases and acts as the DRG reimbursement system. It also highlights the important role of coding modifiers in medical billing. The most current version of the system, ICD-10, uses DRG coding and classification to describe the services a provider needs reimbursement for.


The Role of Hospitalization

Medical coders use DRG codes exclusively for hospital care rather than for clinics or other healthcare organizations. It’s a way for hospitals to receive adequate reimbursement from insurance companies for the services the hospital provides to patients. This is ultimately the answer to, “What is a DRG in healthcare?”

When the hospital admits a patient, coders categorize the patient into one of the several hundred DRGs. Whereas the old system focused retrospectively on establishing how to reimburse the hospital, the new system does it proactively. 

This means that, no matter how many services the patient actually receives, the hospital receives one lump sum based on the DRG classification. Partnering with experienced medical billers and coders is important for ensuring the hospital receives adequate reimbursement, which allows them to provide the highest level of care to the patient.

For the most efficient medical billing solutions or to learn about essential computer skills in medical billing coding, call PracticeForce at (727) 202-5429.

Parul Garg, CEO and co-founder of PracticeForces, has significantly contributed to the growth of over 1,000 U.S. medical practices through her expertise in medical billing and coding since the company’s inception in 2003. With a background in Computer Science and an MBA in Human Resources, her leadership and AAPC-certified coding skills have been pivotal in managing the company’s operations effectively.

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