DRG - INPATIENT CODING

Diagnosis Related groups (DRG’s) are the patient classification system that facilitate prospective payment to hospitals. 

After the Medicare Program was established in 1965, health care costs began to escalate.  In 1983 the retrospective payment system was replaced with the Prospective Payment System (PPS that paid for acute hospital care based on the expected costs, instead of the accrued charges.  To accomplish this, each patient discharged is categorized into a DRG.  

A physician panel at Yale University initially developed the system of DRG’s in the late 1960s as a means of “monitoring the quality of care and utilization of services in the acute hospital setting.”  

The only available medium for implementing the DRG system was the ICD-9-CM classification system, which stands for the International Classification of Diseases, Ninth Revision, Clinical Modifications.  ICD-9-CM allows you to classify disease, symptom, health problems, and procedures primarily for statistical purposes.  The system is derived from ICD, which originated over 100 years ago.  ICD-9-CM serves as a diagnostic dictionary, thus playing an essential role in the DRG system.  When a new disease or procedure is identified, it is usually assigned an existing ICD-9-CM code which best categorizes the disease or procedure.  The ICD-9-CM Coordination and Maintenance Committee evaluates the need for new ICD-9-CM codes on an annual basis.  

The data elements which define the DRG’s are routinely collected by the Health Information Management Department when a medical record is abstracted.  The information includes:

      Principal diagnosis

      Secondary diagnosis (including complications/comorbid conditions)

      Surgical procedures

      Age

      Sex

      Discharge disposition

PAYOR ID, LOCATION, AND INSURANCE

Each DRG is distinct and made up of mutually exclusive diagnoses that are separated into 25 major diagnostic categories (MDCs).  The MDCs represent a single organ system or etiology and are associated with a particular medical specialty.  No DRG contains patients in different MDCs.  Within each DRG there is further division into surgical or medical groups.

Within each MDC, the surgical procedures are ranked from highest to lowest.  The rank of a procedure is determined by the cost of the procedure.  The procedures are not ranked by the complexity of the procedure or the level of skill required to perform the procedure. 

Each DRG represent patients with similar resource intensity, resource utilization, and cost.  The hospital then, with some exceptions, is paid a flat fee for the DRG, regardless of the services actually provided or the actual resources used.  The payment represents the average cost of caring for a patient within each particular DRG.  Hospitals must be efficient and cost effective to successfully manage under this system.

Changes to the Prospective Payment System are implemented annually.  In addition to implementing revisions to the ICD-9-CM codes, DRG’s may be changed and DRG weights are revised every year on October 1st.