What Are DRG Codes & What Are They Used For?

Diagnosis Related Group codes (sometimes called Diagnostic Related Group codes or DRGs) or are a type of medical code used for hospital and inpatient care (though there are also some for outpatient procedures, especially regarding reimbursement from the Centers for Medicare and Medicaid Services). They are often valuable for Medicare reimbursement.

Medicare defines Diagnosis Related Group codes as a “patient classification scheme.” The set of codes is meant to help streamline care classifications for billing.

What Are DRGs?

In addition to DRGs, healthcare providers use other codes for routine billing. One is the ICD-10 codes that healthcare staff use for diagnosis. The other is CPT codes which coders use to document procedures and treatments.

Many entry-level healthcare people are more familiar with ICD and CPT codes than DRG codes. DRG codes are a different system of classification that incorporates elements of the diagnosis code and the treatment code, along with other factors.

ICD and CPT codes also play a more specific and defined role than DRGs. They are particular ways to code an individual diagnosis or procedure for many different kinds of care.

DRGs, on the other hand, are overarching categories used to classify a part of a patient's care plan, which is more comprehensive.

DRGs and Patient Demographics

DRG codes also relate to some patient demographic information.

Clinicians will factor the following into DRG codes:

In addition, they will factor in the patient's age and sex because both impact average costs and prognosis for different types of health conditions and issues.

In other words, where the ICD classifies the diagnosis and the CPT describes the services, the DRG will use both inputs to put hospital services into a particular category.

Reimbursement Models

In standardizing hospital reimbursement, the DRG system replaces a traditional system where every individual item and component of care is billed separately.

With its promise of billing efficiency, the DRG is also valuable for the Medicare MS-DRG system and other Long-Term Care or LTC-PSS billing system.

Government agencies and other parties looking at the medical system years ago found that hospitals were charging a lot. They saw that hospitals had incentives to tack on additional charges to patient bills.

DRGs take a different approach to billing, unifying care components and services in another type of charge model.

What Are the Benefits of DRGs?

One benefit of DRGs is transparency — because of how these codes are calculated, the result gives people a lot more information about how a hospital works in the context of its location and size.

Because DRG classification involves evaluating labor costs, administrators and others know more about their staff's work than the staff at competing hospitals nationwide.

People can make a lot of discoveries in the industry using the metrics provided by DRG classifications. Language like “Relative Weight Factors,” “Geometric and Arithmetic Mean,” and “Length of Stay” (and other MS metrics) can confuse the average person. Still, valuable data can come from DRG analysis for those who tackle the learning curve.

Another benefit is the incentive for hospitals to control costs. The DRG system doesn't promote a “care plus” model where doctors arbitrarily order more tests and add them to a patient care plan. Instead, it promotes efficiency.

DRGs can also provide hospitals with ways to “show their work” regarding outcomes. That’s why the DRG system has been instrumental in hospital administration, considering new models like Accountable Care Organization (ACO) rules and the provisions and requirements of the federal HITECH Act. The HITECH Act, in part, promotes the use of electronic medical records.

DRGs and Concerns about Outcomes

Although DRGs have some benefits in promoting efficient hospital billing, administrators and others will have to look out for potential problems related to this coding.

One is the practice of upcoding, where a patient might get a more severe diagnosis to cover more treatment. That, in turn, can cause a lot of worry and concern for families as they try to deal with their loved one’s diagnosis.

Another possible problem is early discharge, leading to higher readmission rates. Early discharge is fine as long as a patient is ready to be released.

The problem might result when patients are discharged before they should be, and higher readmission rates result. Local rehab hospitals and other interim facilities can also see many issues develop with patients who go to these places prematurely.

DRGs and Case-Mix Complexity

In the world of DRGs and medical coding, case-mix complexity considers one of those above criteria, comorbidities, and its impact on typical or average outcomes.

Simply speaking, patients may have a poorer prognosis or more difficulty related to their diagnosis, secondary diagnosis, and any comorbidities that they may have.

In case-mix complexity situations, doctors will look at the following:

One way to explain this is that hospital doctors and others don't typically know everything that's going to have to apply to a person's case when they are admitted.

The interventions will be done as necessary and added to a DRG classification. New medical software can help with these kinds of processes.

There's also the challenge of hospital-acquired conditions, whether an infection, blood clots, or other things that tend to affect patients who have entered the hospital for different reasons. These may also influence a DRG determination and how that relates to billing.

What Are the Different Kinds of DRGs?

There are many different types of DRG codes. Some, for example, cover the need for an organ transplant. Others cover different kinds of mental health or behavioral health services.

There are DRG codes for seizures and DRG codes for headaches and eye infections. Vascular procedures and spinal procedures also have DRGs attached to them. So do interventions for conditions like cerebellar ataxia and various brain and heart issues.

There are DRG codes that relate to specific specializations like the work of ear, nose, and throat practices.

This allows clinicians and healthcare workers to put a particular hospital stay into the correct category for billing. The DRG list is not as detailed as the ICD-10 catalog but covers a lot of ground in addressing the diversity of hospital services.

Determining a DRG

A hospital coder will have to determine the correct DRG for a patient. Flowcharts and other resources are available online from Medicare and other parties. These can help evaluators to determine which DRG fits the patient's situation.

One component is the principal diagnosis for the patient submission to the hospital.

Another critical question is whether any surgical procedure was done in the hospital.

Beyond that, hospital staff will look for any evidence of secondary diagnoses or secondary conditions. They will consider comorbidities. These will reflect the patient care and factor into how a DRG is helpful in a billing context.

What’s the Big Picture?

On a fundamental level, DRG assignments are helpful in assessing a patient's entire track record while in the hospital. By combining diagnostic and treatment information, DRGs help to define the cost of a person's hospital stay and what insurance companies or other payers may pay toward that care.

For those who are analyzing how a hospital works, DRGs can also be useful in helping to tell the story about patient stays.

Auditors might look at admission and discharge status rates, how long an average patient stays in the hospital (acute care versus long-term care), the difference between inpatient and outpatient observation care, and the work of different hospital departments. That, again, helps with overall discovery when people are looking at healthcare outcomes over time.

DRGs and Insurance Factors

In looking at any patient care bill, patients and other potential payers will be looking at various aspects of that patient's health insurance, including:

Essentially, the DRG is a comprehensive resource for calculating the cost of hospital care. It is intended to make care more efficient and cut out a lot of the waste in what hospitals do regularly, helping to keep costs down for patients.

Clinicians, for their part, get a lot of help from cutting-edge software that can see the connection between DRGs, ICD-10s, CPT codes, and other parts of a healthcare document.

Next-generation medical software plays a significant role in innovating what doctors, nurses, techs, and teams do to improve patient health and keep people safe in a hospital environment.

The Bottom Line

DRGs are billing codes used by hospitals to help them determine how much and what to bill patients for. While medical bills can be confusing at times, DRGs can help to bridge the gap and put patients in a better position of knowledge regarding their own healthcare.

These billing codes can also help hospitals and insurance providers gain more insight into a patient’s healthcare status and the nature of their health history. While these codes are not yet as popular as other, more established billing codes, we hope to see them incorporated into the larger healthcare picture soon.


Design and development of the Diagnosis Related Group (DRG) | CMS

What is the HITECH Act? 2023 Update | HIPAA Journal

Hospital-Acquired Condition (HAC) Reduction Program | CMS

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