Diagnosis Related Groups (DRGs) are a patient classification system that relates the type of patients a hospital treats with the costs incurred by the care. Medicare Severity-Diagnosis Related Groups (MS-DRGs) classify a Medicare patient’s hospital stay into various groups to facilitate payment. Medicaid All Patient DRGs (AP-DRGs) are an expansion of Medicare DRGs for non-Medicare populations (e.g. pediatric patients).1
In 2007, Center for Medicare & Medicaid Services (CMS) adopted Medicare Severity DRGs (MS-DRGs) to better differentiate patients' severity of illness and associated costs of care.2
DRGs changed hospital management by giving hospitals clinical data to manage product lines & care processes. DRGs provide an operational means of defining and measuring a hospital’s case mix complexity and patient attributes. APR-DRGs’ four levels of severity of illness or risk of mortality facilitates reimbursement and internal/public reporting on those factors.
MS-DRG is determined by the principal diagnosis or procedure. Secondary diagnoses are designated as comorbidities and complications (CCs) or major comorbidities and complications (MCCs). A comorbidity is a condition that existed before admission and a complication is any condition that happens after admission, not necessarily due to care.3
CMS pays for inpatient hospital services on a rate per discharge basis which varies according to the DRG. The formula to calculate payment for a specific case multiplies an individual hospital's payment rate per case by the weight of the DRG that the case is assigned. Each DRG weight represents the average resources required to care for cases in that particular DRG, relative to the average resources used to treat cases in all DRGs. A higher relative weight is associated with longer length of stay, greater severity of illness, and higher reimbursement.4 For example, DRG 189: respiratory failure, has a relative weight of 1.2353 and DRG 312: syncope (fainting) is 0.8015.
Similar to MS-DRGs, an APR-DRG payment is calculated using an assigned numerical weight that is multiplied by an individual fixed dollar amount. APR-DRGs, however, consider severity of illness and risk of mortality instead of only a complication or comorbidity. More than one significant diagnosis, procedures, age, discharge disposition, and sex can add to the APR’s clinical severity. There are four levels of severity of illness or risk of mortality are: minor, moderate, major or severe.1
According to research in the New England Journal of Medicine, seven years after the adoption of DRGs for Medicare payment, Medicare spent $17 billion less each year than it would have if the DRG had not been implemented.
DRGs were originally developed through CMS contracting with the Yale University School of Organization and Management in the 1970's.3
Shafrin J. What is the difference between DRGs, AP-DRGs, and APR-DRGs? – Healthcare Economist. Healthcare-economist.com. https://www.healthcare-economist.com/2012/06/19/what-is-the-difference-between-drgs-ap-drgs-and-apr-drgs/. Published 2012.
IMPROVING MEDICARE'S HOSPITAL INPATIENT PROSPECTIVE PAYMENT SYSTEM TO BETTER RECOGNIZE THE COSTS OF CARE | CMS. Cms.gov. https://www.cms.gov/newsroom/fact-sheets/improving-medicares-hospital-inpatient-prospective-payment-system-better-recognize-costs-care. Published 2007.
Design And Development Of The Diagnosis Related Group (DRG). Centers for Medicare & Medicaid Services; 2019. https://www.cms.gov/icd10m/version37-fullcode-cms/fullcode_cms/Design_and_development_of_the_Diagnosis_Related_Group_(DRGs).pdf.
MS-DRG Classifications and Software | CMS. Cms.gov. https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software.