MS-DRGs (that’s diagnosis related groups) for Dummies

What is a DRG?

A diagnosis related group (DRG) is a system to classify a single hospital visit into one of about 500 categories for billing.  Diagnosis Related Groups (DRGs) have been the workhorse for hospital billing since the 1980’s. In fact, the switch to DRG based billing was so huge to the healthcare industry that the impact of Affordable Care Act is frequently compared with it.  -Except that in the 80s people were too busy wearing parachute pants and Jazzercising to notice DRGs, compared to today’s non-stop conversation on Obamacare.

There have been several versions of DRG coding systems (eg. Medicare, and International) over the years, and each DRG coding system has versions that are usually updated annually. The most common DRG coding system I see today is the MS-DRG, or “Medicare Severity Diagnosis Related Groups“.  Just like they sound,  MS-DRGs include severity of condition in the code.  Check out these three codes for a COPD visit:

  • 190 Chronic obstructive pulmonary disease with mcc
  • 191 Chronic obstructive pulmonary disease with cc
  • 192 Chronic obstructive pulmonary disease without cc/mcc

“with mcc” means “multiple complications and comorbidities” (most expensive case)

“with cc” means “complications and comorbidities” (moderately expensive case)

“without cc/mcc” means “no complications and comorbidities” (least expensive case)

APR-DRGs are another type of DRG coding system. While MS-DRG is published and maintained by the Centers for Medicare and Medicaid Services (CMS),  APR-DRG is published and maintained by 3M and is proprietary.  APR-DRG was created to work better with all sorts of patient populations compared to MS-DRG which is primarily used for the older Medicare population.


How are DRGs calculated?

DRG’s are calculated based on the condition or diagnosis that is the primary purpose of the visit, other conditions or comorbidities,  any surgical procedures done, and the sex of the patient. Once a professional medical coder reviews the medical records and assigns diagnosis and procedure billing codes, the DRG can be automatically calculated.  At the time of this article, these billing codes are ICD9-CM, but will be ICD10-CM soon.  You can easily find formulas and criteria for calculating MS-DRGs online. To use APR-DRGs, you need to purchase (license) the software.

 What are DRGs used for?

DRGs are part of Medicare’s inpatient prospective payment system but are also used by private insurance payers.  The government switched to DRGs in an attempt gain leverage on the hospital providers as well as improve consistency across what Medicare would pay for the same services.  Before DRGs, Medicare would pay hospitals based on an itemized list of services, -kind of like how you pay at a restaurant. If you ordered a lot of things, -whether or not you ate them, your bill would get pretty big.  Similarly, prior to DRGs, hospitals would get reimbursed for every little thing they did plus every day the patient stayed. Itemized billing makes sense for some things, but they decided for healthcare it was too complicated and incentivized hospitals to run up bills.    DRGs changed healthcare into more of a buffet model where it costs the same for everybody and the only difference in price is whether it is breakfast, lunch, or dinner.  In our example above, “breakfast”, “lunch”, and “dinner” are “Chronic obstructive pulmonary disease with mcc”, “Chronic obstructive pulmonary disease with cc”, and “Chronic obstructive pulmonary disease without cc/mcc”.   In other words, a hospital visit would have only one DRG assignment to it and matter how many days the patient stayed or how many services they used, Medicare would pay the same base amount for the same DRG code.  Under a DRG model, the hospital knows how much money they will be getting for each type patient so they try to keep the cost down.

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Dr. Jonathan P. DeShazo is an expert on health information technology, clinical data, and consumer informatics. He is currently an Assistant Professor in the Department of Health Adminstration and serves as Scientific Director of the Biomedical Informatics Core at Virginia Commonwealth University.

3 comments for “MS-DRGs (that’s diagnosis related groups) for Dummies

  1. Eleanor
    March 5, 2016 at 12:21 pm

    Thanks. You broke it down to the basics for me

  2. Mariana
    October 2, 2016 at 2:30 pm

    Goodness! this is awesome! Now i am more confident in what I wrote in my short essay. I though I was way off but I guess not! Im glad I found this.

  3. Lori Sue VanDer Molen
    December 18, 2017 at 2:10 am

    Thanks! This site was explained to the point.

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