What is a DRG Code in Medical Billing

Definition of DRG

In medical billing, the term DRG stands for Diagnosis-related Groups—a system created to control care costs or standardize reimbursement rates. CMS defines DRG as “a patient classification scheme which provides a means of relating the type of patients a hospital treats (i.e., its case mix) to the costs incurred by the hospital”.

History of DRG

The development of DRG code began in the early 1980s at Yale University. The code was designed and developed by Robert B. Fetter, Ph.D., and John D. Thompson, MPH, of Yale University. By 1983, the Social Security Act (SSA) was amended by Congress to include a national DRG-based hospital prospective payment system for Medicare patients.

Types of DRG Codes

Unlike other codes DRGs vary across medical institutions and therefore, we have different types of DRGs like—Medicare DRG (CMS-DRG & MS-DRG), Refined DRGs (R-DRG), All Patient DRGs (AP-DRG), Severity DRGs (S-DRG), All Patient, Severity-Adjusted DRGs (APS-DRG), All Patient Refined DRGs (APR-DRG) and International-Refined DRGs (IR-DRG).

Understanding the Medicare Severity DRG (MS-DRG) Code

The major type of DRG is MS-DRG developed by CMS and applicable for Medicare patients only. There are two types of MS-DRG Categories (also called medical diagnostic categories) based on the requirement of the surgical procedure.

• Diagnostic MS-DRG (OR no required): divided into neoplasm, specific conditions relating to the organ system, symptoms, and other.
• Surgical MS-DRG (OR required): divided into major surgeries, minor surgeries, other surgeries, and surgeries unrelated to the principal diagnosis.

In the MS-DRG version 37.0, there are 72,184 diagnoses and 77,559 procedures. There are 25 major diagnostic categories and a total of 761 MS-DRGs.

The term case mix complexity is closely associated with the MS-DRG and is defined by CMS as “an interrelated but distinct set of patient attributes which include the severity of illness, prognosis, treatment difficulty, need for intervention and resource intensity”. The following five factors are taken into consideration while measuring a case-mix:

• The severity of illness: loss of function as experienced by the patient and the risk or mortality due to the particular disease.
• Prognosis: the likelihood of improvement/deterioration, recurrence, and probable life span based on the severity of the illness.
• Treatment Difficulty: patient management problems faced by the health care provider while monitoring or treating the patient closely.
• Need for Intervention: consequences resulting from the lack of immediate or continuous care based on the severity of the illness.
• Resource Intensity: the resources (diagnostic, therapeutic, and bed services) used in the management of a particular illness.

The MS-DRGC categorizes patients based on diagnosis, treatment, and the length of hospital stay. Hence, the MS-DRG assignment is determined by the following variables:

• Principal diagnosis
• Secondary diagnosis —it may also include comorbidities and complications (CCs) and major comorbidities and complications (MCCs)
• Surgical procedures performed
• Patient’s age and sex
• Discharge status

Based on the above variables, the CMS pays for the inpatient hospital services under the Inpatient Prospective Payment System (IPPS) on a rate per discharge basis which keeps changing according to the DRG assigned to the beneficiary or patient.