Diagnosis Related Group (DRG)

Diagnosis-related groups (DRG) is a classification system that groups similar clinical conditions (diagnoses) and the procedures furnished by the hospital during the stay. The beneficiary’s principal diagnosis and up to eight secondary diagnoses that indicate comorbidities and complications will determine the DRG assignment. Similarly, DRG assignment can be affected by up to six procedures furnished during the stay. The Centers for Medicare & Medicaid Services (CMS) reviews the DRG definitions annually to ensure that each group continues to include cases with clinically similar conditions that require comparable amounts of inpatient resources. When the review shows that subsets of clinically similar cases within a DRG consume significantly different amounts of resources, they may be assigned to a different DRG with comparable resource use or a new DRG may be created.
For discharges occurring on or after October 1, 2007, a new DRG system called Medicare Severity (MS)-DRG is being used to better account for severity of illness and resource consumption for Medicare beneficiaries. Use of MS-DRGs was transitioned during a two-year period. For the period October 1, 2007 through September 30, 2008, payment was based on a 50/50 blend of MS-DRGs and the previous DRG system. Beginning October 1, 2008 (fiscal year [FY] 2009) and after, payment is based solely on the MS-DRGs.

There are three levels of severity in the MS-DRGs based on secondary diagnosis codes:

1) MCC - Major Complication/Comorbidity, which reflect the highest level of severity

2) CC Complication/Comorbidity, which is the next level of severity;

3) Non-CC Non-Complication/Comorbidity, which do not significantly affect severity of illness and resource use.

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