Types of DRG Systems

DRG technology has experienced an evolutionary development process. The
later generations of DRG systems have incorporated the improvements made by
earlier generations. DRG systems that have been developed in the US include:
• Medicare DRGs
• Refined DRGs (RDRGs)
• All Patient DRGs (AP-DRG5)
• Severity DRGs (SDRGs)
• All Patient Refined DRGs (APR-DRGs)
• International-Refined DRGs (IR-DRGs)

Each of these DRG systems were created to address specific limitations in the
original DRGs. The first DRG system was designed by Yale University to cater the needs of Medicare.

DRGs classify patients into clinically cohesive groups that demonstrate similar
consumption of hospital resources and length-of-stay-patterns. Besides
reimbursement, DRGs have two major functions. The first is to evaluate the
quality of care. Since all cases in a DRG are clinically similar, analysis of
treatment protocols, related conditions or demographic distribution can be done.
Critical pathways are designed around DRGs. Benchmarking and outcome
analysis can be launched using the DRG clinical framework. Quality reviews can
be performed to access coding practices and physician documentation. Ongoing
education of physicians, coders, nurses and utilization review personnel can be
guided to the results of DRG analysis.

Secondly, DRGs assist in evaluating the utilization of services. Each DRG
represents the average resources needed to treat patients grouped to that DRG
relative to the national average of resources used to treat all Medicare patients.
The DRG assigned to each hospital inpatient stay relates to the hospital casemix
(i.e. the types of patient the hospital treats). The casemix index is determined by
averaging the DRG relative weights for all hospital inpatients. Medicare
computes the casemix adjustment for each fiscal year based upon the casemix
data received. The casemix index is then used to adjust the hospital base rate,
which is a factor in computing the total hospital payment under the prospective
payment system. The formula for computing the hospital payment for each DRG
is as follows:
DRG Relative Weight x Hospital Base Rate = Hospital Payment
The hospital casemix complexity includes the following patient attributes:
• Severity of illness
• Prognosis
• Treatment difficulty
• Need for intervention
• Resource intensity
However, the purpose of the DRG is to relate casemix to resource utilization
only. Reimbursement is adjusted to reflect the resource utilization and does not
take into consideration severity of illness, prognosis, treatment difficulty or need
for intervention.

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