Objective: To present an overview of the history of diagnosis-related group (DRG) reimbursement and its impact on physicians and hospitals.
Data sources: Recent research articles on reimbursement and medical ethics.
Study selection: Not applicable.
Data extraction: Performed by the author.
Data synthesis: The DRG system is part of a system developed at Yale University to provide hospitals with incentives to control costs. Hospital Medicare inpatients are classified into groups that are clinically coherent and homogenous with respect to resource use. The classification is also dependent on principal and secondary diagnoses and procedures, age, gender, and discharge status of the patient. Reimbursement is determined by the classification. Hospitals can create excess revenues by treating the patient more efficiently and economically, or they can absorb monetary losses by doing otherwise. It is argued that hospitals will become more frugal and that physicians will adjust their methods of practice as well. Hospitals that fail to adapt will close, reducing overall Medicare expenditures and deterring inefficiency by example.
Conclusion: DRGs provided a way to prevent the collapse of the Medicare program but have also required stricter criteria for hospital admissions. DRGs remain in evolution and under evaluation for expansion into other health care settings.