What does DRG represent in the healthcare context?

In the healthcare context, DRG stands for Diagnosis Related Group. This classification system is used to categorize hospital cases into distinct groups that are clinically similar and are expected to incur similar hospital resource use. DRGs are a critical component of the prospective payment system established by Medicare, where hospitals are reimbursed a predetermined amount based on the DRG assigned to a patient's stay, rather than actual charges incurred.

The DRG system helps streamline healthcare cost management and controls by focusing on diagnoses and treatment protocols. It incentivizes hospitals to provide effective and efficient care, as they receive a fixed payment for treating a patient with a specific condition, motivating them to manage resources wisely within that payment framework. Understanding DRGs is essential for professionals in healthcare finance and compliance, as they directly impact hospital reimbursement and operational workflows.