What is a DRG (Diagnosis Related Group)?
Understanding how hospitals get paid for inpatient stays. And how you can use DRG data to negotiate fair prices.
Definition
DRG (Diagnosis Related Group) is a patient classification system used by Medicare and most insurers to determine hospital inpatient payment rates. Each DRG represents a group of clinically similar cases that are expected to use similar amounts of hospital resources.
How DRGs Work
When you're admitted to a hospital, your stay is assigned a DRG code based on:
- Primary diagnosis (why you were admitted)
- Procedures performed (surgeries, interventions)
- Complications/Comorbidities (CC or MCC modifiers)
- Age, sex, and discharge status
The hospital then receives a fixed payment amount for that DRG, regardless of how long you actually stayed or what resources were used. This is called prospective payment.
Common DRG Codes & Payments
| DRG Code | Description | Avg. Medicare Payment |
|---|---|---|
| 470 | Major Hip and Knee Joint Replacement | $12,500 |
| 871 | Septicemia or Severe Sepsis without MV >96 Hours | $10,200 |
| 291 | Heart Failure and Shock with MCC | $9,800 |
| 690 | Kidney and Urinary Tract Infections | $5,100 |
| 392 | Esophagitis, Gastroenteritis | $4,300 |
*Payments vary by hospital and geographic location. Data from CMS IPPS Final Rule FY2024.
Using DRGs to Negotiate Your Hospital Bill
DRG payment data is publicly available from CMS. Here's how to use it:
- 1Request your hospital's DRG assignment for your stay
- 2Look up the Medicare payment for that DRG in your region
- 3A fair cash-pay rate is typically 150-200% of the Medicare payment
- 4Use this benchmark to negotiate your bill down
Example:
DRG 470 (Hip Replacement) pays Medicare ~$12,500. A fair cash price is $18,750-$25,000. If your bill is $80,000, you have strong grounds to negotiate.
Frequently Asked Questions
What does DRG stand for?
DRG stands for Diagnosis Related Group. It is a patient classification system that categorizes hospital inpatient stays into groups based on diagnosis, procedures performed, patient age, sex, discharge status, and presence of complications or comorbidities.
How do DRGs affect hospital payments?
Under the Medicare Inpatient Prospective Payment System (IPPS), hospitals receive a fixed payment for each DRG regardless of the actual length of stay or resources used. This incentivizes efficient care delivery and shorter hospital stays.
Can DRGs help me estimate my hospital bill?
Yes. DRG payments from CMS data provide a benchmark for what hospitals receive from Medicare. Fair cash-pay rates are typically 150-200% of the DRG payment amount. You can use this to negotiate your bill.
What is the difference between DRG and APC?
DRGs are used for inpatient hospital stays (overnight admissions). APCs (Ambulatory Payment Classifications) are used for outpatient services. Both are prospective payment systems, but they cover different care settings.
Related Articles
Sources
- • CMS Inpatient Prospective Payment System (IPPS)
- • CMS MS-DRG Classifications and Software
- • 42 CFR 412 - Hospital Inpatient Prospective Payment Systems