What Is a Diagnosis Related Group and How Does It Affect Your Hospital Bill?


If you have ever been hospitalized or had a surgery, you may have noticed that your hospital bill is not based on the actual services you received, but on a fixed amount determined by your diagnosis. This is because most hospitals use a system called diagnosis related group (DRG) to categorize patients and charge them accordingly. But what exactly is a DRG and how does it work? In this article, we will explain what a DRG is, how it is calculated, and how it impacts your hospitalization costs, reimbursement rates, and patient outcomes.

What Is a DRG?

A DRG is a way of grouping patients with similar clinical diagnoses and expected costs of treatment. Instead of paying for each individual service, such as a lab test, an X-ray, or a medication, a predetermined amount is set based on the patient’s DRG. The DRG system was first developed in the late 1960s at Yale University as a way of measuring the type and complexity of patients a hospital treats, and it was later adopted by Medicare and some health insurance companies to standardize hospital reimbursement and improve efficiency.

How Is a DRG Determined?

A DRG is determined by a number of factors, such as the patient’s primary and secondary diagnoses, other medical conditions, age, sex, and medical procedures. The system uses a coding system called the International Classification of Diseases (ICD) to assign codes to each diagnosis and procedure. There are hundreds of different DRGs, each with a different payment rate. The DRG system also takes into account the severity of illness, risk of mortality, and treatment difficulty of each patient, and adjusts the payment accordingly.

How Does a DRG Affect Your Hospital Bill?

The DRG system affects your hospital bill in two ways: first, it determines how much the hospital will charge you for your stay, and second, it determines how much Medicare or your health insurance company will pay the hospital for your care. The DRG system is designed to incentivize hospitals to provide quality care at a lower cost, and to discourage unnecessary services or complications. However, the DRG system also has some drawbacks, such as:

  • It may not reflect the actual cost of care for each individual patient, as some patients may require more or less resources than the average for their DRG.
  • It may create a financial loss for hospitals that treat patients with rare or complex conditions that are not adequately covered by the DRG payment.
  • It may encourage hospitals to discharge patients earlier than medically appropriate, or to avoid admitting patients who need hospitalization, to save costs.
  • It may affect the quality of care and patient satisfaction, as hospitals may focus more on the financial aspects of care than on the clinical outcomes and patient preferences.


A DRG is a system that categorizes patients based on their diagnosis and expected cost of treatment, and determines how much the hospital will charge and how much Medicare or the health insurance company will pay for the hospital stay. The DRG system aims to standardize hospital reimbursement and improve efficiency, but it also has some limitations and challenges. As a patient, it is important to understand how the DRG system works and how it affects your hospital bill, so that you can make informed decisions about your health care and advocate for your rights.