Diagnosis Related Groups (DRGs)
On October 1, 1983, Medicare’s new Prospective Payment System (PPS) became effective for 1500 of the nation’s hospitals. By September 1984, 3700 additional hospitals will be subject to the legislation. According to this payment scheme, intended to control Medicare expenditures which have risen an average of 19% annually since 1979 to $32.9 billion for inpatient hospital care in 1982, hospitals will be paid a fixed amount per patient discharge. The rate of reimbursement will be based on Diagnosis Related Groups, a classification of 467 illness categories identified in the International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM). Each of the distinct groupings is considered to be "medically meaningful," that is, all patients in the same DRG are expected to display a set of clinical responses which will, on statistical average, result in equal use of hospital resources. The Prospective Payment System replaces the fee-forservice plan in which the payment is cost-based and retrospectively determined following treatment.
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Unknown author (American Medical Association. Department of Health Care Resources. Division of Health Policy and Program Evaluation. Group on Health Service Policy, 1984)