Introduction
The healthcare sector is ever-evolving and swiftly moving towards digitalization. Medical billing is one of the most intricate procedures in healthcare. It requires patience, skill, and attention, but Diagnosis Related Groups (DRGs) simplify the process of billing and costing.
DRGs were introduced by Yale University in the late 1960s. It divides in-patient hospital cases into subgroups, which predicts comparable expenses and compensation. Hospitals use DRGs in medical billing to classify patients and link their case mix or the types of patients they serve to their costs. Medicare and several health insurance companies have now adopted the DRG system to decide how much to pay for a patient’s hospital stay.
This blog will help create more awareness about the impact of DRGs in medical billing.
What is DRG in Medical Billing?
Diagnosis Related Groups, or DRG codes, is a classification system used by Medicare and some commercial health insurance companies to categorize hospitalization costs. An established medical coding system is crucial for hospitals and other healthcare providers to identify, classify, and charge for the services rendered.
DRGs in medical billing determine how much hospitals will receive for treating patients with particular illnesses based on the case-mix complexity. The DRG system determines the appropriate payment based on the patient’s age, sex, medical history, and the severity of their ailment.
Healthcare professionals frequently utilize a variety of codes for diagnosis, such as ICD-10 codes or other CPT codes that coders use to document procedures and treatments. On the other hand, DRG codes are broad classifications used to categorize a portion of a patient’s more thorough treatment plan. For specialized fields like dermatology, where procedures and treatments often require unique coding and billing expertise, leveraging the services of dermatology billing companies can ensure accuracy and compliance with industry standards.
Hospitals and insurance companies may use these billing codes to gain additional information about a patient’s health and medical history.
How Do DRGs Work?
DRGs were used in in-patient services, but in the 21st century, the “Cures Act” declared that the Centers for Medicare and Medicaid Services created some DRGs that apply to outpatient procedures.
The theory is that bundled payments are more effective and lead to better patient outcomes, contrary to fee-for-service payments, which pay the provider for each service rendered.
The goal of the DRGs in medical billing is to encourage cost control and promote efficiency in the healthcare system. The healthcare industry can implement DRGs in various ways, some of which are below:
In-Patient Services DRG
Medicare and other insurance companies classify and reimburse hospital in-patient services using DRG codes.
When a patient is admitted to the hospital, the hospital assigns one of the several hundred DRGs based on the diagnosis, problems, and comorbidities. Each DRG code is assigned a relative weight based on the average resources needed to care for a patient assigned to that DRG.
Before calculating the amount of money the hospital receives for a particular hospitalization, it is necessary to identify which DRG was assigned.
DRG in Diagnosis
The amount of DRG in medical billing relies on the patient’s primary diagnosis, which is the major cause of their hospitalization. Conversely, secondary diagnoses are any other illnesses the patient may have that might influence the course of therapy and duration of stay.
The secondary diagnosis impacts the DRG and, ultimately, the amount that Medicare or insurance providers will pay for the patient’s hospital stay.
Additional criteria are also taken into account, such as the severity of the patient’s condition and his likelihood of dying, while calculating DRGs. These variables are determined by the intricacy and seriousness of the patient’s illness as well as the risk of complications or death.
DRG-Based Reimbursements
Reimbursement for hospital stays is handled via the Diagnosis Related Groups system. Rather than paying for each treatment, a fixed sum is established based on the DRG code.
Medicare uses the average cost of the resources required to treat individuals in a given DRG to establish DRG payment levels. DRGs are assigned based on the patient’s diagnosis, treatments, and other factors such as age, sex, and discharge status. Each DRG code is assigned a relative weight, which reflects the average resources required to treat patients in that group. The relative weight and hospital reimbursement increase with the amount of resources needed.
Impact of DRGs on Healthcare
By leveraging the DRG system as a structural framework, the Centers for Medicare and Medicaid Services (CMS) may begin to advocate for higher quality of care standards throughout the American healthcare system.
DRGs in medical billing encourage hospitals to improve treatment efficiency while discouraging the long-standing practice of overtreating patients to raise payment rates.
DRG systems provide several advantages, some of which are discussed here.
- It makes sure the payment system is transparent.
- It helps verify that the regions that require resource allocation are appropriately recognized.
- It improves resource allocation and technological efficiency.
- It categorizes patient care by appropriately classifying and pricing the services provided.
- It has raised the standard of care.
- It decreases the typical duration of hospital stays.
- It helps ensure that resources are effectively, efficiently, and fairly used.
Difference Between DRGs and MS-DRG
The introduction of DRGs in the early 1980s laid the groundwork for the US healthcare system’s transition to value-based therapy. To enhance this original structure and more effectively distinguish between the severity of each patient’s disease and related care costs, CMS implemented the Medicare Severity Diagnosis Related Groups (MS-DRG) system in 2007.
The MS-DRG system is used to calculate hospital payments under the in-patient prospective payment system (IPPS). This mechanism divides diagnosis for in-patient hospital stays into groups and subgroups so that Medicare can pay the bill appropriately.
The DRGs in the medical billing system had only one or two categories of sickness severity and payment for patient classification. However, because most MS-DRGs offer three severity categories, hospitals may more precisely determine a patient’s needs without affecting the compensation amount.
Bottom Line
In conclusion, the goal of DRGs in medical billing is to encourage cost control and promote efficiency in the healthcare system. The DRGs in medical billing help reduce treatment costs, shorten unnecessary in-patient stays, and improve efficiency while standardizing hospital reimbursement.
The DRG value determines a fixed payment amount rather than separately charging for each service rendered to the patient. It is determined by various factors like the patient’s age, sex, primary and secondary diagnosis, and the resources allocated for medical treatments.
Healthcare professionals should concentrate on improving their revenue cycle management (RCM) and educate themselves on the intricacies of the DRG codes to ensure that they are appropriately paid for their services.