Understanding DRGs: How to Calculate Diagnosis Related Groups

Diagnosis Related Groups (DRGs) classify all human diseases based on the affected organ system, surgical procedure performed on patients, morbidity and sex of the patient. Each DRG is determined by the principal diagnosis, next eight diagnoses and up to six procedures performed on the patient during a hospital stay. Hospitals around the country receive payments from Medicare, Medicaid and other third-party payers based on the calculation of the DRG and other payment factors.

Things You'll Need

• Relative weight
• Adjusted base rate
• Wage index factor
• Disproportionate share payment (DSH)
• Indirect medical education payment
• Labor related component
• Non-labor related component

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Instructions

• 1

  To calculate standard rate, multiply the labor related component by the wage index factor to adjust for the differences in wage levels based on area. Add the adjusted labor rate to the non-labor related component to equal the adjusted base rate.

• 2

  To adjust for the DRG weight, identify the relative weight for hip and femur procedure. In this case, the weight is 1.8128. The weight is the average level of treatment for a patient with the particular DRG.
  Multiply the adjusted base rate by the relative weight.

• 3

  To adjust for disproportionate share payment, multiply the disproportionate share hospital's payment adjustment to the adjusted base rate. A hospital qualifies for this payment adjustment if it treats a disproportionate share of the Medicaid and Medicare population. This rate is provided by the Centers for Medicare &Medicaid Services.

• 4

  To adjust for indirect medical education payment, ad 1 + the DSH rate + the indirect medical education (IME) rate. Indirect medical education rate is a rate that is provided to teaching hospitals to account for the additional cost of providing resident training. Each hospital that meets these qualifications has a different rate based on number of residents, beds and discharges.

• 5

  To calculate the DRG payment, multiply the adjusted base rate by the new adjusted rate for DSH and IME.