Healthcare Data GlossaryData Standards
DRG: Definition and Healthcare Context
Full name: Diagnosis Related Group
A Diagnosis Related Group (DRG) is a patient classification system that groups similar hospital inpatient cases into categories that are clinically coherent and resource-intensive. CMS uses Medicare Severity DRGs (MS-DRGs) to determine prospective payment amounts for hospital inpatient stays under Medicare Part A through the Inpatient Prospective Payment System (IPPS). Each DRG is assigned a relative weight representing average resource consumption. Hospitals receive a fixed payment per DRG regardless of actual costs.
Last updated: 2026-06-17Reviewed by: Dr. Jennifer Montecillo, MD — Gullas College of Medicine, 2019. Non-practicing medical reviewer.
How it’s used
- Healthcare Cost Report Information System (HCRIS): hospital cost reports include total Medicare inpatient discharges by DRG, enabling financial analysis by case-mix.
- CMS Care Compare — Hospitals: hospital quality measures include risk-adjusted readmission and mortality rates calculated at the DRG and condition level.
Frequently asked questions
- What is a DRG?
- A DRG (Diagnosis Related Group) is a patient classification system used by CMS to set prospective payment rates for Medicare inpatient hospital stays.
- What is an MS-DRG?
- MS-DRG stands for Medicare Severity DRG — the version of DRGs used for Medicare inpatient payment that accounts for patient severity of illness.
- How does DRG-based payment work?
- Under IPPS, hospitals receive a fixed payment per admission based on the assigned DRG and its relative weight, regardless of the actual costs incurred.