DRGs are assigned by a "grouper" program based on ICD (International Classification of Diseases) diagnoses, procedures, age, sex, discharge status, and the presence of complications or comorbidities.
Since the introduction of DRGs in the early 1980s, the healthcare industry has evolved and developed an increased demand for a patient classification system that can serve its original objective at a higher level of sophistication and precision.
They include:[6] Other DRG systems have been developed for markets such as Latin America and ASIA, for example: As of 2003, the top 10 DRGs accounted for almost 30% of acute hospital admissions.
[7]: 6 In 1991, the top 10 DRGs overall were: normal newborn (vaginal delivery), heart failure, psychoses, Caesarean section, neonate with significant problems, angina pectoris, specific cerebrovascular disorders, pneumonia, and hip/knee replacement.
[9] The system was created in the early 1970s by Robert Barclay Fetter and John D. Thompson at Yale University with the material support of the former Health Care Financing Administration (HCFA), now called the Centers for Medicare & Medicaid Services (CMS).
[2][10] DRGs were first implemented in New Jersey, beginning in 1980 at the initiative of NJ Health Commissioner Joanne Finley[7]: 13 with a small number of hospitals partitioned into three groups according to their budget positions — surplus, breakeven, and deficit — prior to the imposition of DRG payment.
A central theme in the advocacy of DRGs was that this reimbursement system would, by constraining the hospitals, oblige their administrators to alter the behaviour of the physicians and surgeons comprising their medical staffs.
[14] The prospective payment system implemented as DRGs had been designed to limit the share of hospital revenues derived from the Medicare program budget.
[citation needed] In 2007, author Rick Mayes described DRGs as: ...the single most influential postwar innovation in medical financing: Medicare's prospective payment system (PPS).
Inexorably rising medical inflation and deep economic deterioration forced policymakers in the late 1970s to pursue radical reform of Medicare to keep the program from insolvency.
Congress and the Reagan administration eventually turned to the one alternative reimbursement system that analysts and academics had studied more than any other and had even tested with apparent success in New Jersey: prospective payment with diagnosis-related groups (DRGs).
[citation needed] DRGs and similar systems have expanded internationally; for example, in Europe some countries imported the scheme from US or Australia, and in other cases they were developed independently.