What does DRG stand for in the context of payment systems for hospitals?

Diagnosis-Related Group (DRG) is a system used by hospitals to classify inpatient stays into categories that are expected to have similar hospital resource use. This classification allows for streamlined payment processes, where hospitals receive a fixed payment for treating patients based on their DRG assignment, rather than being reimbursed for every individual service or procedure performed.

This payment model encourages efficiency in hospital operations, as it incentivizes facilities to manage costs effectively. The DRG system also helps in standardizing payments, making it easier for payers, such as Medicare, to administer benefits and manage expenditures. Understanding the DRG system is crucial in health care management because it directly influences hospital budgeting, revenue cycles, and the overall financial health of medical facilities.