Designing a DRG-based hospital reimbursement for efficiency, effectiveness, and high quality
Introduction Diagnosis Related Groups (DRGs) are a case-based hospital payment mechanism that converts coded clinical and administrative data into clinically meaningful, resource-relevant groups to determine prospective reimbursement. A well-functioning DRG system must simultaneously (i) classify patients fairly (clinical coherence and resource homogeneity), (ii) price cases credibly (cost accounting and weight setting), (iii) control incentives that can degrade quality or induce volume inflation, and (iv) assure data integrity through governance, auditing, and quality measurement. International experience - including long-standing US Medicare prospective payment - shows that DRGs can improve transparency and managerial efficiency but also create incentives for shorter stays, coding inflation (“upcoding”), and strategic behavior unless counterbalanced by strong expenditure controls, quality monitoring, and anti-fraud capacity. 1. Conceptual foundations DRG systems were developed to def...