Medicare and many health insurance companies pay hospitals using DRGs, or diagnostic related groupings. This means the hospital gets paid based on the admitted patient’s diagnosis rather than based on what it actually spent caring for the hospitalized patient. If a hospital can treat a patient while spending less money than the DRG payment for that illness, the hospital makes a profit. If, while treating the hospitalized patient, the hospital spends more money than the DRG payment, the hospital will lose money on that patient’s hospitalization. This is meant to control health care costs by encouraging the efficient care of hospitalized patients. Why You Should Care How a DRG Is Determined If you’re a patient, understanding the basics of what factors impact your DRG assignment can help you better understand your hospital bill, what your health insurance company or Medicare is paying for, or why you’ve been assigned a particular DRG. If you’re a physician rather than a p...
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