The performance of diagnosis-related groups in Ireland & Europe, 2005-2008

Abstract

Diagnosis-related groups (DRGs) are designed to classify hospital output into a manageable number of groups, containing patients who were clinically homogeneous with similar levels of resource utilisation. Where DRGs are used for reimbursing hospitals, these attributes are cucial to ensure that the distribution of funding is efficient and equitable, and that providers face economic incentives to supply the appropriate quantity and quality of care. For instance, homogeneity within DRGs ensures that hospitals receive the same remuneration for providing the same service. However, if substantial heterogeneity exists within groups, hospitals may be inadequately funded if they systematically treat the more complex, expensive cases, possibly incentivising them to game the system.