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Diagnosis-Related Group (DRG) is a system to classify hospital cases into one of approximately 500 groups, also refered to as DRGs, expected to have similar hospital resource use, developed for Medicare as part of the prospective payment system. DRGs are assigned by a "grouper" program based on ICD diagnoses, procedures, age, sex, and the presence of complications or comorbidities. DRGs have been used since 1983 to determine how much Medicare pays the hospital, since patients within each category are similar clinically and are expected to use the same level of hospital resources. DRGs may be further grouped into Major Diagnostic Categories (MDCs).

In 1991, the top 10 DRGs overall were: normal newborn, vaginal delivery, heart failure, psychoses, cesarean section, neonate with significant problems, angina pectoris, specific cerebrovascular disorders, pneumonia, and hip/knee replacement. These DRGs comprised nearly 30 percent of all hospital discharges.

The system was created by Robert Barclay Fetter at Yale University with the material support of the former Health Care Financing Administration (HCFA), now called the Centers for Medicare and Medicaid Services (CMS), a federal agency with the United States Department of Health and Human Services.

The history, design, and classification rules of the DRG system, as well as its application on patient discharge data and updating procedures, are presented in the CMS DRG Definitions Manual (Also known as the Medicare DRG Definitions Manual and the Grouper Manual). A new version generally appears in October of every year. The 20.0 version appeared in 2002.