A bit of my background for starters. I've been doing inpatient E/M coding for 7+ years now for specialties like hospital medicine, ICU, pain mgmt, palliative, psych/SUD. In all my years I have never heard any of my co-workers or superiors mention "DRG" at all, but I see it everywhere when I'm looking at job postings. What the heck is DRG even? Is it possible that I'm already doing DRG coding but I just never heard the term? I use 3M to look up codes and then enter my CPTs w/ ICDs in a billing system. I'm not doing anything fancy other than reading the documentation and picking out the ICD's the provider is treating.
DRG stands for Diagnosis-Related Group.
If you’re coding inpatient physician E/M services, you are not using DRGs. DRGs apply to facility reimbursement for inpatient hospital stays, not to physician professional billing.
For simplicity, I’m going to focus on MS-DRG (Medicare Severity DRG), since it’s used by Medicare and most commercial payers.
There is also a methodology called APR-DRG (All Patient Refined DRG) that is used by some state Medicaid programs and other payers. If DRGs are new to you, it’s much easier to first get a solid understanding of MS-DRGs before diving into APR-DRGs.
Acute care hospitals are reimbursed for inpatient stays based on the assigned MS-DRG.
At its core, the reimbursement formula is:
Relative Weight × Hospital Base Rate
That’s the foundation of DRG payment. There are additional factors (such as outlier payments and various hospital-specific adjustments), but everything starts with that basic formula. I’m intentionally not going too deep into reimbursement mechanics here so this doesn’t get unnecessarily complicated.
An inpatient acute care claim is grouped to an MS-DRG based on:
- Principal diagnosis
- Certain secondary diagnoses (especially CCs and MCCs)
- ICD-10-PCS procedure codes
- Patient sex
- Discharge status
There are 25 Major Diagnostic Categories (MDCs), plus a Pre-MDC category. Each MDC contains a list of MS-DRGs.
You can view the current MS-DRG grouper logic (10/1/2025–3/31/2026) on the CMS website here:
https://www.cms.gov/icd10m/FY2026-fr-v43-fullcode-cms/fullcode_cms/P0001.html
I’ve been trying to figure out how to explain how inpatient hospital stays are grouped under MS-DRG logic, but it’s difficult to convey clearly in the limited format of this forum.
Fortunately, this PowerPoint from Ohio Health Information Management Association (OHIMA), Ohio’s AHIMA component association, does an excellent job of visually explaining the coding and grouping concepts. This overview is likely far easier to follow than anything I could summarize in a few paragraphs here!
Demystifying MS-DRGs PowerPoint link:
https://ohima.memberclicks.net/assets/docs/blog/Demystifying_MS-DRGs_AnneCasto.pdf
Once you’ve had a chance to review the links above, please feel free to let me know if you have any questions. I’m very familiar with the methodology, having spent many years in hospital contract management and analysis, including programming DRG logic into contract modeling systems.