In the health care context, DRG refers to a diagnosis-related group. According to the U.S. Centers for Medicare and Medicaid Services, the purpose of DRGs is to divide patient hospital stays into easily classifiable groups to facilitate billing and payments.
The current DRG system divides the body into 20 major groups and further subdivides them into nearly 500 sub-groups, according to the book "Fundamentals of Health Law." The purpose is to establish a standard baseline that can be used to compare costs for the same procedure at different hospitals. The DRG system has been in place since 1982 and is now used by all major U.S. hospitals for standardized Medicare billing, as explained by the California Department of Healthcare Services.