C.F.R. » Title 42 » CHAPTER IV—CENTERS FOR MEDICARE & MEDICAID SERVICES, DEPARTMENT OF HEALTH AND HUMAN SERVICES › SUBCHAPTER B—MEDICARE PROGRAM › PART 412—PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL SERVICES › Subpart D—Basic Methodology for Determining Prospective Payment Federal Rates for Inpatient Operating Costs

42 C.F.R. § 412.60

DRG classification and weighting factors

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(a) Diagnosis-related groups. CMS establishs a classification of inpatient hospital discharges by Diagnosis-Related Groups (DRGs).

(b) DRG weighting factors. CMS assigns, for each DRG, an appropriate weighting factor that reflects the estimated relative cost of hospital resources used with respect to discharges classified within that group compared to discharges classified within other groups, subject to a maximum ten percent reduction to the weighting factor for a DRG as compared to the weighting factor for the same DRG for the prior fiscal year.

(c) Assignment of discharges to DRGs. CMS establishs a methodology for classifying specific hospital discharges within DRGs which ensures that each hospital discharge is appropriately assigned to a single DRG based on essential data abstracted from the inpatient bill for that discharge.

(1) The classification of a particular discharge is based, as appropriate, on the patient's age, sex, principal diagnosis (that is, the diagnosis established after study to be chiefly responsible for causing the patient's admission to the hospital), secondary diagnoses, procedures performed, and discharge status.

(2) Each discharge is assigned to only one DRG (related, except as provided in paragraph (c)(3) of this section, to the patient's principal diagnosis) regardless of the number of conditions treated or services furnished during the patient's stay.

(3) When the discharge data submitted by a hospital show a surgical procedure unrelated to a patient's principal diagnosis, the bill is returned to the hospital for validation and reverification. CMS's DRG classification system provides a DRG, and an appropriate weighting factor, for the group of cases for which the unrelated diagnosis and procedure are confirmed.

(d) Review of DRG assignment. (1) A hospital has 60 days after the date of the notice of the initial assignment of a discharge to a DRG to request a review of that assignment. The hospital may submit additional information as a part of its request.

(2) The intermediary reviews the hospital's request and any additional information and decides whether a change in the DRG assignment is appropriate. If the intermediary decides that a higher-weighted DRG should be assigned, the case will be reviewed by the appropriate QIO as specified in § 466.71(c)(2) of this chapter.

(3) Following the 60-day period described in paragraph (d)(1) of this section, the hospital may not submit additional information with respect to the DRG assignment or otherwise revise its claim.

(e) Revision of DRG classification and weighting factors. Beginning with discharges in fiscal year 1988, CMS adjusts the classifications and weighting factors established under paragraphs (a) and (b) of this section at least annually to reflect changes in treatment patterns, technology, and other factors that may change the relative use of hospital resources.

[50 FR 12741, Mar. 29, 1985, as amended at 52 FR 33057, Sept. 1, 1987; 57 FR 39821, Sept. 1, 1992; 59 FR 45397, Sept. 1, 1994; 87 FR 49403, Aug. 10, 2022]
Notes of Decisions
Cited in 22 cases, 1987–2020 · leading case: White v. Jubitz Corp.
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White v. Jubitz Corp. (2009) or · cites it 2× “) ¶ 4202 (June 16, 2009) (describing history and methodology of setting payments to hospitals under Medicare Part A); 42 C.F.R. § 412.60 (specifying procedures for determining Medicare payments under Part A).”
United States v. Community Health Systems, Inc. (2007) ca6 “" See 42 C.F.R. § 412.60 . Medicare’s and Medicaid's reimbursement to hospitals is based in part on DRG codes.”
United States ex rel. Simpson v. Bayer Corp. (2019) njd · cites it 2× “See 42 C.F.R. § 412.60 . Congress adopted the IPPS in order to incentivize hospitals to manage operating costs efficiently, as costs above the fixed payment are borne by the hospital.”
Appalachian Regional Healthcare, Inc. v. Shalala (1997) cadc · cites it 2× “” 42 C.F.R. § 412.60 (c) (1996). Reimbursement depends on the DRG to which a patient is assigned and the average cost of treating such a diagnosis, “regardless of the [actual] number of conditions treated or services furnished during the patient’s stay.”
Robert Wood Johnson University Hospital, a Non-Profit Corporation v. Tommy G. Thompson, United States Department of Heal (2002) ca3 “42 C.F.R. § 412.60 (2001). The payment rates for the upcoming federal fiscal year (FFY) for each DRG are published in the Federal Register, first in the form of a proposed rule and then in the form of a final rule published on or about August 1 for the FFY beginning on October 1…”
US Ex Rel. Bennett v. Medtronic, Inc. (2010) txsd “42 C.F.R. § 412.60 (c)(1) (stating that the DRG is based on “essential data extracted from the inpatient bill for that discharge” including “the patient’s age, sex, principal diagnosis, .”
Hays Medical Center v. Azar (2020) ca10 “; see also 42 C.F.R. § 412.60 (a) (noting that the Secretary “assigns, for each DRG, an appropriate weighting factor that reflects the estimated relative cost of hospital resources used with respect to discharges classified within that group compared to discharges classified…”
Little Company of Mary Hospital & Health Care Centers v. Shalala (1994) ca7 · cites it 3× “See 42 C.F.R. § 412.60 (d). Little Company sought to appeal its year-end reimbursement calculations for both 1988 and 1989 to the Provider Review Reimbursement Board (PRRB), but the PRRB refused to take jurisdiction over the appeals.”
National Medical Enterprises, Inc. v. Bowen (1989) dcd · cites it 4× “” 42 C.F.R. § 412.60 (c)(1) (1988). And, as noted by the plaintiffs, the DRG assigned to a given patient “dramatically affects the payment which a hospital receives for services provided under PPS.”
Adirondack Medical Center v. Sebelius (2013) dcd · cites it 2× “42 C.F.R. § 412.60 (b); id. § 412.64(g). CMS annually identifies hundreds of different DRGs, assigning each “a numeric weight reflecting the amount of resources needed, on average, to treat a patient with the corresponding diagnosis,” relative to other diagnoses.”
Springdale Memorial Hospital Association, Inc. v. Otis R. Bowen, M.D., Secretary of Health & Human Services (1987) ca8 “The Secretary has established over 460 DRGs — each consisting of comparable treatments having similar costs, see 42 C.F.R. § 412.60 (a), (c) (1986) — and assigned to each group a weighting factor, a number that reflects the estimated cost relationship between each group.”
Georgetown University Hospital v. Bowen (1988) dcd “See 42 C.F.R. § 412.60 . By 1988, this per discharge payment will be a uniform national average.”
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