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MS-DRG Classifications and Software


Section 1886(d) of the Act specifies that the Secretary shall establish a classification system (referred to as DRGs) for inpatient discharges and adjust payments under the IPPS based on appropriate weighting factors assigned to each DRG.  Therefore, under the IPPS, we pay for inpatient hospital services on a rate per discharge basis that varies according to the DRG to which a beneficiary's stay is assigned. The formula used to calculate payment for a specific case multiplies an individual hospital's payment rate per case by the weight of the DRG to which the case is assigned.  Each DRG weight represents the average resources required to care for cases in that particular DRG, relative to the average resources used to treat cases in all DRGs.

Congress recognized that it would be necessary to recalculate the DRG relative weights periodically to account for changes in resource consumption.  Accordingly, section 1886(d)(4)(C) of the Act requires that the Secretary adjust the DRG classifications and relative weights at least annually.  These adjustments are made to reflect changes in treatment patterns, technology, and any other factors that may change the relative use of hospital resources.

Currently, cases are classified into Medicare Severity Diagnosis Related Groups (MS-DRGs) for payment under the IPPS based on the following information reported by the hospital: the principal diagnosis, up to 25 additional diagnoses, and up to 25 procedures performed during the stay.  In a small number of MS-DRGs, classification is also based on the age, sex, and discharge status of the patient.  Effective October 1, 2015, the diagnosis and procedure information is reported by the hospital using codes from the International Classification of Diseases, Tenth Revision, Clinical Modification (ICD-10-CM) and the International Classification of Diseases, Tenth Revision, Procedure Coding System (ICD-10-PCS).

For additional information on the MS-DRG system, including yearly reviews and changes to the MS-DRGs, please view prior Inpatient Prospective Payment System (IPPS) proposed and final rules located in the left navigational area of this page.

HCPCS-MS-DRG Definitions Manual and Software

The 21st Century Cures Act requires that by January 1, 2018, the Secretary develop an informational “HCPCS version” of at least 10 surgical MS-DRGs.  Under the HCPCS version of the MS-DRGs developed for this requirement, to the extent feasible, the MS-DRG assignment for a given service furnished to an outpatient (billed using a HCPCS code) is as similar as possible to the MS-DRG assignment for that service if furnished to an inpatient (billed using an ICD-10-PCS code).

The HCPCS-MS-DRG definitions manual and software developed under the requirements of section 15001 of the 21st Century Cures Act (Public Law 114–255) can be found under the "Related Links" section below. Questions about the posted HCPCS-MS-DRG definitions manual and software can be directed to