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DRGs - Diagnostic Related Groups
Each DRG is only one of 503 possible classifications of diagnoses in which patients with similar lengths of stay and resource use are grouped together for billing purposes. The patient's actual diagnosis is converted into a DRG that is used to calculate the hospital's reimbursement.

In 1983, DRGs were implemented in all acute care, non-specialty hospitals throughout the United States. They were implemented to contain the costs for the Medicare Program. Instead of hospital reimbursement being based on retrospective charges (after the delivery of care), the reimbursement system changed to a DRG fixed payment or "prospective payment" system, meaning
hospitals are compensated for a patient's care based on the qualifying DRG

Definition found at: http://hospitalguide.mhcc.state.md.us/
Definitions/define_drgs.htm.

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