DRGs: how they evolved and are changing the way hospitals are managed.

Medicare uses Diagnosis-related Groups for prospective hospital payments nationwide, but the groups were not originally intended as such. The authors trace the development of this landmark program and explore the concept of product line management. Dr. Fetter, a leading authority in health care resource allocation, developed the entire framework for DRGs as a method to predict hospital resource requirements. He is currently extending the DRG concepts to outpatient and long-term care facilities. This article is adapted from Dr. Fetter's presentation at the Bridgeport Symposium entitled "Performance Requirements for Clinical Laboratories Under Prospective Reimbursement and DRGs." The Nov. 15-16, 1984 symposium was sponsored by Bridgeport Hospital, Bridgeport, Conn., and supported by contributions from 20 companies (listed on page 29). Portions of this article are also based on a presentation by Drs. Freeman and Mullin at the Tri-Service Performance Measurement Conference, June 11-15, 1984, sponsored by the Army Medical Department.