What system describes the shift from fee-for-service to a pre-paid method based on patient diagnosis for hospital reimbursement?

The Diagnosis-Related Groups (DRGs) system is integral to the way hospitals are reimbursed for patient care in the U.S. healthcare system. This approach categorizes hospitalization stays into groups that are expected to have similar hospital resource use, allowing for fixed payments based on the patient's diagnosis rather than the specific services and treatment provided.

By setting predictable reimbursement rates for various diagnoses, DRGs encourage hospitals to optimize the efficiency of their care delivery. The method also limits the incentives for providers to over-service patients, as reimbursement is predetermined and based on diagnosis rather than on the number of services rendered. This transition from a fee-for-service model to a fixed payment model reflects an effort to control healthcare costs while still providing appropriate care.

Understanding DRGs is crucial for grasping how healthcare economics function within hospitals, particularly in terms of budget forecasting and resource allocation. It represents a key element in the shift towards more accountable and efficient healthcare delivery systems.