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Diagnosis-related group (DRG) is a system to classify hospital cases into one of originally 467 groups.[citation needed] The 467th was "Ungroupable." The system of classification was developed as a collaborative project by Robert B Fetter, PhD of the Yale School of Management, and John D Thompson, MPH of the Yale School of Public Health. The system is also referred to as "the DRGs," and its intent was to identify the "products" that a hospital provides. One example of a "product" is an appendectomy. The system was developed at Yale, in anticipation of convincing Congress to use it for reimbursement, to replace "cost based" reimbursement that was used up to that point. DRGs are assigned by a "grouper" program based on ICD (International Classification of Diseases) diagnoses, procedures, age, sex, discharge status, and the presence of complications or comorbidities. DRGs have been used in the US since 1982 to determine how much Medicare pays the hospital for each "product", since patients within each category are similar clinically and are expected to use the same level of hospital resources. DRGs may be further grouped into Major Diagnostic Categories (MDCs).

http://en.wikipedia.org/wiki/Diagnosis-related_group