Understanding How DRG Determines Hospital Payments and Case Study on Strive Health's Partnership for Better Outcomes

Ben H.

Hatched by Ben H.

Feb 20, 2024

4 min read


Understanding How DRG Determines Hospital Payments and Case Study on Strive Health's Partnership for Better Outcomes


Healthcare payment systems play a crucial role in determining how hospitals are reimbursed for the care they provide to patients. One such system is the Diagnosis-Related Group (DRG), which is used by Medicare to determine hospital payments. In this article, we will explore how DRG works and its impact on hospital reimbursement. Additionally, we will delve into a case study that highlights the successful partnership between Strive Health and SSM Health to improve patient outcomes and reduce costs.

Understanding Medicare's DRG System:

Medicare's DRG system, known as the Medicare Severity Diagnosis-Related Group (MS-DRG), is utilized when a patient is admitted as an inpatient to a hospital. Upon discharge, the hospital assigns a specific DRG based on the level of care required during the hospital stay. It is important to note that the hospital receives a fixed payment for that specific DRG, regardless of the actual expenses incurred in treating the patient.

Determining DRG Payment:

To comprehend how much a hospital gets paid for a patient's hospitalization, it is necessary to consider the relative weight assigned to each DRG. The Centers for Medicare and Medicaid Services (CMS) provides a list of MS-DRGs along with their corresponding relative weights. The average relative weight is 1.0, indicating the baseline level of resource intensity and cost for treatment. DRGs with a relative weight less than 1.0 are generally less resource-intensive and less costly to treat, while those with a relative weight higher than 1.0 require more resources and are more expensive to treat.

To calculate the payment, the hospital multiplies the relative weight of the patient's DRG by its base payment rate. The base payment rate varies for each hospital, taking into account factors such as healthcare resource costs, labor expenses, and facility maintenance costs. Hospitals in areas with higher costs of living and greater resource demands may have a higher base payment rate compared to hospitals in less expensive regions.

Unique Factors Affecting Hospital Reimbursement:

Medicare considers various factors when determining a hospital's blended rate for reimbursement. These factors include whether the hospital is a teaching institution with residents and interns, its location (rural or urban), and its role in caring for a disproportionate share of the poor and uninsured population. Each of these factors can influence the hospital's base payment rate, ensuring that hospitals with unique circumstances receive appropriate reimbursement.

Case Study: Strive Health and SSM Health Partnership:

In a remarkable example of effective collaboration, Strive Health and SSM Health joined forces to improve outcomes for patients with end-stage kidney disease (ESKD) and high-risk chronic kidney disease (CKD). Within a short span of 90 days, the partnership successfully launched in 2020, with impressive results in the first year. The collaboration resulted in a 10% reduction in total costs of care among ESKD and high-risk CKD populations, along with a significant 48% decrease in unnecessary hospitalizations among ESKD patients.

Building on the initial success, SSM Health and Strive Health continuously strive to enhance patient participation in value-based kidney care. They are actively exploring new relationships with healthcare payors in the Midwest and refining the care model to include discharge planning, follow-up, and multi-modality dialysis. By focusing on delivering high-quality, value-based care, this partnership exemplifies how collaboration can lead to better outcomes for patients while reducing overall costs.

Actionable Advice:

  • 1. Stay Informed: As a patient, it is crucial to understand how healthcare payment systems work. Familiarize yourself with DRG and how it affects hospital payments. This knowledge can empower you to make informed decisions about your healthcare and navigate the system more effectively.
  • 2. Advocate for Value-Based Care: Encourage healthcare providers and institutions to embrace value-based care models, like the partnership between Strive Health and SSM Health. Value-based care focuses on improving patient outcomes while reducing costs, ultimately leading to a more sustainable and efficient healthcare system.
  • 3. Engage in Preventive Care: Take proactive steps to maintain your health and prevent the need for costly hospitalizations. Regular check-ups, healthy lifestyle choices, and disease management can help minimize the impact on both your health and the healthcare system.


Understanding how DRG determines hospital payments is essential for patients and healthcare providers alike. By comprehending the intricacies of the system, patients can make informed decisions about their healthcare, while hospitals can optimize reimbursement. Furthermore, successful partnerships like the one between Strive Health and SSM Health demonstrate the potential for collaboration to drive improved patient outcomes and cost savings. By staying informed, advocating for value-based care, and prioritizing preventive measures, individuals can contribute to a more efficient and patient-centric healthcare system.

Hatch New Ideas with Glasp AI 🐣

Glasp AI allows you to hatch new ideas based on your curated content. Let's curate and create with Glasp AI :)