Diagnosis-related group
Diagnosis-Related Group (DRG) is a system to classify hospital cases into one of approximately 500 groups, also referred to as DRGs, expected to have similar hospital resource use, developed for Medicare as part of the prospective payment system. DRGs are assigned by a "grouper" program based on ICD diagnoses, procedures, age, sex, and the presence of complications or comorbidities. DRGs have been used since 1983 to determine how much Medicare pays the hospital, 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).
The original objective of diagnosis related groupings (DRGs) was to develop a patient classification system that related types of patients treated to the resources they consumed.  Since the introduction of DRGs in the early 1980s, the healthcare industry has evolved and developed an increased demand for a patient classification system that can serve its original objective at a higher level of sophistication and precision.  To meet those evolving needs, the objective of the DRG system had to expand in scope.  Today, there are several different DRG systems that have been developed in the US.  They include:
- Medicare DRG
- Refined DRGs (RDRG)
- All Patient DRGs (APDRG)
- Severity DRGs (SDRG)
- All Patient Refined DRGs (APRDRG)
- International-Refined DRGs (IRDRG)
The system was created by Robert Barclay Fetter and John Devereaux Thompson at Yale University with the material support of the former Health Care Financing Administration (HCFA), now called the Centers for Medicare and Medicaid Services (CMS). DRGs were intended to describe all types of patients in an acute hospital setting.  The DRGs encompassed both elderly patients as well as newborn, pediatric and adult populations.  In 1983 CMS assumed responsibility for the maintenance and modifications of these DRG definitions.  Since that time, the focus of all Medicare DRG modifications instituted by CMS has been on problems relating primarily to the elderly population.
In 1987, the state of New York passed legislation instituting DRG based payments for all non-Medicare patients.  Included within this legislation was the requirement that the New York State Health Department (NYHD) evaluate the applicability of Medicare DRGs to a non-Medicare population.  This evaluation concluded that the Medicare DRGs were not adequate for a non-Medicare population.  Based on this evaluation, the NYDH entered into an agreement with 3M to research and develop all necessary DRG modifications.  The modifications resulted in the initial APDRG, which differed from the Medicare DRG in that it provided support for transplants, high-risk obstetric care, nutritional disorders, and pediatrics along with support for other populations.  One challenge in working with the APDRG groupers is that there is no set of common data/formulas that is shared across all states as there is with CMS.  Each state maintains its own information.
In 1991, the top 10 DRGs overall were: normal newborn, vaginal delivery, heart failure, psychoses, cesarean section, neonate with significant problems, angina pectoris, specific cerebrovascular disorders, pneumonia, and hip/knee replacement. These DRGs comprised nearly 30 percent of all hospital discharges.
The history, design, and classification rules of the DRG system, as well as its application on patient discharge data and updating procedures, are presented in the CMS DRG Definitions Manual (Also known as the Medicare DRG Definitions Manual and the Grouper Manual). A new version generally appears in October of every year. The 20.0 version appeared in 2002.

# Version 25 revision
As of October 1, 2007 with version 25, the DRG system changed quite a bit.  This version resequenced the groups, so that for instance "Ungroupable" is no longer 470 but is now 999.