Standard costing concepts have been applied in the health-care industry. For exam- ple, diagnostic related groups (DRGs) are used for prospective payments for medicare patients. Select a search engine (such as YAHOO or EXCITE) and conduct a search to see what information you can obtain about DRGs. You might try “medicare DRGs” as a possible search topic. Use the following questions to guide your search:

What is a DRG?

How are DRGs established?

How many DRGs are used?

How does the DRG concept relate to standard costing concepts discussed in the chapter? Can hospitals use DRGs to control their costs? Explain.

e. What are severity DRGs? Explain how they are connected to standard costing concepts.

f. Are private insurance firms using DRGs? lop5