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Medicare begins billing payment by diagnosis.

1980

MED
HPI

Under President Reagan, Medicare shifts to a system of payment to physicians by diagnosis, known as diagnosis-related group reimbursement (DRG), instead of by treatment. Private plans quickly follow suit.

This is driven by growing complaints from insurance companies that the traditional fee-for-service method of payment to physicians is being exploited. A specific fee or payment amount per patient, known as "capitation," becomes more common.