Grouping expenses by diagnoses, also known as Diagnostic Related Groups (DRGs) is how many hospitals are reimbursed. This takes into considerations the different diagnoses of the patients, gender and other associated complications. Planning using diagnoses enables the organization to know the prevalence and incidence of disease in their population.
Grouping expenses by location does have some benefits. By doing so, an organization can remain competitive in pricing with other competitors. However, grouping by location does not account for diseases within the population and does not take into consideration all of the variances within the population. Planning, as a result, would have a limited scope.
Currently, most organizations use a combination approach for planning. DRGs and other codes are used based on the location or service area.