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Background: The prospective payment system, under which diagnosis-related groups (DRGs) are used to reimburse hospitals for the care of Medicare patients, replaced the fee-for-service method of payment in Rhode Island in 1983 and in Massachusetts in 1985. Changes in financial incentives resulting from the use of the DRG system may have influenced the assignment of discharge diagnostic codes away from those with lower reimbursement toward codes with higher reimbursement., Methods: We collected data from the hospital records of patients 35 through 74 years of age who were discharged with codes 410 through 414 (representing various categories of coronary heart disease) of the International Classification of Diseases, 9th Revision, Clinical Modification (ICD-9-CM). The patients were discharged from seven hospitals in two New England communities (one in Rhode Island and one in Massachusetts) between 1980 and 1988. The rates of diagnosis of various forms of coronary heart disease were determined by studying ICD-9-CM hospital discharge codes (codes 410 and 411 for acute forms of coronary heart disease and codes 412, 413, and 414 for chronic forms) and by using a computerized diagnostic algorithm designed to detect definite myocardial infarction and fatal coronary heart disease., Results: The rates of definite coronary events diagnosed by the algorithm and by the study of ICD-9-CM codes 410 through 414 were constant or increased slightly during the study period. However, the frequency of assignment of codes for the acute forms of coronary heart disease (which entail higher reimbursement) rose from 35.2 percent to 48.4 percent among discharged patients with cardiac disease after the institution of DRGs. The majority of this increase was associated with the code for unstable angina pectoris. The frequency of assignment of codes for the chronic forms of coronary heart disease (which entail lower reimbursement) decreased reciprocally, from 64.8 percent to 51.6 percent (P < 0.001)., Conclusions: Our data are consistent with the hypothesis that the prospective reimbursement system has influenced the assignment of hospital discharge codes in a way that would increase payment to hospitals. However, the data do not permit us to distinguish whether hospitals began to assign more precise diagnoses with the advent of the DRG system, or whether they began to favor diagnoses of acute conditions solely for financial reasons.