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The basic principle of Diagnosis Related Groups (DRG) is to classify patients according to the combination of diagnosis and procedures. The first DRG developed by research at Yale University was adopted for the per-case-payment American Medicare scheme for hospital fees under a DRG/PPS (prospective payment system). This scheme has been refined continuously and adopted as payment systems in other countries. The DPC-based reimbursement scheme in Japan consists of two components; a DPC component and a Fee-For-Service (FFS) component. The DPC component corresponds to the "so-called" hospital fee, includes the hospital basic charge, the pharmaceuticals and supplies used in wards, lab-test, radiological examination, and any procedures costing less than 10,000 yen. The FFS component corresponds to the charges for surgical procedures, pharmaceuticals and supplies used in operation rooms, and procedures costing more than 10,000 yen. For the DPC component, a per diem payment schedule is set for each DPC group. One of the most important objectives in introducing the DPC scheme is to ameliorate the transparency of hospital activities in Japan. The DPC system is expected to make hospital services measurable, and then to provide a common ground for discussion among interest groups over the optimal policy to maintain a sustainable Japanese medical care system. However, in order to keep DPC more reliable, much must be done to refine the DPC version 3. For example, development of CCP (Co-morbidity-Complication-Procedure) matrix is now ongoing to more properly describe the resource consumption of each DPC group. It is also important how to evaluate nursing services, ICU services and expensive drugs and materials within the DPC sheme.