One year after the obligatory implementation of a new hospital funding system based on Diagnosis Related Groups (DRG) the third version of a German DRG-system has been published. It differs significantly from the previous version. Modifications in the classification system and the introduction of further procedure-based payments contribute to a better depiction of specialized clinical services. A number of acknowledged problems which caused great discussion in 2004 have been solved, yielding a more appropriate mapping of clinical services. The algorithms of the major diagnostic categories have been modified and complications, comorbidities and/or multiple procedures will be considered more precisely in selecting a group. However, some inconsistencies concerning highly specialized medical procedures and special features of impatient dermatological care remain. Nevertheless, a great improvement over the previous versions is apparent. The crucial aspects of the G-DRG version 2005 and the accompanying rules and regulations of payment are reviewed in detail with special relevance to dermatology.