The number of Americans checking into hospitals and the time they stay there have dropped sharply since the government introduced payments based on diagnosis, rather than on treatment or length of stay, a report by the National Center for Health Statistics said. Hospitals had been paid on a fee-for-service basis. But a new system implemented in 1984 ordered that hospitals receive payments based on the average costs to treat a person for a particular illness. The introduction of the so-called diagnosis-related group system of payment was accompanied by a 5% drop in the rate at which people were hospitalized in 1984, the agency reported. Between 1983 and 1985, the average length of stay also declined, between 6% and 8%, the agency said.