Final answer:
Hospitals are reimbursed under the DRG method based on diagnosis, condition severity, and treatment costs. Privacy and quality of life are also key considerations. The management of resources and risk of adverse selection are concerns in alternative systems like HMOs.
Step-by-step explanation:
The Diagnosis-Related Group (DRG) system is the method by which hospitals receive reimbursement for patient care. The factors governing reimbursement under this method include the type of diagnoses, the severity of a patient's condition, and the costliness of the treatment needed. Hospitals are incentivized to manage costs efficiently under this system, balancing the quality of care with the financial aspects of treatment.
Apart from the medical aspects, hospitals also need to consider issues such as the patient's quality of life and privacy concerns when developing policies. Privacy of health records is particularly crucial, and hospitals must ensure that personal health information is secure and handled in compliance with regulations.
HMOs or Health Maintenance Organizations offer an alternative way of providing care, where physicians are reimbursed based on patient numbers rather than services rendered. This can lead to an efficient allocation of resources, but also raises issues like adverse selection, where there is a risk of insurance imbalance due to differing risk knowledge between buyers and providers.