In an HMO, network physicians are usually compensated through a fixed periodic payment for each enrolled member, regardless of how many services the member actually uses. This payment method is called:

Why A is correct

Capitation is the fixed per-member, per-period payment an HMO makes to a provider or provider group to deliver the contracted scope of care for each enrolled member, regardless of the volume of services actually rendered. Because the provider receives the same payment whether the member uses little care or extensive care, the provider assumes part of the financial risk of utilization, which gives physicians an incentive to manage care efficiently. Capitation is a hallmark of HMO-managed care and is the precise term for the payment method described in the stem, making A the correct answer.

Why the other options are wrong

• B) Indemnity fee-for-service pays the provider separately for each service rendered, such as a fee per office visit or per procedure, which is the opposite of a fixed prepaid per-member payment.
• C) Usual and customary reimbursement pays the lesser of the provider's actual charge or a regional benchmark amount for a specific service, and it is tied to services performed rather than to membership.
• D) Coinsurance is a cost-sharing percentage split between the insured and the insurer at the time a claim is paid, and it describes the insured's obligation rather than how providers are compensated.

Memory hook

Capitation = a flat monthly check per head, win or lose — the provider bets on low utilization.