An HMO pays a primary care physician a fixed amount each month for every member assigned to that physician, regardless of how many services the member actually uses. This method of paying providers is called:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Capitation is a managed care payment method in which the HMO pays each primary care physician a fixed per-member, per-month amount, and the physician bears the cost of providing the covered services within that budget. Because the payment does not increase with each office visit or procedure, capitation gives the physician a financial incentive to deliver efficient, preventive, and cost-effective care. It is the hallmark of HMO financing and is why HMOs emphasize gatekeeping, network panels, and utilization review. By contrast, fee-for-service pays per procedure, which encourages more services rather than fewer.
Why the other options are wrong
- B) Fee-for-service pays a separate fee for each visit or procedure; it is the traditional indemnity method and the opposite of the fixed monthly payment described in the stem.
- C) Coinsurance is the percentage of covered charges the insured pays after the deductible is met, such as 20% of a bill, not a method of paying providers.
- D) Balance billing is a provider's charge to the patient for the amount above the insurer's approved fee; it is a billing practice, not a provider payment model.
Memory hook
Capitation = a fixed per-head payment. Providers get a budget, not a bill for each service.