Under an HMO's capitation arrangement, a primary care physician is paid:

Why A is correct

Capitation is a payment method in which the HMO pays a physician a fixed per-member-per-month amount in advance, whether or not the member receives care during that month. The physician assumes the risk that services may cost more than the capitation amount, which creates an incentive to manage care efficiently. This is a core feature distinguishing HMOs from fee-for-service plans, where providers bill for each service performed. Capitation is one reason HMOs can control costs and why they rely on primary care physicians as gatekeepers.

Why the other options are wrong

• B) A percentage of each submitted claim describes fee-for-service or discounted fee arrangements, not capitation.
• C) Paying full billed charges is fee-for-service without discounts and is not how an HMO compensates network physicians.
• D) Referral-based payments are not part of the capitation model; capitation is paid monthly regardless of referrals.

Memory hook

Capitation = a monthly allowance per member, not a bill per visit. The doctor is paid up front and manages the budget.

Why A is correct

Capitation is a prepaid financing arrangement under which the HMO pays each participating provider or medical group a fixed amount per member per month (often called PMPM), whether or not the member uses services. Because the payment is fixed, the provider bears some financial risk and has an incentive to deliver cost-effective, preventive care. This distinguishes capitation from fee-for-service, in which the provider is paid for each service rendered. Understanding provider payment methods is part of how managed care plans are structured.

Why the other options are wrong

• B) Payment for each service performed is fee-for-service, the traditional reimbursement model, not capitation.
• C) Capitation is a monthly prepayment tied to enrollment, not a share of premium released after a deductible.
• D) Members pay copayments at visits, but the provider's main compensation comes from the HMO's capitation payment, not from the member.

Memory hook

Capitation = a flat monthly per-member check. Providers get paid whether you show up or not.