Texas General Lines — Life, Accident, Health and HMOHMOsMedium
A physician group has contracted with a Texas HMO to provide services to its members. The HMO compensates the physician group a fixed amount per member per month, regardless of how many services each member uses. What is this payment arrangement known as?
- ABundled payment
- BRetrospective payment
- CFee-for-service
- DCapitation
Show answer & explanationAnswer & explanation
Correct answer: D. Capitation
Capitation is a common payment method used by HMOs where providers receive a fixed periodic payment for each enrolled member, regardless of the actual services rendered. This incentivizes cost control and preventive care.
Why the other options are wrong
- A. Bundled payment involves a single payment for all services related to a specific condition or episode of care, not per member per month.
- B. Retrospective payment means payment is determined after services are rendered, rather than a fixed upfront amount.
- C. Fee-for-service pays providers for each service rendered, which is opposite to the described arrangement.
HMO Capitation
Capitation is a payment arrangement in which a Health Maintenance Organization (HMO) pays a fixed amount per enrollee per month to a medical provider, regardless of the services utilized by that enrollee.
- Fixed payment per member per month.
- Paid to providers by HMOs.
- Incentivizes preventive care and cost control.
- Transfers financial risk to the provider.
Memory trick: Capitation means a 'cap' on the payment per head.