That is an anti-trust violation. If an HMO does not want to take the drastic step of throwing a doctor off its plan, it can penalize him by restricting the number of new patients he can take or by withholding part of his payments. If a doctor spends very little of the HMOs money on his patients, then he stands to receive a financial bonus. I do not know about you, but if I was in the middle of a difficult labor and my baby was at risk, the last thing I would want my obstetrician thinking about the bonus he might lose if he performed a c-section on me. Fortunately, the state government agreed and vetoed this plan.
Capitation is another cost containment strategy.
Under this arrangement, a primary care physician is paid a lump sum per patient per month. If he spends all of it, too bad. The HMO is not giving him any more. If he spends less than all of it, he gets to keep what is left. Obviously, this too is an inducement for physicians to limit services, since the less he does the more profit he makes.