About one-third of Californians belong to HMOs. Most of these HMO members are covered under employee health plans, but many persons covered by Medicare or Medi-Cal also receive their health care through HMOs. Capitation and Other Financial Incentives. By contrast, HMOs generally use capitation to pay doctors. Under this approach, doctors receive a fixed payment for each HMO member regardless of the amount of service provided to the member.
Capitation gives doctors a financial incentive to use cost-effective types of care.
In addition to capitation, HMOs use other financial incentives to control health care costs. The federal government, however, limits the types of financial incentives that may be used by HMOs when serving Medicare or Medi-Cal recipients. Specifically, federal law prohibits any financial incentives to doctors that could act to reduce medically necessary care to individual patients, such as a bonus payment for each patient that is not hospitalized during the year. Under these procedures, health plans will not pay for certain types of expensive or unusual treatments unless they have approved the treatment in advance. Controlling Hospital Costs Health maintenance organizations also control their costs by reducing their use of hospitals and encouraging more treatment in doctors' offices and clinics.