An HMO or Health Maintenance Organization is a pre-paid health plan that consists of an association of health care professionals and facilities. The PCP determines how, when, and where you will be treated as well as what hospitals or specialists you may see. The HMO provides strong financial incentives to the PCP to minimize the amount of health care provided to the patient. PPO stands for Preferred Provider Organization which consists of a group of health care professionals who provide care to a specified group of patients. Unlike most HMOs, the patient often has the right to obtain services outside of the list of providers, but the patient may pay a higher fee.
Capitation is a method of compensating a physician employed by HMOs.
The physician receives a flat preset amount per patient per month. The physician receives the same amount whether they see the patient once or many times. Some HMOs give doctors incentives and bonuses for not ordering tests or referring patients to specialists. Another cost saving method employed by health insurers is the utilization review process where nurses retained by the insurer oversee health care decisions. In some cases a nurse may refuse to cover treatment or a referral to a specialist even if your physician has determined that it is medically necessary.