Doctors are paid a salary as HMO employees or receive a set fee, called a capitated payment, to care for each patient's needs. In either case, the insurer makes a profit on an individual when the patient needs few medical services and loses money if the patient's medical needs are costly. Although most HMOs have common benefits, significant differences exist from one HMO to the next. Another kind of HMO is an independent practice association, or IPA, such as U.S. Healthcare. An IPA contracts with individual physicians in private practice to provide services to plan members, again at a prepaid rate per patient.
Physicians maintain their own offices and can still see nonplan patients.
A primary-care provider in an IPA can refer patients in the plan only to specialists who are also in the plan. Physician provider organizations are more flexible than HMOs. Consumers are free to choose any doctor, although the PPO tries to control costs by directing patients to providers with proven records of cost-effective care delivery. If a consumer wants to choose a less efficient doctor, he or she will pay more out of pocket. Exclusive provider organizations are a version of PPOs in which consumers who stray from the recommended physicians pay the entire cost of care out of pocket.