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HMOs have unique features and lingo such as the following. (For a glossary of  terms standard to a variety of health insurance policies, click here.)


Under traditional indemnity insurance, the insurance company pays a doctor or hospital for each service provided. This is called fee-for-service.

Under Capitation, the doctor or other medical provider receives a monthly payment for each HMO member (patient) registered with it. It doesn't matter whether the provider sees or treats the patient one time a month or many times, or even has no contact with the member at all. 


The amount you, the insured pays each time you receive health care, such as visit a doctor. Co-pays are generally small amounts such as $10 or $25. 


A formulary is one of the methods by which HMOs manage care by managing the drugs membersmay receive.

A formulary is a list of the only prescription medications that the HMOs doctors may prescribe. The traditional HMO does not pay for drugs which a doctor prescribes which are not on the formulary.  More current HMOs may pay a part of those drugs.

  • Formularies usually cover most standard drugs.
  • Formularies generally emphasize generic drugs which provide the same benefit as drugs with a brand name but at less cost.  According to the FDA, a "generic drug" is identical, or bioequivalent to a brand name drug in dosage form, safety, strength, route of administration, quality, performance characteristics and intended use.  Although generic drugs are chemically identical to their branded counterparts, they are typically sold at substantial discounts from the branded price.
  • Formularies sometimes stress one particular brand name drug over others if the HMO can purchase a large enough volume to qualify for discounts. 
  • Formularies may determine the order in which similar medications are prescribed. For instance, by providing that the high cost forms of drugs be reserved for members who have bad reactions or other problems with the less expensive alternatives.


Because one of the historic roles of the Primary Care Physician in an HMO was to decide when and which specialist membersshould see, a PCPs is sometimes referred to as a Gatekeeper or Gatekeeper Physician.  

Medical Group

A group of doctors or other health care providers.

There are several types of medical groups in use with HMOs:

  • Staff Model
  • Group Practice Model
  • Independent Practice Associations

Staff Model

Under a staff model, doctors are employees of the HMO.  The doctors generally work in a facility owned or leased by the HMO. The doctors only treat members of the HMO.

Kaiser Permanente is the prime example of a staff model HMO.

Group Practice Model

Under a group practice model, rather than have doctors as employees, the HMO contracts with medical groups or individuals through the medical group -- a joint practice of doctors and/or other providers.  Some group practices have hundreds of doctors and many locations. Others have only a few.

When you enroll in an HMO with a group practice model, you may choose to go to any primary care physician in the group. You can also change primary care physicians whenever you want as long as you remain within that medical group.

Although the medical groups are paid on a Capitation basis, it is up to each group in its agreement with its doctors whether each doctor is paid on a fee-for-service basis or capitated. A group may pay all primary care doctors on a capitation basis while the specialists are paid fee-for-service.

Independent Practice Associations ("IPA")

An IPA is a group of physicians in their own private practices that have organized a loose association. The association contracts with the HMO.

The main difference between an IPA and a Group Practice is that with an IPA, when you enroll as a member, you will be required to name your Primary Care Physician  so that the Capitation can go to the right doctor. If you later want to change your Primary Care Physician, you must follow the HMO's procedures.

Just as with a Group Practice, it is up to the group whether the participating doctors are paid on a capitation or fee-for-service basis.

Network Model

The HMO contracts with many groups or doctors and health care facilities to form a network.

Mixed Model

A combination of the above systems. 


People covered by an HMO are called a "member" rather than an "insured." 


Health providers with which the health plan has a contractual arrangement.  

Providers who have such an arrangement are known as "in network" providers.

Providers who do not have such an arrangement are known as "out of network" providers.

Some plans with networks cover at least part of the cost of services provided by out of network providers. Others do not.

Practice Guidelines

An HMO sets guidelines for general health practice and to treat specific health conditions. These guidelines are known as Practice Guidelines.

Practice Guidelines are supposed to set a minimal level of care which the doctors and facilities associated with the HMO agree to provide to members.

In reality, Practice Guidelines tend to become the actual standard of care instead of the minimum level. Critics of HMOs use this feature to complain that HMO care is "cookbook medicine" without regard to individual differences or unique circumstances. 

Primary Care Physician (also known as "PCP" or "Gatekeeper")

The Primary Care Physician, also known as a "PCP" or as the "Gatekeeper," is the member point of entry to the HMO health care system. 

The PCP:

  • Is generally a doctor but can also be a Nurse Practitioner or Physician's Assistant.
  • Sees members for routine matters and provides the primary level of care.
  • Decides when and if a member should see another provider such as a specialist.
  • Decides when and what tests should be performed.
  • Decides when a member should be hospitalized.

Provider, Also Known As "Contracting Provider"

HMOs contract with doctors, hospitals, physical therapists, nurses, x-ray and lab technicians, and other medical personnel, to provide services for the HMO's members. In addition to setting the fee or the capitation that the HMO will pay the provider, the contract will also require the provider to follow the HMOs guidelines on procedures.

Guidelines can range from requiring pre-certification of all hospital confinements, to spelling out when to refer a member to a specialist, to which brand of medications should be prescribed.

Some contracts even spell out bonuses for physicians if their utilization (use of medical treatments) is lower than a pre-set amount. 

Specialist Referrals

If a Primary Care Physician (PCP)decides a member should visit a specialist, the PCP provides a Specialist Referral (also known simply as a "Referral") which permits the member to see a specialist.

Depending on the type of referral, the contract and the HMO involved, the PCP's decision to suggest a member see a specialist can be made solely by the PCP or it may need approval by a referral committee, usually a group of doctors within the practice that meet regularly to review referral requests.

Upon receiving approval, the PCP decides to which specialist a member will be referred.

The patient generally retains the right to see another doctor within the system instead of the doctor recommended by the PCP.

Many HMOs either permit multiple referrals so the member does not need to seek permission each time he or she wants to see a specialist, or have eliminated the referral requirement all together. Either of these options are particularly useful for people with a life changing condition who meet frequently with specialists.