Physicians who were practicing in the 1990s were involved in numerous attempts to organize themselves in order to be able to participate in and even financially survive the onslaught of managed care delivery systems. The new systems were attempting to shift the risk of increasing costs from insurance carriers to the providers themselves. The logic was that if physicians were costing themselves money by ordering more tests, performing more expensive procedures, or hospitalizing patients, they would be incentivized to practice medicine more conservatively.
This idea caught on and Health Maintenance Organizations ("HMOs") began developing different methods of putting physicians at risk. Many sought to simply reduce fees paid for procedures, others tried to directly capitate physicians by paying them a flat fee per month for either their own medical care to the HMO subscribers or by paying the physician more, but making the physician liable for all of the care provided by physicians in other specialties who received the subscriber on referral.
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