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the physicians only when its insureds received medical services.
Consequently, the insurer bore the risk that a given patient
would require medical care costing more than the premiums that
patient had paid.
In the fee-for-service environment, many doctors, including
petitioners, owned their own practices (alone or with partners)
and managed them independently, including hiring support staff,
purchasing equipment, and overseeing billing and collection.
In the mid-1980s, the phenomenon of managed care, in the
form of health maintenance organizations (HMOs), began to take
hold in the provision of medical services, especially in
California. Under managed care, HMOs, a form of health insurer,
would collect premiums from patients, but rather than pay
physicians for services as rendered, HMOs would instead pay to a
primary care physician a fixed monthly capitation fee to manage
the care of each patient who selected that physician. Thus,
under the HMO model of managed care, the risk of having a patient
whose medical care costs exceeded the premiums paid was in
general shifted from insurers to physicians and other health care
providers.
The penetration of the HMO model was low at first, but it
became much more prevalent over time. HMOs generally would not
contract directly with individual physicians; instead, they would
enter into agreements only with larger groups. Physicians in the
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Last modified: March 27, 2008