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An HMO is a prepaid group plan. Patients join the plan and pay monthly medical insurance premiums individually or through their employer. The physician renders service to the patient, and the patient usually pays a small co-payment and occasionally a deductible as required by the plan. Providers that join the plan are paid using the capitation method.

Capitation is a system of payment used by managed care plans in which physicians and hospitals are paid fixed per capita amount for each patient enrolled over a stated period of time, regardless of the type and number of services provided.

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