Final answer:
A managed care organization (MCO) is a type of health maintenance organization (HMO) where providers receive reimbursement based on the number of patients they handle. MCOs help control costs by limiting unnecessary services and overutilization.
Step-by-step explanation:
A managed care organization (MCO) is an alternative method of organizing health care. It is a type of health maintenance organization (HMO) where medical care providers receive reimbursement based on the number of patients they handle, rather than the cost of services they provide. MCOs or HMOs are responsible for allocating resources between patients who require different levels of health care services.
For example, in an MCO or HMO, a primary care physician would receive a set payment per patient enrolled in the plan, regardless of the number of services provided. This creates an incentive for the provider to reduce unnecessary services and limit overutilization, which helps control costs.
Managed care organizations play a significant role in reducing moral hazard, which is the problem of individuals with insurance demanding more care than necessary because they do not bear the full cost. By providing fixed payments to providers, MCOs encourage more efficient use of resources and help maintain quality of care.