Final answer:
The HMO model in question, where physicians are contracted to provide services at a fixed fee, is known as managed care. This system aims to reduce healthcare costs by incentivizing preventive care and cost-effective treatment, but must navigate challenges like adverse selection and moral hazard.
Step-by-step explanation:
In the context of a health maintenance organization (HMO), the model where the HMO contracts with physicians to provide services at a set fee is known as managed care. This arrangement is designed to control healthcare costs and ensure efficient service delivery. By providing a predetermined payment amount to physicians for each enrolled patient, HMOs encourage healthcare providers to focus on preventive care and cost-effective treatment options to avoid excessive healthcare expenditures.
A major challenge with this system is the potential for adverse selection, which occurs when there is asymmetric information between insurance buyers and providers. High-risk individuals may find such plans more appealing, while low-risk individuals might forego them, leading to imbalances in the insurance market. Despite these issues, managed care aims to reduce moral hazard by limiting unnecessary services and focusing on long-term health outcomes.
Physicians under this model receive a blend of payments - a base rate for the patient population covered, along with possible additional fees for certain procedures or treatments of specific conditions, combining elements of both managed care and traditional fee-for-service models.