Final answer:
HMOs were started to control healthcare costs and improve care quality, using a fixed-amount reimbursement model to manage the provision of necessary and efficient care.
Step-by-step explanation:
Health Maintenance Organizations, or HMOs, were initiated as a way to manage the costs and quality of healthcare. Unlike the traditional fee-for-service model where medical care providers are financially incentivized to increase the quantity of care, HMOs operate on a fixed-amount reimbursement model. This model pays providers a set amount per person enrolled, thereby shifting the focus to providing necessary care efficiently and effectively. This system was put in place to counter adverse selection and moral hazard in healthcare, encouraging the provision of care that is cost-effective and medically appropriate without the volume incentives present in fee-for-service arrangements. Health Maintenance Organizations (HMOs) were originally started by health care providers and consumer advocates in the 1970s. The concept was to create a more organized and cost-effective approach to healthcare delivery by emphasizing preventive care and comprehensive health services. HMOs typically involve a network of healthcare providers who work together to provide coordinated and managed care for their members. This model was seen as a way to control healthcare costs while improving the quality of care.