A health maintenance organization (HMO) is any public or private organization that provides a comprehensive range of health care services, either directly or under arrangements with others, to an enrolled population for a fixed prepaid per capita fee. The basic health services that HMOs provide to their enrollees include physician services, inpatient and outpatient hospital services, medically necessary emergency health services, treatment and referral services for alcohol or drug abuse, laboratory and radiologic services, home health services, and preventive health services. Policymakers at all levels have argued for the expansion of HMOs and recently a new Office of Health Maintenance Organizations was established within DHEW to promote the HMO concept. It is generally believed that HMOs are a less costly method of delivering health care than the traditional fee-for-service system. Lower rates of hospitalization and surgery appear to account for the cost savings. The evidence generally supports the view that HMOs reduce costs but the effects on costs vary with the organization of the HMO and the practice setting.