Physician payment models' incentives regarding many aspects of primary health care are not well understood. We focus on the case of medical laboratory utilization and examine how physicians' laboratory test ordering patterns change following a switch to a blended capitation payment model from one with fee for service enhanced with pay for performance. Also, within blended capitation, we examine differences between traditional staffing and interdisciplinary teams. Using a propensity score weighted fixed‐effects specification to address selection, it is estimated that the switch to capitation leads to a short‐run average of 3% fewer laboratory requisitions per patient. Patients' laboratory utilization also becomes more concentrated with the rostering physician. More importantly, using diabetes‐related laboratory tests as a case study, after joining the blended model, physicians order 3% fewer inappropriate/redundant tests, and the addition of an interdisciplinary care team makes the reduction about 9%. Advances in both continuity and quality seem to be associated with blended capitation.