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reserving to the Medical Advisory Group of the Operating
Partnership the authority to make all medical decisions.
Under the management contract, SCA Management is entitled to
receive fees equaling 6 percent of the Operating Partnership’s
gross revenues each month, in addition to reimbursement of its
direct expenses. This revenue-based compensation structure
provides SCA Management an incentive to manage the Surgery Center
so as to maximize profits.13
As a practical matter, the Operating Partnership is locked
into the management agreement with SCA Management for at least 15
years. At its sole discretion, SCA Management may renew the
agreement for two additional 5-year periods on the same terms and
conditions. The Operating Partnership has the right to terminate
the management contract for breach, but only after the Operating
Partnership has given written notice describing in detail the
13 The management contract defines gross revenues as “the
net collectable portion of revenues billed as fees or other
charges arising out of the operation of the [Surgery] Center,
with no deduction for bad debts.” Petitioner suggests on brief
that this means that SCA Management has no disincentive to treat
patients who are unable to pay for treatment, because the “gross
revenues” on which its management fee is based would include the
chargeable amount for the services rendered. We do not find
these arguments convincing. In the first instance, the Surgery
Center does not provide charity care. Moreover, petitioner’s
argument does not address to what extent charitable services, if
they were provided, would give rise to “net collectable * * *
revenues”. Nor does petitioner’s argument address the broader
point that the management contract gives SCA Management an
economic interest to maximize revenues in all aspects of the
Surgery Center’s operations, and not just as relate to charity
care.
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