REDLANDS SURGICAL SERVICES - Page 74




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          surgery centers, it seems most likely that one purpose and effect           
          of the containment and contraction of Redlands Hospital’s                   
          outpatient surgery activities is to eliminate a competitive                 
          constraint for setting Surgery Center fees (a matter delegated to           
          SCA Management under the management contract, excluding charges             
          for physicians’ services).  Moreover, market consolidation                  
          provided petitioner and SCA Centers mutual advantages by                    
          eliminating pressures to compete in spending for expensive                  
          equipment.22                                                                
               There is no per se proscription against a nonprofit                    
          organization's entering into contracts with private parties to              
          further its charitable purposes on mutually beneficial terms, so            
          long as the nonprofit organization does not thereby impermissibly           
          serve private interests.  Cf. Plumstead Theatre Socy. v.                    
          Commissioner, 75 F.2d 244 (9th Cir. 1982); Broadway Theatre                 
          League v. United States, 293 F. Supp. 346 (W.D. Va. 1968).  In              
          the instant case, however, RHS relied on the established                    
          relationship between Redlands Hospital and Redlands physicians to           
          enable RHS and SCA affiliates jointly to gain foothold, on                  
          favorable terms, in the Redlands ambulatory surgery market.                 
          Then, by virtue of their effective control over the Surgery                 


               22 As stated in a letter in the administrative record                  
          written on behalf of petitioner from Ernst & Young LLP to                   
          respondent, dated Nov. 23, 1994, “The Hospital and * * * [the               
          Surgery Center] also share surgical equipment so as to avoid a              
          ‘medical arms race’ in the Redlands health care community.”                 




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