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living in Davis County, Utah, where Health Services lacked a
hospital. Because the circumstances under which petitioner’s
enrollees received hospital services from independent hospitals
were limited to situations where Health Services was unable to
provide specialized hospital services or were due to geographical
expediency, or both, we are satisfied that petitioner’s method
for arranging for its enrollees to receive hospital services was
substantially related to Health Services’ tax-exempt function.
However, we do not end our analysis here. In particular,
the administrative record reveals that petitioner’s enrollees
received a substantial portion of their physician services from
independent physicians.
In Geisinger III, we did not discuss the provision of
physician services to Geisinger enrollees inasmuch as Geisinger
HMO arranged for its enrollees to receive all their physician
services from Clinic–-a tax-exempt affiliate of Geisinger HMO.
Clinic in turn arranged to provide physician services to
Geisinger enrollees through its approximately 400
physician/employees (approximately 84 percent of services) and
through contracts with independent physicians (approximately 16
percent of services). In contrast, in the instant case,
petitioner’s enrollees received only 21 percent of their
physician services from physicians employed by or contracting
with Health Services, while petitioner contracted for the
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