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WHA had two partners, Drs. Leon Schimmel (Dr. Schimmel) and Carol
Lynne Conrad-Forrest (Dr. Conrad-Forrest), both of whom practiced
obstetrics/gynecology. Dr. Schimmel was the tax matters partner
of WHA. At the time the petition for WHA was filed, Dr. Schimmel
resided in California.
Petitioners were primary care physicians5 (with three
exceptions: an orthopedic surgeon, an otolaryngologist, and a
psychiatrist) that had been practicing in individual and small
group practices (as sole proprietorships, S corporation
shareholders, or partners) in the Davis, California, area for
periods ranging from 1 to 21 years in 1994.
II. Background
A. Healthcare Industry
Through the early 1980s, medicine was generally practiced in
the Davis, California, area under a "fee-for-service" model, in
which physicians were paid fees when services were provided to
patients. Patients with health insurance paid fixed premiums to
a health insurer, and the insurer would in turn contract directly
with physicians to establish a fee schedule for services provided
to its insureds. Though collecting premiums, the insurer paid
5 Each individual petitioner physician filed a joint return
with his or her spouse, and the spouses are petitioners in these
cases by virtue of having filed joint returns. We shall refer to
the individual petitioner physicians as "petitioners". For
convenience, we shall also generally refer to the two partners of
WHA, Dr. Schimmel and Dr. Conrad-Forrest, as petitioners.
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