Charles A. and Marian L. Derby, et al. - Page 8

                                        - 8 -                                         
          with HMOs, collected capitation fees paid under those contracts,            
          and distributed them to member physicians.  UHMG contracted with            
          a third-party administrator to perform the latter two functions             
          for a fee of 15 percent of receipts.  UHMG performed no other               
          consolidated functions for its member physicians, such as other             
          billing, patient record keeping, appointments, employment of                
          staff, etc.  Its member physicians continued to operate                     
          independent practices and to directly bill fee-for-service and              
          preferred provider organization (PPO)7 patients.                            
          III.  Decision To Affiliate                                                 
               A.  Necessity of Affiliation                                           
               By approximately late 1992 or early 1993, several factors              
          prompted petitioners to consider affiliating with a larger health           
          care organization.  The penetration of the HMO model into the               
          Davis area had become substantial.  The principal employer in the           
          Davis area, UC-Davis, faced with burgeoning costs in providing              
          conventional fee-for-service health insurance coverage, arranged            
          to have HMOs among the health insurance options for its employees           

          although UHMG's approximately 70 shareholder/members also                   
          included physicians who did not participate in the transactions             
          at issue.                                                                   
               7 A PPO is an organization created by an insurer consisting            
          of physicians and/or other health care providers who individually           
          contract with the insurer to provide medical services to its                
          insureds for reimbursement at a discount.  The insureds have an             
          incentive to use the insurer's "preferred providers" because the            
          out-of-pocket costs of doing so are reduced.                                

Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  Next 

Last modified: March 27, 2008