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starting in 1994. Because the out-of-pocket costs to the UC-
Davis employees of HMO coverage were considerably less than fee-
for-service coverage, petitioners believed UC-Davis's change
would result in a substantial additional migration to HMOs in the
area. In fact, a significant fee-for-service insurer, Blue
Shield of California, faced with declining enrollments, dropped
out of providing coverage to UC-Davis employees for 1994. This
left only a few very expensive fee-for-service insurance options
for UC-Davis employees; virtually all employees switched to HMO
or other managed care coverage. By 1993, Sacramento, which is
approximately 15 miles from Davis, had the highest penetration of
HMO care in the United States.
In California, the shift towards managed care was
accompanied by a significant consolidation of health care
providers and insurers into larger organizations, or integrated
delivery systems. Both HMOs and hospitals had begun to acquire
physicians' practices as a means of expanding their patient base.
Primary care physicians were attractive acquisition targets,
given their patient rosters, especially organized groups of such
physicians. The UHMG physicians, including petitioners, had in
addition developed a reputation as especially cost-efficient
practitioners; that is, they were perceived by insurers and
others in the field as having shorter-than-average hospital
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