Charles A. and Marian L. Derby, et al. - Page 9

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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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