Charles A. and Marian L. Derby, et al. - Page 16




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          second, because Sutter Health's management believed, on the basis           
          of their projections of the financial performance of the UHMG               
          physicians' group after acquisition, that any additional payment            
          for intangibles would have rendered the deal financially                    
          nonviable for Sutter Health.  Sutter Health's management                    
          anticipated that petitioners and the other UHMG physicians could            
          be persuaded to affiliate with Sutter Health through additional             
          incentives, such as being given a management role, through                  
          participation in various management committees of SMF and Sutter            
          Health.                                                                     
               Many of petitioners were greatly concerned that they not be            
          required to sign any noncompete agreement in connection with                
          their affiliation with a larger health care organization.  It was           
          vitally important to them to be able to terminate their                     
          affiliation in the event they judged it unsatisfactory and resume           
          the practice of medicine in the Davis, California, area without             
          having to relocate.  Many were familiar with the tribulations of            
          physicians in the area who had affiliated with the Woodland                 
          Clinic, which required affiliating physicians to sign noncompete            
          agreements.  Petitioners were aware that when certain Woodland              
          Clinic physicians sought to terminate their relationships with              
          the clinic, they became embroiled in protracted litigation over             

               12(...continued)                                                       
          referrals in violation of the antikickback statute.  Violations             
          of the statute could result in criminal penalties and/or                    
          exclusion from participation in Medicare and Medicaid programs.             





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