Hospital Corporation of America and Subsidiaries - Page 34

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          premiums receivable for statutory accounting and financial                  
          reporting purposes, and recorded corresponding yearend additions            
          to reserves.  Mr. Klaassen considered Parthenon's allocation                
          method to be reasonable from an actuarial standpoint.  Blue Cross           
          found the additional premiums to be reasonable and necessary and            
          allowable for Medicare reimbursement purposes.  The Department of           
          Insurance concluded that the additional amounts collected should            
          be treated as premiums for the business that had been in force              
          and charged Parthenon premium taxes on them accordingly.                    
               During late 1985, Roger E. Mick (Mr. Mick) was appointed               
          senior vice-president and chief financial officer of HCA.  He               
          thought that petitioners' loss experience did not justify the               
          amounts of premiums that Parthenon's consulting actuaries                   
          projected were needed to fund its loss reserve requirements.  He            
          believed that petitioners' actual professional liability losses             
          would be much less than the actuaries were predicting.   He                 
          thought that the funds petitioners were paying to Parthenon could           
          be used more effectively in other areas of petitioners' core                
          hospital business.                                                          
               During 1986, Mr. Mick ordered a study be done to consider              
          alternatives to petitioners' purchasing their primary liability             
          insurance coverage from Parthenon.  Petitioners delayed making              
          the quarterly premiums due Parthenon for the 1986 policy year.              
          Subsequently, Charles L. Kown, Associate General Counsel of HCA             





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