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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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