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agreement was risks that were not covered by the reinsured
policies.
We conclude that, with a few significant differences, the
facts of the instant case are strikingly similar to the facts
presented in Humana Inc. v. Commissioner, supra. Both Humana and
HCA owned and operated hospitals that were facing difficulties in
obtaining medical malpractice insurance at the time that they
formed their captive insurance companies. Both formed fully
capitalized, domestic captive insurance companies to provide on a
direct basis general and professional liability insurance for
themselves and their operating subsidiaries. Respondent does not
dispute that Parthenon was formed and operated for legitimate
business purposes.
Except as discussed infra, we are not persuaded that the
"distinctions" between the facts of Humana and those of the
instant case are material. Respondent contends that the sister
subsidiaries had an equity interest in Parthenon. We do not
agree. We are not persuaded that the reserve strengthening
payments HCA and the sister subsidiaries paid to Parthenon during
1985, 1986, and 1987, or an alleged $60 million overcharge paid
for 1986, were the equivalent of capital contributions, which, in
substance, gave the sister subsidiaries an ownership interest in
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