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7) COMMITMENTS AND CONTINGENCIES Effective January 1, 1998, the Company’s subsidiaries are covered under commercial insurance policies which provide for a self-insured retention limit for professional and general liability claims for most of its subsidiaries up to $1 million per occurrence, with an average annual aggregate for covered subsidiaries of $6 million through 2001. These subsidiaries maintain excess coverage up to $100 million with major insurance carriers. The Company’s remaining facilities are fully insured under commercial policies with excess coverage up to $100 million maintained with major insurance carriers. During 1996 and 1997, most of the Company’s subsidiaries were self-insured for professional and general liability claims up to $5 million per occurrence, with excess coverage maintained up to $100 million with major insurance carriers. From 1986 to 1995, these subsidiaries were self-insured for professional and general liability claims up to $25 million and $5 million per occurrence, respectively. Since 1993, certain of the Company’s subsidiaries, including one of its larger acute care facilities, have purchased general and professional liability occurrence policies with commercial insurers. These policies include coverage up to $25 million per occurrence for general and professional liability risks. As of December 1999 and 1998, the reserve for professional and general liability claims was $58.0 million and $65.0 million, respectively, of which $6.8 million and $5.5 million in 1999 and 1998, respectively, is included in current liabilities. Self-insurance reserves are based upon actuarially determined estimates. These estimates are based on historical information along with certain assumptions about future events. Changes in assumptions for such things as medical costs as well as changes in actual experience could cause these estimates to change in the near term. The Company has outstanding letters of credit totaling $54.5 million consisting of: (i) a $40 million surety bond related to the Company’s 1997 acquisition of an 80% interest in the George Washington University Hospital; (ii) $8.0 million related to the Company’s self insurance programs; (iii) $5.8 million as support for a loan guarantee for an unaffiliated party, and; (iv) $700,000 as support for various debt instruments. The Company has entered into a long-term con-tract with a third party to provide certain data processing services for its acute care and behavioral health facilities. The term of this contract, which was extended during 1999, expires in 2007. During the fourth quarter of 1999, the Company made a decision to close/sell one of its specialized women’s centers and recorded a $5.3 million charge to reduce the carrying value of the facility to its estimated realizable value of approximately $9 million, based on an independent appraisal. The Company is involved in litigation with respect to this facility and may incur additional charges in the event it is unable to close or sell the facility for a significant period of time or suffers an unfavorable outcome from this litigation. In addition, various suits and claims arising in the ordinary course of business are pending against the Company. In the opinion of management, the outcome of such claims and litigation will not materially affect the Company’s consolidated financial position or results of operations.
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