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More Turn to Prepaid Health Care : Fountain Valley Program Profits as Skepticism Wanes

March 31, 1985|JANE APPLEGATE | Times Staff Writer

Twenty-six years ago, colleagues called Dr. Robert Gumbiner a communist because his group practice in Long Beach offered patients a prepaid health care plan for $14 a month.

Gumbiner, now president and chief executive officer of FHP Inc., a dynamic Fountain Valley health maintenance organization, laughs when he remembers the skepticism he met. Although the Kaiser Foundation Health Plan had been started in the 1940s, prepaid health plans still were considered "revolutionary" when Gumbiner's group opened shop.

Today, health maintenance organizations are more common and considered far less radical. FHP outgrew its early image as its client roster expanded.

"It's really the ideal business because you get paid before you deliver the services," Gumbiner said in a recent interview. "But we're like a hotel or a restaurant, because if we don't give good service, the people don't come back."

FHP, which originally stood for Family Health Plan, grew 35% in membership last year and now has 180,000 members in Southern California, Utah and Guam. By July, the company, which posted $125 million in revenues in fiscal 1984, expects to have 200,000 members. To keep pace with the growth, FHP is building a new 40,000-square-foot corporate headquarters and a 100-bed hospital in Fountain Valley.

FHP is also considering plans for a senior housing project and nursing care facilities on its 11-acre site near the San Diego Freeway.

FHP is capitalizing on the fact that more people belong to health maintenance organizations in Southern California than anywhere else in the country. Los Angeles, Orange and Riverside counties have 2.7 million HMO members --about a fifth of the population, according to Inter Study, a Minnesota marketing research firm specializing in HMOs. Nationally, about 15 million Americans belong to about 300 HMOs.

So far, Gumbiner's FHP formula has been a prescription for success. The privately owned company reported net income of $8.6 million on revenues of $125.9 million for the fiscal year ended June 30, 1984, compared with net income of $2.4 million on revenues of $93.3 million in fiscal 1983. Although it reports income figures, the company is chartered as a nonprofit corporation and must invest its surplus income in improving benefits and services.

Commitment to Caring

Health care analysts said FHP's commitment to caring for seniors sets it apart from many other plans. Although its general HMO program has been growing steadily, every time FHP opens a senior health center, it quickly attracts new members. Today, FHP operates the largest senior HMO program in California. The plan, which offers an alternative to Medicare, serves 22,000 Southern California seniors. FHP contracts directly with the federal Health Care Financing Administration to provide comprehensive care, so there is a minimum of paper work for members. Area seniors who opt for FHP's plan, one of only a few Medicare-alternative HMOs in the country, go to FHP for all their medical services, with the Medicare benefits going to the HMO company, rather than to the individual.

'It was mighty peculiar that the sicker a person was, the more they had to pay for medical care.' --Dr. Robert Gumbiner

With traditional Medicare services, beneficiaries must pay certain deductibles, including 20% of costs covered by Medicare, plus any prescriptions and unauthorized services. By contrast, the senior plan through FHP has no deductibles and pays 100% of Medicare-covered costs. Office visits cost $3 and prescriptions are $2 each. FHP officials said the average Medicare beneficiary can save up to $750 a year in out-of-pocket health care expenses under their plan.

The federal government saves money because it pays FHP 95% of the monthly amount alloted for Medicare services and retains the 5% surplus. The monthly amount varies county by county, but in Orange County, Medicare allots $255 a month for services, and in Los Angeles, the amount is $273.

"The response to our senior program has been remarkable because we have eliminated the fear of medical bankruptcy," Dr. Raymond Pingle, regional vice president of senior plans, said in a recent interview. Pingle said FHP sees a growing market because there are so many seniors living in Southern California. The company's Long Beach center reached 10,000 members in a matter of weeks and FHP is planning to open a new senior center in downtown Los Angeles shortly.

Large Senior Enrollment

Carlos Zarabozo, a policy specialist with the Health Care Financing Administration in San Francisco, said FHP has a large senior enrollment, "which is a measure of success."

Zarabozo, who monitors FHP's financial performance, said there were some initial problems with FHP members who did not understand that they were limited to using only FHP health care services and went to outside doctors, then unsuccessfully tried to bill Medicare.

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