FHP International Shows a Surge in Earnings

FHP International Corp., a Fountain Valley-based health maintenance organization, reported strong earnings growth Wednesday for fiscal 1989 and the fourth quarter ended June 30, largely on the strength of growing membership, higher rates and containment of costs.

The company reported net income of $7.7 million for its fourth quarter, up 26.2% from $6.1 million for the same period a year ago. FHP’s revenue for the fourth quarter ended June 30 increased 37% to $199.3 million from $145.1 million for the fourth quarter of 1988.

For all of fiscal 1989, the company’s net income was $22 million, up 33.3% from $16.5 million a year ago, and revenue rose to $699.1 million from $503.5 million in fiscal 1988.

Industry analysts say that while the HMO industry over the last 12 months has been recovering from a financial depression, FHP continues to do better than its competitors because of more efficient cost controls and its success in developing a program for Medicare recipients.

In a prepared statement, Dr. Robert Gumbiner, chairman and chief executive officer at FHP, said the company’s revenue and income growth “were driven by robust membership growth, continued cost-effective management of medical resources, rate increases from commercial groups and the federal government and increased interest income.”

He added that during the year, the company opened or expanded nine medical centers in four states and moved into six new market areas in Southern California. In June, the company also acquired its first skilled nursing facility.

FHP’s enrollment expanded 24.9% in fiscal 1989 to 466,000 members from 373,000, an achievement that industry analysts and company officials attribute in part to an exodus from traditional indemnity insurance by employers unwilling to pay skyrocketing rates.

Also, FHP picked up some former Maxicare members when that Los Angeles-based HMO filed last March for reorganization under Chapter 11 of the U.S. Bankruptcy Code.

A nationwide reduction in the number of HMOs and indemnity health insurance plans, analysts say, has taken the steam out of a price war that formerly raged in the industry.

“There is a consolidation under way in the industry, and those who are surviving are benefiting from price raises,” said Lucy Olwell, health care analyst with Merrill Lynch Research in New York.

Nonetheless, FHP prices are attractive to subscribers because they have not risen as high as the cost of traditional indemnity health insurance. “The insurance companies have set a pricing umbrella for us, and we have come in under that umbrella,” said FHP spokeswoman Anna Marie Dunlap.