HMO Iron Man Leaves Quite a Healthy Legacy : Health care: Dr. Robert Gumbiner built FHP International Corp. into a mighty health maintenance organization even as others fell by the wayside.

The short, bearded man in a gray, double-breasted suit walked swiftly through a Long Beach medical clinic, pivoting often to point out cosmetic flaws that might mar the image of the health-care organization he spent a lifetime building.

The clinic’s young managers obediently took notes as Dr. Robert Gumbiner pointed scornfully to some tattered telephone directories, wheelchairs that obstructed a hallway and two pictures hung askew in a waiting room.

Then, noticing that one manager had placed a framed picture of his wife on his desk, he said: “I worry about people who have their offices cluttered with family photos. I wonder if they wouldn’t rather be home.”

For nearly 30 years, Gumbiner has ruled FHP International Corp. like a military general. His tour of duty ends Nov. 14, when the 67-year-old Gumbiner steps down as chief executive of the Fountain Valley-based health maintenance organization.

Although he’ll remain FHP’s chairman and a consultant, Gumbiner will no longer be involved in the company’s day-to-day operations. His replacement will be Westcott W. Price III, currently president and vice chairman, whom Gumbiner has been grooming for the top job since 1980.

Since founding FHP in 1961, Gumbiner has built it into a large and consistently profitable medical company that was one of the first to embrace government assistance programs for the poor and elderly when others thought them too risky. It is widely regarded as one of the best-managed HMOs in the industry. Key reasons for FHP’s success, observers say, are Gumbiner’s own management skills along with his knack for recruiting talented MBAs and veteran executives from other industries.

Described as tough, outspoken and detail-oriented, Gumbiner is regarded by former and current employees with a mixture of fear and admiration. He demands dedication and loyalty from his employees, they say, and wants them to share his passion for the HMO concept.

Gumbiner’s no-nonsense management style hasn’t always made him popular with employees or the medical community. Asked to describe his reputation, he retorted: “I couldn’t care less.”

Then he added: “I guess it (his reputation) is that I can get things done, but that I am not easy to get along with.”

There’s little doubt that Gumbiner has been the driving force behind FHP’s success during the last three decades, a period during which many other HMOs have failed. The company operates 49 medical facilities and employs 7,500 part- and full-time workers. Its membership has swelled from 250,000 in 1986 to 566,000 now. It has operations in California, Arizona, Utah, New Mexico and Guam, with its biggest presence in Los Angeles and Orange counties.

The company has grown at a 20% annual clip since going public in 1986. It ranks second in earnings among the nation’s publicly traded HMOs--after U.S. Health Care in Pennsylvania--and was one of the few HMOs to remain profitable during the industry’s darkest times in the late 1980s.

For its fiscal year ended June 30, FHP earned $28.7 million, up from $22 million the previous year, on revenue of $980 million.

Gumbiner has often marched to a different drummer than the medical establishment, putting him at odds with his physician peers.

In the 1960s, for example, the medical community was resisting the rise of managed health care as a threat to physicians’ financial and professional freedom. But Gumbiner was among the few doctors who foresaw the value of HMOs in providing medical treatment to people who otherwise might not be able to afford it.

Bucking the medical establishment “was sort of a challenge,” Gumbiner said. “I figured I was right and the rest of the world was wrong.”

Gumbiner decries the medical community’s traditional practice of charging fees for individual services as “basically immoral.” Besides making medical care unaffordable for low-income families, he says, the practice encourages doctors and hospitals to perform unnecessary services to generate more income.

Prepaid services such as HMOs, on the other hand, are financially motivated to prescribe only what medical services are necessary, Gumbiner argues.

Gumbiner “is very crusty and blustery, but has very egalitarian ideals,” says Dr. Tom Mayer, FHP’s medical director from 1985 to 1987 and currently an executive with an employee benefits consulting firm in Los Angeles.

Born in St. Louis, Gumbiner said he entered the medical profession at the insistence of his father, a doctor who wanted his son to follow in his footsteps. “He said he would pay my tuition at medical school and no other school,” he recalled.

After graduating from Indiana School of Medicine in 1948, Gumbiner moved to Southern California. He got his first look at prepaid medicine while working at a San Pedro clinic operated by Ross Loos, one of the original HMOs.

After resigning from Ross Loos and failing in several attempts to operate private group medical practices, Gumbiner in 1955 enrolled in a management course at UCLA. More familiar with blood tests than balance sheets, he remembers the class as an eye-opening experience that led to his taking hundreds of management classes throughout his career.

That same year, Gumbiner joined nine doctors in Long Beach to form a private group practice that began offering a prepaid medical plan to any patients who wanted to join. It proved so popular, he recalled, that soon half the patients were signed up. Gumbiner was delighted, but the other doctors began to fear the plan would cause them to lose income. When Gumbiner went on vacation, the other doctors voted to kill the plan. The partnership disintegrated.

By 1961, Gumbiner had formed a nonprofit HMO under the name Family Health Plan, which later was changed to FHP Inc. because of the public’s misconception that the company was involved with family planning, Gumbiner said.

In the 1960s, Gumbiner decided that FHP would be the first health maintenance organization in California to contract with Medicaid and he lobbied Congress for the passage of Medicare, the health care program for senior citizens.

FHP’s growth was dramatic from the start. The company landed large contracts with the City of Long Beach, and got its biggest boost in 1969 when it won a state contract to provide medical care for Medi-Cal recipients.

Through the years, Medicare and Medicaid have added substantially to the growth and profitability of FHP. The Fountain Valley company now provides medical care to 25,000 Medicaid recipients and 72,000 seniors through its contract with Medicare, giving it the second-largest Medicare membership enrollment of any HMO.

FHP’s success at enrolling Medi-Cal recipients seemed to backfire in 1977, when the company temporarily lost its state contract.

“Half of our gross revenue disappeared and probably all of our profit,” Gumbiner recalled. By boosting marketing and cutting other costs, FHP managed to survive. A year later, it won back the Medi-Cal contract.

These days, industry analysts warn the company that it is becoming too dependent on a Medicare program that could disappear with a change in national policy. FHP’s Senior Plan now represents 31% of the company’s membership and about 60% of revenue.

But Gumbiner doesn’t always heed what analysts tell him. After all, he recalls, analysts advised him in the early 1980s to expand nationally like Los Angeles-based Maxicare Health Plans Inc.--before the giant HMO ran out of money and ended up in bankruptcy court.

What the analysts don’t understand this time, Gumbiner contends, is the political clout of the country’s aging population. Senior citizens “write letters and vote,” he said.

While many other HMOs contract for services that are provided to their members by private doctors and physicians, under Gumbiner’s leadership FHP has become an organization that delivers as well as manages medical care.

It has forged a network of private medical practices and hospitals to assist its growth. And it has complemented those alliances by building and operating its own hospitals and clinics.

FHP has attempted to control costs and quality by controlling as many products and services of its own as possible. It owns a fleet of ambulances, packages prescription drugs and sells a line of privately labeled over-the-counter drugs. It operates diagnostic laboratories and an optometry business where it makes its own lenses.

As the company grew, Gumbiner adopted a “matrix” management system in which administrators report to two supervisors. Managers are frequently rotated to new jobs. One objective is to nurture greater depth of management expertise in the organization. Another is to prevent complacency.

“The beauty of the matrix,” Gumbiner says, “is that it causes turmoil.”

Not all employees are comfortable in such an atmosphere. “There are some pretty good HMO managers around the country who have been fired by Bob,” said James Doherty, president of the Group Health Assn. of America, a Washington-based trade group.

Gumbiner scoffs. Most of the managers who left to join competitors or were fired “just don’t get anything done,” he said.

As FHP has prospered, so has Gumbiner, a millionaire many times over. He owns a 10.9% stake in FHP that on paper is worth about $33 million.

Gumbiner says he has no regrets about stepping down as chief executive of FHP. “As you get to be a bigger company, you need more professional management and fewer entrepreneurs,” he said.

Larry Selwitz, health-care analyst for the Newport Beach investment bank Cruttenden & Co., said it’s necessary for Gumbiner “to make a clean break so the whole organization realizes the people brought in by the founder really are the people in charge.”

In retirement, Gumbiner expects to continue his lifelong activities as an art collector and avid traveler. He is building a 6,000-square-foot residence on Los Alamitos Bay in Long Beach, which he says will have ample wall space and special lighting for his art collection.