HMO’s Architect Steps Away but Leaves His Stamp : Medicine: Dr. Robert Gumbiner’s Fountain Valley-based FHP International Corp. succeeded while others foundered. His organizational demands are a key factor.
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 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 general. His tour of duty will end Nov. 14, when Gumbiner, 67, will step down as chief executive of the Fountain Valley-based health maintenance organization.
Although he will remain as 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, now 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 and training 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 influence reaches from Southern California to Washington, where he has lobbied in the halls of Congress.
“He is certainly an important player, and he is very vocal,” said Edmund Moy, director of prepaid health programs for the Federal Health Care Financing Administration. “He speaks with a lot of candor, which makes him one of the most colorful personalities I work with.”
Gumbiner’s no-nonsense management style has not always made him popular with employees or the medical community. Asked to describe his reputation in the industry, 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, while many other HMOs 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 a current 566,000. 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 $28.76 million, up from $22 million the previous year, on revenue of $980 million.
Gumbiner has often marched to a different drummer, putting him at odds with his physician peers and the medical establishment.
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. Gumbiner was among the few doctors who believed that HMOs could provide good medical care at lower cost.
Bucking the medical establishment “was sort of a challenge,” Gumbiner said. “I figured I was right and the rest of the world was wrong.”
“Dr. Gumbiner was on the cutting edge of managed health care before other people knew how to spell it,” said Charles Steller, executive vice president of American Managed Care and Review Assn.
Gumbiner called the medical community’s traditional practice of charging fees for individual services “basically immoral,” because he said it means that people are forced to pay for treatment when they are ill and least financially able. Besides, he said, the practice encourages doctors and hospitals to perform unnecessary services to generate more income.
Prepaid services such as HMOs, on the other hand, guarantee that those who pay a monthly fee will receive treatment when they need it. Also, he said, such systems are financially motivated to prescribe only what medical services are necessary.
Gumbiner “is very crusty and blustery, but has very egalitarian ideals,” says Dr. Tom Mayer, FHP’s medical director in the 1985-87 period and now an executive with an employee benefits consulting firm in Los Angeles.
Born in St. Louis, Mo., 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 the University of 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 of their patients who wanted to join. It proved so popular, he recalled, that soon half of the patients were signed up.
But while Gumbiner was delighted with the popularity of the prepaid plan, the other doctors began to fear that the plan would cause them to lose income. When Gumbiner went on vacation, the other doctors voted to get rid of the plan. The dispute eventually led to the breakup of the partnership.
By 1961, Gumbiner had formed a nonprofit HMO under the name Family Health Plan, which was later 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 California HMO to contract with Medicaid. He lobbied Congress for the passage of Medicare, the federal health care program for senior citizens.
FHP’s growth was dramatic from the start. The company soon landed large city contracts with 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 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 in the nation.
However, FHP’s success at enrolling Medi-Cal recipients seemed to backfire in March, 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 its marketing efforts and cutting other costs, FHP survived the crisis. A year later, it won back the Medi-Cal contract.
These days, industry analysts warn that the company 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 its revenue.
But Gumbiner doesn’t always heed what analysts tell him. After all, he recalled, analysts advised him in the early 1980s to expand nationally like Los Angeles-based Maxicare Health Plans Inc. The giant HMO ran out of money and ended up in bankruptcy court.
What the analysts do not understand this time, Gumbiner said, is the political clout of the country’s aging population: Senior citizens “write letters and vote.”
While many other HMOs contract for services that are provided to 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. But its main thrust has been to build and operate its own hospitals and clinics.
FHP has tried 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 for eyeglasses.
As the company grew in size and complexity, 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 a greater depth of management expertise in the organization. Another is to prevent complacency.
“The beauty of the matrix,” Gumbiner said, “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 at that criticism. 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.
But the financial moves of Gumbiner and his company have also come under scrutiny. In 1985, when Gumbiner and other FHP executives decided to convert the company from a nonprofit to a for-profit corporation, the state attorney general’s office filed a lawsuit against them.
State law requires companies converting to for-profit status to donate an amount equal to the value of the company to charity. The suit alleged that the $38.5 million that the FHP group paid to charity was less than the company’s true value, which the attorney general claimed to be $150 million, based on its worth when it went public in July, 1986.
A Los Angeles Superior Court judge dismissed the suit in April, 1988, deciding that the company had adhered to state standards. That decision was unanimously upheld in June by the State Court of Appeal.
Gumbiner said he has no regrets about stepping down as chief executive of FHP.
A change in management will be good for the company, he said: “As you get to be a bigger company, you need more professional mangement and fewer entrepreneurs.”
Larry Selwitz, health care analyst for the Newport Beach investment bank Cruttenden & Co., said Gumbiner should “make a clean break so the whole organization realizes (that) the people brought in by the founder really are the people in charge.”
In retirement, Gumbiner said he expects to continue his lifelong activities as an art collector and avid traveler. He is building a 6,000-square-foot Naples residence on Los Alamitos Bay in Long Beach, which he says will have ample wall space and special lighting for his art collection.
A stylish man, Gumbiner has insisted that FHP’s various facilities maintain high standards. The company’s hospitals and clinics are decorated with carefully chosen artwork and plants, with everything kept immaculately tidy at his personal insistence.
Elaine Marienthal, an interior designer who has worked for Gumbiner for 19 years, said Gumbiner has been personally involved in the selection of art for the medical centers. “We spent hours under his direction hanging art in the new facilities. His eyes were more accurate than our tape measures. It was astounding.”
Barbara McNutt, FHP associate vice president of nursing, said that over the years Gumbiner has routinely visited FHP facilities. “If he sees something wrong, he lets management know as fast as he can get a memo to you, and his memos can be quite terse,” she said.
McNutt said that she admires Gumbiner and that among longtime staff members there is some apprehension about his retirement.
“I think some of us old-timers are going to miss him,” she said. “We know what his expectations are. He has said it loud and clear for 30 years.”
FHP’S GROWTH Careful Management of Managed Care Dr. Robert Gumbiner BORN: January 31, 1924 EDUCATION: B.S. Indiana University, 1945; M.D., Indiana School of Medicine, 1948. PERSONAL: Four childrenm of whom three work at FHP. Makes home in Naples, Long Beach. HISTORY: After coming to California in 1950, Gumbiner founded the 10-physician Plaza Medical group in Long Beach in 1955. In April, 1961, Gumbiner started FHP. In July of 1986, 25 years later, he took FHP public. NET INCOME (In millions of dollars, as of June 30) 1986: $9.16 1987: $6.92 1988: $16.48 1989: $22.03 1990: $28.76 REVENUES (In millions of dollars, as of June 30) 1986: $265 1987: $368 1988: $504 1989: $698 1990: $980 MEMBERSHIP GROWTH (In thousands of members, as of June 30) 1986: 250 1987: 312 1988: 373 1989: 466 1990: 548 MEMBERS, BY REGION (Percent of members, by region) Arizona: 13% California: 54% Guam: 6% New Mexico: 5% Utah: 22%
