Hospital Maverick Riding High : Health care: Profit quadrupled at National Medical Enterprises during the 1980s. Chairman Richard K. Eamer may be one reason.

There’s a rebelliousness in Richard K. Eamer that shows itself--as another man’s temper might--by flashes in his dogmatic conversation, his unorthodox background and, especially, in the way he runs his company, National Medical Enterprises.

He disdains conventional wisdom on health-care delivery--”We don’t care what the pack does,” he says--and Wall Street’s expectations: “I don’t pay attention to Wall Street.”

Yet the rebelliousness is only a streak. Eamer, 63, is also pragmatic and energetic, with an eye for opportunity and a healthy appetite for profits and respectability. And he has deeply imprinted those characteristics on NME, the Santa Monica-based hospital concern that he founded 22 years ago and which he has led as chairman and chief executive ever since.

In the past 10 years, NME has more than quadrupled revenue and profit. It also restructured itself and emerged from a mid-1980s industry shakeout as one of the strongest of the few remaining publicly traded hospital groups and one of Wall Street’s favorites.

In a major concession to Wall Street--one that Eamer said he long resisted--the company jettisoned its nursing home business last year. Securities analysts praise its remaining blend of acute-care hospitals with a strong presence in psychiatric hospitals, physical-rehabilitation centers and substance-abuse treatment facilities.

Eamer and NME, in fact, are riding high. In a mere two years, the company’s stock price has essentially doubled, closing at $46.375 a share on Friday. And later this week, the USC University Hospital, a prestigious joint project of NME and the University of Southern California, will open the Richard K. Eamer Medical Plaza at the university.

Even so, some in the health-care industry look to Eamer’s rebellious streak and see trouble for NME. The company, they contend, is wedded to high-cost health care and has not made a strong commitment to managed care. Managed care is a system, intended to drive down costs, that is fast gaining favor among employers and others who pay for health care. In managed care, an outside manager or company is hired to review all claims and cases, make decisions about treatment and hold the line on expenses.

Eamer said the company’s commitment is to deliver high-quality care at the best price. “We don’t have a problem with managed care,” he said. “But they’re middlemen; the HMOs (health maintenance organizations) and PPOs (preferred provider organizations) and managed care are nothing more than a passing phenomenon. . . . They’re all simply forms of pricing adjustments that will take five to 10 years to work out.”

Eamer said that many managed-care administrators are not “competent” to make decisions about medical treatment and that often such programs attract lower-quality doctors and other professionals. Eventually, he said, employers will return to quality, cut out the middlemen, and “in the final analysis, HMOs and PPOs will go away.”

Yet an industry consultant familiar with NME said that as more health-care benefits programs are moved to managed-care systems, providers who are “willing to play ball in cost management and quality assurance” will be the industry’s winners. “And the challenge to NME,” he added, “is to position itself to win these managed-care contracts. If it doesn’t, it will find itself odd-man-out.”

He also called the new $175-million University Hospital, which will specialize in treating complex cases with sophisticated technologies, a “real risky venture. It’s a helluva time to be committing a lot of resources to such a large tertiary-care hospital.”

Eamer agreed that it is “a huge investment.” He said the teaching hospital will fill a void in the area’s health care, attract and keep high-quality physicians and, because it is a joint venture between the private and public sectors, “be an interesting social experiment. It will be interesting to see the mesh.”

It may be an oddity for more reasons than that: Nationally, building of new hospitals has slowed to a crawl, and industry analysts expect it to stay that way until the economy improves and bugs are worked out of trends in health-care benefits.

Already the drive for cost containment has begun to hurt NME’s psychiatric hospitals and substance-abuse treatment centers. These facilities “carried” the company for the past several years when its acute-care hospitals and nursing-homes unit were languishing, said Rae Alperstein, health-care services analyst at Kemper Securities Group (parent of the Bateman Eichler brokerage).

NME entered the psychiatric-care business when it purchased Psychiatric Institutes of America in 1982; since then, it has steadily expanded through acquisition or construction programs. It now owns, operates or manages 74 psychiatric hospitals with 6,307 beds and manages psychiatric units within other acute-care hospitals. In 1983, NME formed its chemical-dependency operation, Recovery Centers of America, which includes 676 beds at 13 treatment centers.

When NME began its restructuring in 1986, acute-care hospitals accounted for about half the company’s revenue and specialty hospitals only 17%.

In fiscal 1990, when it earned $241.7 million on revenue of nearly $4 billion, its acute-care hospitals contributed 42% of the revenue and only 36% of the operational profit. On the other hand, its speciality-hospital group (which now includes its rehab centers) accounted for 37% of the company’s operating revenue and 54% of its operating income.

The phenomenal growth that fueled the psychiatric-hospital industry throughout the 1980s has slowed. Now mental health care is a primary target for managed-care programs. In part that’s because such benefits are easily separated from more traditional health-care plans, but mostly it’s because costs of such benefits have skyrocketed.

Already, three-fourths of all employers have imposed strict caps on coverage of office visits, according to a survey by A. Foster Higgins & Co., a New York-based benefits consulting firm. And many have slashed coverage for in-hospital treatment to a week or less from the once-standard 28 or 29 days.

Managed-care programs may further restrict access to both forms of treatment. And Peter Boland, of Boland Healthcare Consultants in Berkeley, predicts that “by 1995, 90% of the private-pay market is going to be covered by managed health-care” programs.

This means, said Boland, that mental-health-care providers, especially, will be pressured to find alternative, less expensive treatment methods, including more out-patient programs.

Eamer is highly critical of payment programs that cover a lesser portion of the costs for extended mental health treatment. “What they’re really saying is, if you are not very sick, they will pay it all, but if you are very sick, they will pay less . . . It says you should stop trying to get well and gives the doctors incentives to stop making you well.”

One of NME’s main competitors in the psychiatric arena, Charter Medical Group of Macon, Ga., is in trouble, staggering under the double burden of reduced reimbursement from employers and insurers and the heavy debt load it took on to finance its expansion during headier times. This past March, a much smaller Orange County firm, Community Psychiatric Centers of Laguna Hills, made a hostile, $1.1-billion bid for Charter.

Boland blames much of Charter’s problems on its slowness to respond to the move to managed care. While NME responded more quickly, he said, “the psychiatric-hospital industry has been blindsided by managed care. There’s no excuse except tunnel vision and the unusually high profit margins of the ‘80s.”

While NME’s Psychiatric Institutes and Recovery Centers units are making money, profit margins are being squeezed, said David Olson, director of shareholder communications at NME. (The company does not break out the profit for individual groups.)

In the past year, revenues from those two units have continued to increase, but through expansions: 10 psychiatric hospitals and one substance-abuse center were added. Otherwise, average length of patient stay and occupancy has declined.

Even at the company’s growing network of physical rehabilitation centers--currently the brightest profit spot for NME--average length of stay is declining.

Eamer, though, sees continued growth in the specialty-hospital field and in overseas operations. Health care in this country is “still one of the great bargains today.” People blame the health-care industry for problems, he said, “but the joke is, they’re blaming the wrong problems.”

Eamer wishes that more attention were focused on sociological ills, such as “cheap booze and cigarettes, inner-city blight . . . drugs and unwed mothers.” Most of all, he said, this country suffers from lack of leadership. Most politicians, he said, are “imbeciles” who “ought to be impeached.”

Eamer is proud of his own leadership and the hurdles he has overcome. He suffers from a severe hearing loss--and has made NME a model in hiring and benefit programs for the physically impaired.

He dropped out at age 14, worked as a truck driver, stevedore and wrangler, then returned to school at 22. He completed his law degree nine years later.

After several years in practice, Eamer and two attorney friends, Leonard Cohen and John C. Bedrosian, formed NME. Both are still at NME, Cohen as president and chief operating officer and Bedrosian as executive vice president.

Yet NME has always been Eamer’s alter ego, and it is unlikely he’ll step down any time soon.

“I’ve been chief executive for 22 years, and the last three or four have been my most productive,” he said. No successor is being groomed, he said--but he added with a smile “maybe successors. It’s inconceivable that any one man or woman could do the job I have done.”

AFFLUENT CARE: A hospital near County-USC is aimed at those who can pay. A1

National Medical Enterprises Inc. Headquarters: Santa Monica

Employees: 48,000

Business: Owns, operates or manages 151 acute, psychiatric, physical rehabilitation and substance abuse clinics with more than 16,000 beds in 29 states and the District of Columbia. Also owns, operates or manages three hospitals overseas with 873 beds.

Divisions:

Hospital Group: 35 acute care hospitals, with 6,550 beds in six states, plus the international hospitals with 873 beds.

Specialty Hospital Group: 74 psychiatric hospitals with 6,307 beds in 26 states; 29 physical rehabilitation facilities with 2,474 beds in 10 states, and 13 substance abuse treatment centers with 676 beds in 10 states. Group also manages 49 psychiatric, physical rehab and substance abuse facilities with 1,082 beds in other acute care hospitals.

Chairman and chief executive: Richard K. Eamer

Friday’s closing stock price: $46.375 per share