Membership Surge Pushes FHP’s Earnings Up 39% : Health care: The Fountain Valley HMO’s revenue for the fiscal year rises 32%, to $1.3 billion. Much credit is given to firm’s cost controls.

FHP International Corp. on Thursday said a 17% increase in its health maintenance organization membership helped push earnings up 39%, to $40 million for the fiscal year ended June 30.

Revenue for the fiscal year rose 32%, to $1.3 billion, up from $980 million in 1990. Net income was equal to $1.37 per share, up from $1 per share, in the same period last year.

In the fourth quarter, revenues increased 25%, to $352.5 million. Earnings jumped to 42 cents a share, up from 22 cents a share in the fourth quarter last year.

However, the fourth-quarter increases were somewhat misleading, as FHP had set aside $8.25 million during the fourth quarter of 1990 to cover potential malpractice losses, depressing earnings for that quarter, said Larry Selwitz of Fin-Com, an investor advisory firm in Newport Beach.

Without the set-aside, net income would have risen just 11% over the corresponding quarter in 1990, he said.

Nonetheless, Selwitz said, “the year as a whole is up 37% (per share), and that’s dynamite.”

The company has been successful in controlling costs despite small increases in the rate of government reimbursement to HMOs for care of Medicare patients, he said, adding that he considers FHP to be among the most undervalued HMO stocks.

FHP stock, which is traded over the counter, rose $1 Thursday to close at $18.

The company’s chief financial officer, William R. Benz, said the government had given a 14.6% rate increase for treatment of seniors in calendar 1990 but granted just a 2% increase for 1991.

Still, he said, health-care costs rose only fractionally, from 81.5% of revenues in 1990 to 81.6% of revenues in 1991.

“I believe the company did an admirable job in keeping those under control during the year,” Benz said.

The company did not lose any significant malpractice judgments in 1991, he added.

FHP operates HMOs in Southern California, Utah, Arizona, New Mexico and Guam and has a large share of the Medicare market.

Its membership swelled by 92,000 members to 640,000 in the 12 months ended June 30, a 17% increase, the company said. The number of Medicare recipients, however, grew from 167,000 to 211,000.

Along with one of its rivals, PacifiCare Health Systems of Cypress, FHP has been trying to expand into Northern California. Merger talks with San Francisco-based Bridgeway Plan for Health faltered last month, but the company says it will forge ahead nonetheless.

“We will be in Northern California within a year’s time, whether it occurs by the development of our own network in the Bay Area or through an acquisition,” Benz said.

FHP is also building seven new medical centers, including four in Southern California: two in Laguna Hills, one in Corona and one in Garden Grove. It is also adding another 125 beds to its 125-bed hospital in Fountain Valley.

Capital expenditures for the building program rose from $49 million last year to $61 million this year, and at least $100 million next year, Benz said.