FHP Posts 50% Drop in 2nd-Quarter Net Earnings : * Profits: The Fountain Valley-based health maintenance organization blames rising health care costs and the recession.

FHP International Inc. on Thursday blamed rising health care costs and the recession for a 50% drop in net earnings for its second quarter.

The decline in profits for the quarter ended Dec. 31 came despite a 20% increase in revenue for the Fountain Valley-based health maintenance organization. But FHP management said it expected earnings to rebound during the next two quarters.

FHP posted earnings of $4.1 million, or 13 cents per share, contrasted with earnings of $8.3 million, or 29 cents per share, in the year-earlier period. Revenue rose to $375.1 million from $312.2 million.

Profits were squeezed because the cost of providing health care to members of FHP’s senior citizen program rose 10% to 15%, while the federal government gave the company only a 2% rate increase for Medicare patients in 1991, said William R. Benz, FHP chief financial officer. The company’s Senior Plan accounts for 60% of total revenue.

In addition, FHP’s commercial membership in California declined from 199,000 members in June to 194,000 members as of Dec. 31, Benz said.

“The recession in the state of California has slowed our commercial enrollment growth and as a result has slowed our revenue growth,” Benz said. But the company is beginning to rebound, picking up 7,000 new members during its January open enrollment period despite the sluggish economy, Benz said.

FHP operates in California, Utah, Arizona, New Mexico and Guam. Total membership grew 9% for the year to 663,000 on Dec. 31, but only 6,000 of the 20,000 new members came from California.

Benz said 1992 looks brighter because the federal government has increased Medicare rates by 5%. To boost profits, the HMO has also begun to offer its Medicare beneficiaries a “high option plan,” which would cost senior citizens $39 per month but give them additional benefits. Ordinary Medicare patients have no monthly payment.

FHP also intends to begin recruiting new commercial members in Nevada, Benz said. Once the program is established, the HMO will begin recruiting Medicare patients as well.

Despite the recession, FHP has continued to expand its facilities, including an addition to its flagship hospital in Fountain Valley. While the construction has squeezed profits during the recession, Benz said, FHP expects the investment to pay off when the economy begins to recover.

FHP International Inc.

FHP International Inc. reported a 50% drop in second-quarter income. Though revenues for the quarter ended Dec. 31 increased 20% to $375.1 million, quarterly earnings per share were 13 cents contrasted with 29 cents for the same period the previous year. The health maintenance organization said higher physician and hospital costs had squeezed profits.

Figures are in thousands, except per-share data.

2nd Qtr 2nd Qtr 6 months 6 months 1991 1990 1991 1990 Revenue $375,130 $312,227 $739,284 $606,049 Net Income (loss) $4,142 8,295 10,022 16,744 Per share (loss) 0.13 0.29 0.30 0.59

Source: FHP International Inc.