Recession, Suit Settlement Cut Into FHP Profits : Health care: Despite revenue jump, California layoffs and a lawsuit that cost $8.25 million cut earnings.

FHP International Corp. said Thursday that recession-related layoffs in California and a multimillion-dollar settlement of a class-action lawsuit have cut into the health maintenance organization’s profits, despite a jump in revenue.

“There is no question that the (economic) downturn and unemployment has had a direct effect on us,” said Jack Massimino, chief operating officer.

Specifically, the “staff model” component of FHP’s operations, in which members use the company’s hospitals and salaried physicians, has suffered from flagging patient enrollment as member companies cut their work forces.

The majority of FHP’s members are enrolled in individual practice associations, where they are treated by physicians under contract. That component of the HMO has grown 28%, to 86,000 members, offsetting revenue losses at the company-owned facilities. Total combined membership is up to 716,000, from 640,000.

FHP also announced Thursday that it has tentatively settled a class-action lawsuit by disgruntled investors, who accused the company last year of padding membership figures by signing up homeless and mentally incompetent people to its Senior Plan Medicare program.

The lawsuit was filed after the Health Care Finance Administration launched an investigation of alleged wrongdoing in the company’s sales methods. Federal authorities found no abuses.

FHP Chief Financial Officer William Benz said the HMO has settled for $8.25 million. As part of the settlement, FHP denies any wrongdoing. The money will go to an unspecified number of investors.

“We settled just to avoid the high cost of litigation,” said FHP spokeswoman Ria Carlson.

To pay for the settlement, the company has set aside $5.2 million, charged as a reserve loss. The balance of the $8.2 million will be paid by FHP’s insurers.

Benz said the lawsuit will not affect any future earnings. “That is all behind us now,” he said.

Annual profit of $32.9 million, or $1 a share, was down 18% from fiscal 1991 net income of $40.1 million, or $1.37 a share, the company reported.

Revenue for the year, however, was up 22%, to $1.6 billion, compared to revenue of $1.3 billion for the previous fiscal year.