FHP Founder Quits the HMO in Frustration : Health: Dr. Robert Gumbiner had pioneered the system of owning hospitals and pharmacies. The O.C. company is moving away from that model.
A frustrated Dr. Robert Gumbiner, watching his innovative structure being dismantled at FHP International Corp., resigned Thursday from the board of the Fountain Valley health maintenance organization.
Gumbiner, who only a week ago was bumped up to chairman emeritus, said in a prepared statement that the “recent direction taken by the board and management lead me to question the wisdom of the company’s long-term strategy.”
In an interview, Gumbiner, who founded the HMO in 1961 and built it into one of the nation’s largest managed care companies, said it was “too frustrating not being listened to” and that he decided to move “forward to bigger and better things.”
“I’m not going to frustrate myself,” said the 72-year-old Gumbiner, who plans to stay busy with art and museum projects and the philanthropic FHP Foundation, a separately funded nonprofit organization he chairs.
Last week, the board named director Jack R. Anderson, 70, as chairman to replace Gumbiner, 72, in a move to reinvigorate the HMO and boost its lackluster stock performance.
Anderson, who was chairman of TakeCare Inc., a Northern California HMO acquired last year by FHP, is expected to push for cost cuts and the sale of certain FHP operations, industry analysts said.
Some analysts believe he may even seek a buyer for the entire company. But Westcott W. Price III, FHP’s president and chief executive officer, said in a letter that the company is “here for the long run” and is not for sale.
Analysts have said that, among other problems, FHP has high operating costs partly because it runs and staffs its own hospitals and clinics, an idea pioneered by Gumbiner. The company could save money by contracting with independent physicians and hospitals for those services, they said.
Gumbiner said staff accounted for about half of the FHP work and the rest was handled by contract before the TakeCare acquisition. Now, he said, staff operations account for only 30% of the work. FHP put the figure at 20%.
“I’m of the opinion that the only way to grow and control costs and quality is to own everything,” he said. “You have to own the hospitals, pharmacies and so forth to keep quality up.”
FHP hasn’t sold former TakeCare members on the idea of using strictly FHP doctors and facilities and has been losing some of that membership, said Mary O’Connell, an analyst with Louis Nicoud Associates in San Francisco. The result is a costlier operation.
“The big thing they need to do is to build up membership and improve profit margins,” she said. “They have below-average margins.”
The chief executive of one Southern California HMO said the trend in the industry is away from the staff model, and FHP’s recent record is a big reason. Gumbiner would be expected to defend the model he helped to create, said the executive, who declined to be named.
“It was his baby and near and dear to his heart,” he said. “He helped nurture it and I suspect he had pride in ownership in it.”
FHP is knocking at the foundation of Gumbiner’s innovation. It has asked the state to be relieved from a restriction that prohibits FHP from using its hospitals, clinics and staff to serve those who aren’t FHP members, said Paul Knopick, an FHP spokesman.
“We want to utilize our capacity more fully,” he said. “We want to accept fee-for-service patients, Medicare patients and others.”
FHP’s Price, in prepared remarks, said Gumbiner is “an HMO pioneer and visionary” and that the company “benefited greatly from his leadership.” He said Gumbiner’s resignation was unexpected and that FHP will “miss his insight and experience.” FHP is the nation’s fifth-largest HMO, with 1.8 million members in 11 states. Among publicly held HMOs, FHP expects to become the biggest in terms of revenue with nearly $4 billion for its fiscal year, ending June 30.
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Times staff writer David Olmos contributed to this report.
