On to the Next Thrill : O.C.’s Gray Is Ready for His Latest Risk--Starting a New HMO

Nothing excites John Gray more than taking a risk.

On the weekends, the divorced, 52-year-old executive cruises the side roads on his Harley motorcycle, or he goes scuba diving through kelp beds on the ocean floor.

Weekdays, he’s up to something that many consider just as dicey. Gray is leading thousands of California doctors on a do-or-die mission to win back control over patient care from health maintenance organizations. They’ve hired him as chief executive of an offshoot company from the California Medical Assn. to help them start their own HMO.

Gray acknowledges that the venture faces many risks, especially because it’s a Johnny-come-lately in the state’s already saturated marketplace for managed care.

“What turns my creative juices on is that this is the last chance physicians have to take charge of their own futures,” he said in a recent interview at his Fountain Valley home. “If they don’t do it this time, they’ll eventually have other people taking charge of their destiny.”

Similar in spirit to defensive moves by doctors in California and other states against insurers, the company, California Advantage Inc., is more ambitious than most.

Launched last January by the CMA, its board of directors raised $6 million--$1,000 apiece from 6,000 doctors across the state--even before Gray started as the company’s executive Oct. 1.

Now Gray faces huge obstacles.

Like executives of new ventures in many industries, Gray must raise millions more, develop products, and scare up customers in short order. On top of that, he must persuade consumers to switch to California Advantage when surveys suggest that people are generally satisfied with their HMOs.

And even the idea of a doctor-run HMO isn’t new.

Eight years ago, a Torrance-based medical group started an HMO for local residents. It attracted only 500 doctors as investors and a mere $1 million in capital and couldn’t compete against the HMO industry’s well-financed giants, recalls its founder, Marc Moser.

The doctors ended up selling the company.

Moser notes that while California Advantage has far more physicians supporting it than his did, it faces far greater competition. Now, he says, “A start-up HMO in California would have a snowball’s chance in hell.”

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Of course, California Advantage’s board of directors--all physicians--figure Gray can do it if anybody can.

He emerged last summer as the top candidate among 140 applicants for the post because of his broad management experience, says Dr. Ronald P. Bangasser, the company’s chairman.

Gray’s prior jobs ranged from private industry consultant to purchasing director at Hoag Memorial Hospital Presbyterian to, most recently, president of Santa Ana-based Admar Corp.’s managed care division.

Though not a doctor himself, “he seems easy to get along with,” adds Bangasser.

Gray decided to take the job one day last July while scuba diving off Catalina Island. He was between jobs then and seeking an opportunity that would be the final challenge of his career before retirement.

Curiously at home in the cold water with raw beauty of kelp stalks rising above him and the sense that one false move might entangle him forever, Gray remembers feeling unusually alert, calm and ready for a change. “Do it!” he told himself.

A man who works and plays hard, Gray was interviewed as he was preparing to move from Fountain Valley to San Francisco, where the company’s offices are located.

One personal challenge? Finding a new residence big enough for his “toys”--a 180-gallon salt-water aquarium that dominates his Fountain Valley living room, and, in the garage, the motorcycle, Jeep and canary-yellow Porsche with sheepskin seats.

Now logging 50- to 60-hour workweeks, Gray has less time for his hobbies anyway. Though Bangasser, the company’s chairman, teaches scuba diving, the subject of diving together hasn’t come up yet.

“He wants me to stay focused on what I have to do,” says Gray.

And that’s plenty.

Gray must raise more than $50 million more--much of it from doctors--to start the HMO by Jan. 1, 1997. But the money won’t come easily, even from physicians.

For instance, Don R. McCann, a San Clemente family practitioner, refuses to invest and considers California Advantage a “defective organization” because it’s run by a board of physicians.

“I don’t think that, as a rule, physicians make good businessmen,” he says.

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Meanwhile, Gray faces an even tighter deadline for launching a less costly managed care program, a preferred provider organization. A PPO offers consumers a network of health care providers at discounted rates. By mid-year, he aims to win a contract to provide a PPO to the Health Insurance Plan of California, a state-run program providing insurance to small employers.

But making money on the program may be tough. Last summer, two major insurers, Aetna and John Alden, quit offering PPOs to the plan after being inundated with claims that exceeded premiums, say sources. An Aetna spokesman predicts that California Advantage will face the same problem.

Gray, however, expects he can do better by holding down administrative costs. He also says that as a privately held company, California Advantage doesn’t face the same pressure to show big profits as publicly held HMOs do.

Most important, Gray needs to talk consumers into switching plans. Among other benefits, he says the company will offer consumers a way to stick with the same doctor, instead of being passed around from doctor to doctor, as is done in HMOs.

But that may not be as important to consumers as doctors believe.

Geraldine Dallek, executive director of the Center for Health Care Rights, a Los Angeles consumer advocacy group, notes that many consumers willingly have forsaken a continuing relationship with one doctor for cheaply priced HMOs.

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Gray, who has braced himself for the job as he would for a plunge into the Pacific, gets excited by all that faces him.

And he’s attacking everything with a blend of business-like decorum and personal style.

On casual Fridays, he intends to ride his Harley to work, sporting leather jacket, vest, chaps and all.

But in meetings with doctors, he’ll stick with a business suit.