Foundation Health’s Cost-Cutting Chief Executive Steps Down

Dr. Malik M. Hasan, an HMO chieftain who infuriated the state’s physicians with his cost-cutting demands and became a symbol of greed to industry critics, stepped down Friday as chief executive of Foundation Health Systems.

Foundation, one of the nation’s largest managed-care companies, said Hasan had decided to retire and that he would be replaced by Jay M. Gellert, an investment banker and close associate of Hasan’s. Gellert, the company’s president and chief operating officer, has worked closely with Hasan on several health-care acquisitions.

Hasan said in an interview that his retirement has been planned for several years and that he wanted to leave the company before his 60th birthday later this year.

But sources familiar with the situation said the company’s board has grown restless with Hasan’s leadership, as Foundation’s stock price has fallen in recent months.

Roger Greaves, board chairman of Foundation’s Health Net HMO business, disputed that view, saying Hasan “had a close relationship with board members.”

Hasan is a Pakistani-born neurologist who through a series of savvy business deals came to head the nation’s fourth-largest managed-care firm, with annual revenue of nearly $9 billion. He also became one of the most controversial figures in an industry awash in controversy.

Known for his extravagant tastes, Hasan drew the ire of California’s medical establishment, which saw him as an opportunist who became fabulously rich even as he preached the need for austerity. After collecting more than $3 million in salary and bonuses the year before, Hasan told a Times reporter in a 1995 interview that perhaps he wasn’t being paid well enough.

“We are being innovative, and we are helping to solve some very difficult and knotty problems,” he said at the time. “If we are successful, then I think we deserve not only this, but more.”

He could be ruthless as well as charming when it came to demanding that doctors cut their fees.

One Northern California medical group executive recounted Hasan saying he would terminate a contract that brought in 25% of the group’s business unless the doctors agreed to slash their fees. “He was imperial in his approach,” said the executive. “He would come in like royalty and dismiss you like you were a peon.”

But even Hasan’s critics credit him with helping to make the health-care system more efficient by forcing doctors to practice medicine more efficiently and help reduce medical costs for consumers.

Hasan engineered the 1997 merger between Health Net and Foundation Health, then two of California’s biggest HMOs. In approving the deal, state regulators established conditions that barred Hasan from being involved in medical decision-making or contract negotiations with doctor groups. Because Hasan is a major shareholder of Foundation Health, regulators wanted to be sure his financial interests would not influence medical decisions.

Hasan said he has “not enjoyed” running the company the last two years. The company had become “too big and bureaucratic” for his tastes as an entrepreneur, he said. And the restrictions placed on him by regulators “took away my ability to negotiate with doctors and do medical management . . . the part which is my strength and which I enjoy most.”

Hasan sometimes said the criticism he engendered from other doctors was personally hurtful, because he considered himself a doctor first and businessman second.

Steve McDermott, chief executive of Hill Physicians Group in Sacramento, recalled a dinner in San Francisco with Hasan more than a year ago in which he spoke of his frustration.

“He said, ‘I’m hated,’ ” McDermott recalls Hasan saying. “He said: ‘When I was practicing medicine, my patients loved me and thanked me. Now I’m making decisions that help save companies millions of dollars and nobody thanks me. They hate me instead.’ ”

Hasan plans to remain as a non-executive board chairman of Foundation until he leaves, which is expected to take place between January and May, the company said. A new chairman will be named at that time.

Foundation Health shares closed Friday at $18.06, up 31 cents on the New York Stock Exchange.