More Turn to Prepaid Health Care : Fountain Valley Program Profits as Skepticism Wanes

Twenty-six years ago, colleagues called Dr. Robert Gumbiner a communist because his group practice in Long Beach offered patients a prepaid health care plan for $14 a month.

Gumbiner, now president and chief executive officer of FHP Inc., a dynamic Fountain Valley health maintenance organization, laughs when he remembers the skepticism he met. Although the Kaiser Foundation Health Plan had been started in the 1940s, prepaid health plans still were considered “revolutionary” when Gumbiner’s group opened shop.

Today, health maintenance organizations are more common and considered far less radical. FHP outgrew its early image as its client roster expanded.

“It’s really the ideal business because you get paid before you deliver the services,” Gumbiner said in a recent interview. “But we’re like a hotel or a restaurant, because if we don’t give good service, the people don’t come back.”

FHP, which originally stood for Family Health Plan, grew 35% in membership last year and now has 180,000 members in Southern California, Utah and Guam. By July, the company, which posted $125 million in revenues in fiscal 1984, expects to have 200,000 members. To keep pace with the growth, FHP is building a new 40,000-square-foot corporate headquarters and a 100-bed hospital in Fountain Valley.

FHP is also considering plans for a senior housing project and nursing care facilities on its 11-acre site near the San Diego Freeway.

FHP is capitalizing on the fact that more people belong to health maintenance organizations in Southern California than anywhere else in the country. Los Angeles, Orange and Riverside counties have 2.7 million HMO members --about a fifth of the population, according to Inter Study, a Minnesota marketing research firm specializing in HMOs. Nationally, about 15 million Americans belong to about 300 HMOs.

So far, Gumbiner’s FHP formula has been a prescription for success. The privately owned company reported net income of $8.6 million on revenues of $125.9 million for the fiscal year ended June 30, 1984, compared with net income of $2.4 million on revenues of $93.3 million in fiscal 1983. Although it reports income figures, the company is chartered as a nonprofit corporation and must invest its surplus income in improving benefits and services.

Commitment to Caring

Health care analysts said FHP’s commitment to caring for seniors sets it apart from many other plans. Although its general HMO program has been growing steadily, every time FHP opens a senior health center, it quickly attracts new members. Today, FHP operates the largest senior HMO program in California. The plan, which offers an alternative to Medicare, serves 22,000 Southern California seniors. FHP contracts directly with the federal Health Care Financing Administration to provide comprehensive care, so there is a minimum of paper work for members. Area seniors who opt for FHP’s plan, one of only a few Medicare-alternative HMOs in the country, go to FHP for all their medical services, with the Medicare benefits going to the HMO company, rather than to the individual.

‘It was mighty peculiar that the sicker a person was, the more they had to pay for medical care.’ --Dr. Robert Gumbiner

With traditional Medicare services, beneficiaries must pay certain deductibles, including 20% of costs covered by Medicare, plus any prescriptions and unauthorized services. By contrast, the senior plan through FHP has no deductibles and pays 100% of Medicare-covered costs. Office visits cost $3 and prescriptions are $2 each. FHP officials said the average Medicare beneficiary can save up to $750 a year in out-of-pocket health care expenses under their plan.

The federal government saves money because it pays FHP 95% of the monthly amount alloted for Medicare services and retains the 5% surplus. The monthly amount varies county by county, but in Orange County, Medicare allots $255 a month for services, and in Los Angeles, the amount is $273.

“The response to our senior program has been remarkable because we have eliminated the fear of medical bankruptcy,” Dr. Raymond Pingle, regional vice president of senior plans, said in a recent interview. Pingle said FHP sees a growing market because there are so many seniors living in Southern California. The company’s Long Beach center reached 10,000 members in a matter of weeks and FHP is planning to open a new senior center in downtown Los Angeles shortly.

Large Senior Enrollment

Carlos Zarabozo, a policy specialist with the Health Care Financing Administration in San Francisco, said FHP has a large senior enrollment, “which is a measure of success.”

Zarabozo, who monitors FHP’s financial performance, said there were some initial problems with FHP members who did not understand that they were limited to using only FHP health care services and went to outside doctors, then unsuccessfully tried to bill Medicare.

“Medicare patients are not used to being locked into a certain type of care,” Zarabozo said in a phone interview. But, he said, FHP has changed its enrollment forms and is better educating new members about the service limits. “It was not smooth sailing at first, but now things are working out.”

Apart from offering quality care, a successful HMO must be competitive in price and have strong marketing ability, according to Randy Huyser, a health care analyst with Montgomery Securities in San Francisco. Today, depending on how much an employer contributes, and how many family members are covered, FHP members may pay between $70 and $200 a month.

“To me, the key factor is having a quality reputation because so much growth comes from word-of-mouth advertising,” Huyser said. He said that, although FHP is privately held, he and other health care industry analysts are watching it, because they expect it to go public someday.

“We are constantly wooed,” said Gumbiner, referring to the investment community. “But we are financially stable, so we don’t need them.”

In recent years, FHP has raised $34 million through tax-exempt bond offerings in California, Utah and Guam.

Looking back on his successful career in prepaid health care, Gumbiner said, “It occurred to me that it was mighty peculiar that the sicker a person was, the more they had to pay for medical care.”

Rarity for Employees

In the 1950s, health and accident insurance was a rarity for most employees. Kaiser Foundation Health Plan, which was founded in the 1940s, was the pioneer, but there were few other health plans available. So, Gumbiner said, his patients welcomed the Plaza Medical Group health plan in 1959, especially since full obstetrical care was included for an extra $2 a month. “The problem with that was women would take the plan for nine months and then drop it!” Gumbiner said with a smile.

By the early 1960s, about 3,000 Long Beach residents had signed up for the plan. Gumbiner, a general practitioner at the time, said the plan also included hospital benefits.

“I knew the physician controlled about 50% of the cost of medical treatment by deciding which tests to order, which drugs to prescribe and when to admit someone to a hospital,” said Gumbiner. He said HMOs can be successful and profitable because they convert unknown catastrophic medical costs, into known, regular monthly costs.

Gumbiner, 62, is described by colleagues as a fastidious executive who frequently visits FHP facilities to observe operations. Gumbiner also has what he calls the “president’s hot line,” a phone answering machine available to members with suggestions or complaints. He promises members some response within 72 hours.

FHP’s showplace is in the former Long Beach Hippodrome roller-skating rink. Many of the same people who skated there in their youth now visit the brightly decorated and totally renovated building. Canvas banners hanging from the ceiling and comfortably upholstered wooden furniture give the waiting room the look of a upscale restaurant. An art gallery in the lobby, being readied for its grand opening, reflects Gumbiner’s passion for art. His taste for modern and primitive art is evident throughout FHP’s offices and clinics.

Original Roller Rink Floor

The original wooden roller rink floor remains, but the new hallways are extra wide to accommodate wheelchairs and slow-moving patients. Weak eyes are aided by signs featuring larger than normal letters and numbers. In a sunny patio area, members enjoy free beverages and snacks. And, there are patient expediters who make sure a confused member gets where he needs to go on time.

“This place is marvelous,” said Rose Durbin, sitting in the bustling waiting area. Durbin, who has been an FHP member for about 15 years, said, “I usually bring my knitting because I knit a pair of slippers every day and then give them to the doctors and nurses.”

Durbin, 82, was waiting to have her eyes checked after recent surgery. “They did a wonderful job,” she said with a smile.

Every day, the Long Beach center sees 200 to 300 patients. On a busy day, the computerized pharmacy fills 650 prescriptions. Because many elderly patients have multiple ailments and take several medications, the pharmacy’s computer system keeps detailed patient profiles, to make sure members do not take incompatible drugs.

Rita Rippley, the senior center’s nursing supervisor, returned to nursing about two years ago after a taking a break to work at the Newport Harbor Art Museum. Rippley, who greets many patients by their first names, said she loves working with the seniors because they are expressive and appreciative.