Malik Hasan, M.D., is retiring as Foundation Health Systems' chief executive, in what could be a harbinger of dramatic changes at the managed-care giant.
The notion of the hard-charging Hasan voluntarily stepping down from the company he helped create was met with some skepticism by industry observers, who noted last year's losses at FHS and an expected second-quarter charge against earnings this year.
Others, however, noted Hasan's age of 59, his other interests and regulatory limits on his authority dating from the merger that created FHS.
His move heightened the uncertainty wracking the managed-care industry, which already has been hit by huge losses at major players such as United HealthCare Corp., Kaiser Permanente and Oxford Health Plans (See related story, p. 2).
Hasan helped orchestrate the April 1997 merger of Foundation Health Corp. and his own Health Systems International, which created Woodland Hills, Calif.-based FHS, the fourth-largest publicly traded company in the industry.
He first won national notoriety by sinking a proposed 1995 merger of HSI with WellPoint Health Networks, Blue Cross of California's parent company, after he and WellPoint CEO Leonard Schaeffer repeatedly clashed over who would run the combined organization.
Hasan was immediately replaced as FHS CEO by Jay Gellert, 44, who previously served as the company's president and chief operating officer.
The company's official announcement noted that Hasan will continue as "nonexecutive" chairman of the board of directors and will resign that post sometime early next year.
FHS has more than 6 million enrollees -- over half of them in California -- and also has a major market presence in Arizona, Florida, Oregon and Washington.
Although things have stabilized so far this year, FHS lost $187 million last year on $7.2 billion in revenues, taking a $396 million hit to reflect merger-related restructuring costs. In the first quarter of 1998, ended March 31, the company posted $26.2 million in profits on $2.2 billion in revenues.
Second-quarter results are scheduled to be announced Aug. 11, but officials have already stated that Foundation will take a $50 million second-quarter charge for real estate and other losses connected to FPA Medical Management's financial meltdown. FHS had investments in San Diego-based FPA, which filed for bankruptcy protection last month.
Despite the charges, FHS expects to post earnings of 26 cents per share for the quarter.
Officials, including Gellert and Hasan, characterized last week's changing of the guard as entirely voluntary.
"(Hasan's) going to be 60 in October, and he obviously doesn't do this for the money," Gellert told MODERN HEALTHCARE.
"The last one or two years I was not particularly having fun" running the company, Hasan said in a separate interview. He recruited Gellert several years ago at HSI to provide management support. A big drawback to enjoying his FHS role, Hasan acknowledged, is a California Department of Corporations' dictum that he not take any active role in running FHS' California operations. That highly unusual requirement was a condition for the department's approval of last year's FHS-HSI merger.
Some analysts say the changes have been in the works for months as part of an organized transition plan that had Hasan's support.
"Malik recognized that things had changed pretty dramatically within the industry, and he didn't want to be a CEO of a company of this magnitude," said Robert Hoehn, a healthcare analyst at ING Baring Furman Selz in New York.
But other industry sources speculated that Hasan was forced out at FHS, and that the management switch is just the first step in a chain of events that could cause the company to split up and former Health Net Chairman and CEO Roger Greaves to return as chairman. Health Net merged with QualMed in January 1994 to form HSI. The sources didn't want to be quoted by name.
FHS officials declined to comment on the Greaves' speculation but acknowledged that the sale of several elements of the company is being explored.
Hasan acknowledged that the company "is seeking to divest" former QualMed health plans in Colorado, Idaho, New Mexico and Washington state, and analyst Hoehn said a sale of those units to Hasan "wouldn't surprise me."
Gellert, meanwhile, said helping to enhance the image of FHS and the managed-care industry as a whole will be the company's "No. 1 priority as we look ahead."
FHS wants to be known "as a health plan that offers a kinder and gentler brand of managed care," Gellert said. That's a vision most observers would agree could not have come from Hasan.
Hasan, meanwhile, insisted that he wants to focus on several entrepreneurial companies he has started in recent years, including an international healthcare consulting firm, a company that handles electronic medical charts and records, and a third venture that develops information systems for managed-care companies.
Hasan had 4.8 million shares of FHS stock, or about 4% of total shares, as of mid-March and said late last week that he intends to remain a major shareholder "for many years to come."