JAY GELLERT—The Foundation Health Systems Chief Talks About the Company’s Turnaround and the State of Healthcare

AS CEO OF FOUNDATION HEALTH SYSTEMS, JAY GELLERT IS A TARGET OF PHYSICIANS, CONSUMERS, REGULATORS AND INVESTORS. BUT AT LEAST THINGS ARE GETTING BETTER. It’s a Friday afternoon, and Jay Gellert is talking about the weather, saying he actually enjoys the blistering heat that’s been roasting the Valley this summer. It’s a good thing, because Gellert has been on the hot seat ever since he assumed his post as president and chief executive of Foundation Health Systems Inc. in August 1998. Like many of its counterparts, Foundation had expanded through the years into a number of auxiliary businesses that, by the close of the decade, left the Woodland Hills-based managed care firm swimming in red ink. As a result, Gellert has spent most of his tenure as CEO divesting the company of those peripheral businesses and closing other unprofitable divisions. It seems the effort is paying off. The $1.5 billion company, which currently ranks as the second-largest employer in the Valley with 8,648 employees, has posted five straight quarters of profits, following two consecutive years of losses in 1997 and 1998. And Wall Street has responded. After falling to a low of $6.25 last October, Foundation’s stock has been trading in the $13 range recently. Gellert concedes that his company is not out of the woods yet. Years of cost cutting have left a lot of bad blood between HMOs, their customers and the physicians who work with them. Question: What led to Foundation Health’s fiscal woes? Answer: We got off track, we got involved with a bunch of stuff that wasn’t consistent with our core mission. The company was in workers’ comp. It opened up plans in a number of states where it had very small penetration Louisiana, Texas and Oklahoma and couldn’t offer the range of products and services people wanted. We got involved in some technology pursuits that we weren’t able to pull off. Q: What’s led to the turnaround? A: We’ve focused on just the basics of our business, and now that we’ve gotten back on track and disposed of the businesses that weren’t in line with our core mission, the stock market is beginning to recognize that there’s some real strength here. Q: What will you do to ensure the company continues to grow and prosper? A: The last couple of years have been a turnaround. This year it’s transformation. We have to move people from making things work that weren’t working to the process of saying, ‘OK, it’s working, but it’s not working in line with what the customer ultimately wants. So it’s about painting a vision of how do we provide products that make you really happy. Secondly, how do we make it so you view us as helping you in your care experience rather than standing in the way. And third is, how do we make it so that basic simplicity in terms of getting questions answered, issues dealt with becomes the watchword of what we’re doing. It’s about building that into our corporate DNA. If we can do that, everything else will follow. Q: A recent poll reported that 56 percent of consumers have a negative view of managed care companies. How do you propose to break through that? A: I think there are three things we need to do. One is eliminating the hassle factor. People can’t understand why it’s so hard to figure out whether their claim has been paid; whether their referral has been made. We have to make that a simple exercise. Secondly, I think that (providing greater) consumer choice (about the degree of services covered) will help us. As consumers make their own decisions rather than relying entirely on what their employer (contracts for), we’ll be able to fine-tune the plan to what people actually want. The third thing we have to do is make the system more efficient so that doctors and hospitals can regain faith in it. Q: Managed care has also been blamed for hindering access to adequate care, particularly in life-threatening situations. How would you address those concerns? A: That’s a good point. In California, the state passed comprehensive managed care reform last year, which, if everyone understood their rights, should eliminate that concern. Everyone now has access to binding third-party review on any dispute like that. The review has to be done in a timely fashion so that, if it’s a life-threatening disease, it’s done in 24 hours or 72 hours. Nobody in the country should ever think that the health plan is the final arbiter of what they’re entitled to in any kind of a serious situation. Q: Do you take the negative criticism about managed care personally? A: No. Some of these complaints are legitimate and, until we’ve responded to them, we should focus on legitimate concerns of our customers rather than personal feelings. Secondly, everyone who complains, with the exception of a few people who use it only for political reasons, is responding to the fact that this is the most important area of their life. We should focus on how do we make them feel better. Q: Do you ever get personally involved in any of these cases where people are helped by your company? A: I think that people underestimate the number of individual cases that all of us get involved in. I’ve been involved in cases where people were just having trouble negotiating the system. I’ve been involved in cases where people have acute crises. Last week I was involved in a situation where a family needed to find a mental health practitioner for their kid, and they didn’t know what to do, and I was able to hook them into one of our services and it’s really given them a good shot. Q: How do customers get to you? I have a hard time even getting a customer service representative for my HMO on the telephone. A: Part of it is I’m here at weird hours and I pick up the phone. Other times you go to a client presentation and meet someone and they call you directly. Or you’re at a community event and someone comes up to you with a specific case. Sometimes we get letters. A lot of us really work hard to follow up on those because it gives us a good chance to see how things really work. If you don’t follow it up yourself, you never get a feel for the human side of this and you treat it as a business. It’s not a business, it’s a service. Q: Why are you and other managed care companies pulling out of the Medicare programs? A: The problem with Medicare is that that federal government has put in place a system that limits the (annual) increase in reimbursement that they pay for seniors in managed care to 2 to 3 percent. Nowhere is there (annual) health care inflation of 2 to 3 percent. When we get a legislative consensus to do this fairly, this program will be a good, stable program. Right now many of us have stayed in for many years losing lots of money on the hope that Congress would react, and it’s gotten to the point when it’s really untenable. Q: Did you start out wanting a career in health care? A: My schooling was in political science and economics, so I had no academic background in this. Honestly, I never in my life had much of a plan or knew where it was going to lead. When I was in my 20s I was working for San Mateo County as the assistant county manager, and the health director’s job came open. I’ve just taken on assignments as they’ve come. Q: What is a typical day like for you? A: I probably spend three or four hours doing real work, writing, doing analysis and things of that sort. Then probably another three or four hours interacting with the people who work here with me. The other third is on external things. Some of it is Wall Street related, some of it is politically related. I, along with the people who work here, have to find answers but never just academic answers because this line of work isn’t academic, ever.