Corporate 'doctor' for health care firm; Jeffrey Barbakow tapped to remedy what ails National Medical Enterprises.

Living the idyllic life in Montecito, Jeffrey Barbakow answered a call 10 months ago proferring a monster request: Right the ship at National Medical Enterprises Inc., the publicly held $3.76-billion-in-sales health care company floundering under waves of private and public investigations and lawsuits.

Barbakow, already a director at NME, was asked to supplant Richard Eamer, company founder, chairman and chief executive.

Basically, the 50,000-employee NME, which operates hospitals and psychiatric facilities, was charged with criminally conspiring to overbill insurance companies and the federal government.

Some of the charges against NME were almost ghoulish in nature: psychiatric patients kept institutionalized when they should have been released (or even never institutionalized), so that insurance companies could be billed.

Soon feds were crawling all over NME - it is a federal offense to overbill Medicare or to encourage business through kickbacks.

Barbakow, already an NME board member, answered the call, became chairman and chief executive at the giant, and suddenly his life changed.

"I was very active in my children's school; I sit on the school's board. I used to drive them (the children) to school," recalls Barbakow of his former life of upscale normality. "I don't drive them to school any more."

So why would a financially set-for-life, 48-year-old, semi-retired family man wrench himself out of the lap of luxury to re-enter the rat race - especially when the commute is from the Santa Barbara area to Santa Monica?

"There has always been something about this company," answers Barbakow, a former investment banker who had NME as a corporate client. "This was my favorite company when I was with Merrill Lynch (Capital Markets, part of the Merrill Lynch brokerage). It was a star on Wall Street. It was disappointing to see what happened to it in the late 1980s and early 1990s. I knew there was a hell of a company there. ... But who the hell knows, maybe I was nuts to answer that call."

Perhaps it was time to help out old friends: At Richard Eamer's recent retirement dinner, Barbakow referred to the former chairman and chief executive as a "hero."

Still, it was time for a shake-up.

Barbakow's Job One: Remake NME's board of directors, which was not only large (19 directors), but laden with insiders - and the few outside directors were often former employees, usually retired doctors. The cozy arrangement failed shareholders, says Barbakow.

"My goal is to cut the board back to 12, with about 10 outsiders," says Barbakow, speaking at the company's Santa Monica headquarters. "The board needs to be totally controlled by outsiders."

Barbakow says he has sought directors who will ask tough questions and poke into matters

Management has been shaken up too. "We have a new CEO (chief executive officer), and new COO (chief operating officer), new general counsel, a new CFO (chief financial officer), and new head of public relations," says Barbakow.

The comment about general counsel is especially telling. Barbakow's predecessor, Eamer, often used his own law firm as counsel.

(Interestingly, two current board members left over from the old regime, John Bedrosian and Nita Puig-Heckendorn, are embroiled in litigation with NME, and apparently want to stay on the board. Barbakow says he cannot discuss the nature of the litigation, but it is clear he wants an all-new board.)

Barbakow's Job Two: Settle all litigation, get it in the past, and concentrate on moving NME forward.

"I am drawing a line in the sand," says Barbakow, who may sound like former President Bush, but looks somewhat like actor Jonathan Pryce, now seen in Infiniti television commercials. "Whatever happened in the past happened," he says. "We have to develop strategy to move this company forward."

Toward that end, Barbakow has settled hundreds of millions of dollars of litigation with private-sector insurers and, two weeks ago, cut a deal with the federal government - at a cost of $300 million. "We're very pleased, and I think we are now in good shape (legally speaking)." The settlement with the federal Justice Department will take care of NME's civil exposure to federal actions, but federal criminal suits against former NME executives are still possible.

Job Three: Sell off the troubled psychiatric and rehabilitative units and concentrate on regular, acute-care hospitals. "Our core business, the acute-care hospitals, is doing fine," comments Barbakow. "There really isn't that much there for me to fix."

On march 30, Barbakow said he plans to sell 47 NME psychiatric hospitals to rival Charter Medical Corp. for $200 million.

Job Four: Shrink the physical size of the chief executive's office at NME. "This office used to extend back to there," says Barbakow, pointing at a door about 50 yards down a hallway. The old executive suite evidently occupied about 4,000 square feet, a size reduced by about 75 percent. "Now we have it back down to a more normal size," says Barbakow. "They had a gym in here, too."

Too, of late there has been talk that Barbakow will reduce the size of corporate staff in Santa Monica by 300, in light of the company's overall reduced size.

Investors seem to like Barbakow, if stock price is any indication. Wall Street has sent NME stock from a low of $6.50 last year to more than $17 a share in recent trading.

"We're proud of what has been accomplished," responds Barbakow, when asked how he feels about the vote of confidence from Big Board investors. "The market is recognizing the steps we have taken, although you can't look at the price of a stock every day."

The steps are getting easier, too. When Barbakow first took over at NME, solid work weeks - and even solid work week-ends - were the norm for Barbakow and his crew of corporate revivalists. "We were doing 70-hour weeks," says Barbakow.

But now that things are a bit more under control - the stock has rallied - Barbakow generally spends only three days a week in Santa Monica, where he rents an apartment.

"But I am constantly in touch by phone. There's the fax machine - you know, it really doesn't matter where you are any more," he quickly comments, lest anyone think he is sinking back into the Montecito lifestyle.

What really makes Barbakow tick? Like many high-ranking executives, he is guarded upon first meeting, seemingly uncomfortable with talking about himself.

When asked what kind of car he travels in when commuting from Montecito to Santa Monica, first he defers the questions, then says "several" cars, then finally says "a Suburban or a Toyota Landcruiser." Later, he allows that a company Lincoln Town Car sometimes picks him up.

He jogs "six days a week," skis, travels a lot and is an avid reader of business and trade papers and magazines.

He says the nation's business press is "not as through" as it should be, too often trying to produce something "salable" - which often means something personal and "negative."

When not reading professional fare, Barbakow devours novels and is currently racing his way through thriller "Along Came a Spider" by James Patterson.

Barkabow also dabbles a bit in entrepreneurial-type ventures - for example, he is one of the founders of the tony "Maple Street" restaurant in Beverly Hills, and he helped found a film production business in the 1980s.

Associates say he is not the type to get rattled or angry and, indeed, in a face-to-face interview he seems intellectually interested but emotionally detached about professional ventures.

When talking about fixing NME, he sounds more like a chemist seeking the right formula than a chief executive at the helm of a ship that some speculated was going to sink.

And though Barbakow swears allegiance to NME, he allows that he doesn't want to be at the company in 10 years. And many in the brokerage industry have said that once the company is restructured, and the restoration on Wall Street complete, he will lose interest in it.

"Ten years is probably too long for anybody to stay anywhere," concedes Barbakow with a heavy exhale, when pressed on his potential tenure at the company.

Other former insiders say he is readying the company for sale. If no sale, then he will move to acquire another company. On Wall Street, Barbakow is not regarded as a corporate chieftain, but a dealmaker.

But NME is not Barbakow's first pass at being a corporate executive; he made headlines several years ago during the sale of moviemaker MGM/UA Communications Co. to Italian financier Giancarlo Parrett and Pathe Communications - a deal that subsequently broke apart, with French bank Credit Lyonnais, as a stiffed creditor, assuming control of the film company.

Barbakow advised Kirk Kerkorian, former owner of MGM/UA, on the transaction and served as MGM/UA's chief executive prior to the sale of the moviemaker to Paretti. News accounts at the time reported Barbakow made $30 million for working for Kerkorian.

At NME, Barbakow will make a base salary of $850,000, in addition to standard perks for NME executives. In addition, he can earn an additional $500,000 a year if NME stock closes above certain target prices - and NME stock is already well above the target price for 1994 of $12, so it looks as if Barbakow will get his bonus this year.

In addition, Barbakow has options on 2 million NME shares at $9.50 a share. At NME's recent trading price of about $17, Barbakow's options are worth roughly $15 million.

For Barbakow, he NME challenge is even bigger, in many respects, then the MGM/UA deal. Former stablemates of Barbakow say it was the opportunity - the challenge - of righting things at such a large, blue-chip enterprise as NME that attracted him to the job.

"At this stage of his life, he was probably looking for a challenge, something he hadn't done before," says Steven Koffler, investment banker at Sutro & Co. who worked with Barbakow at Merrill Lynch. "He is a very successful dealmaker."

And now, at NME, Barbakow is cutting the biggest deals of his life.