FHP TO CREATE LARGE PHYSICIAN PRACTICE MANAGEMENT COMPANY.

FOUNTAIN VALLEY, Calif.--(HealthWire)--June 27, 1995--The FHP International Corporation (NASDAQ:FHPC) Board of Directors has approved a plan to create a Physician Practice Management Company, organizing FHP's 57 medical centers into one of the largest for-profit Physician Practice businesses in the United States. The new company will operate its medical centers under the name of Comprecare Medical Group.

Comprecare Medical Group will encompass all of the FHP's current staff model operations in California, Utah, Arizona, New Mexico, Nevada and Guam. Regulatory approval for the new company is expected by January 1, 1996. Comprecare Medical Group, either directly or through professional medical corporations, will accept fee-for-service patients and provide services to other HMOs and Preferred Provider Organizations. In the past, FHP's medical centers have served only FHP members. The operations of Comprecare Medical Group will be independent of FHP's HMOs, although initially FHP will be its major customer.

As part of establishing Comprecare Medical Group, FHP has already made application to the California Department of Corporations to form a professional medical corporation.

The new Physician Practice Management Company will involve over 500 doctors and 95 dentists, and will have over $350 million in annual revenue.

At a later date, the Physician Practice Management Company may sell shares to the public to raise capital for future expansion, and it may spin off a portion of its shares to FHP shareholders.

FHP President and Chief Executive Officer Westcott W. Price III said, "The physician practice management industry has grown at a rapid pace, from just a few companies three years ago to nearly 20 today. Even so, the industry is in its infancy and we believe it offers significant growth opportunities. Given FHP's 34 years of experience in managed care, we expect Comprecare Medical Group to be a major factor among Physician Practice Management Companies."

Jack Massimino has resigned as FHP's Chief Operating Officer, and has been elected President of Comprecare Medical Group. Mr. Massimino, who will be a part owner in the new business, has more than 20 years of experience in the managed health care industry, including 12 years with FHP. Key primary-care physicians employed by Comprecare Medical Group will have a financial interest in the individual centers in which they practice. The physicians' interest will be based upon tenure and position.

In connection with the formation of Comprecare Medical Group, the FHP board also decided to sell the company's two acute care hospitals and two subacute hospitals. The acute hospitals, located in Fountain Valley, California, and Salt Lake City, Utah, have a combined total of 356 licensed beds.

The development of Comprecare Medical Group will entail added operating costs during the six-month period between now and January 1996. These costs include duplicate employees during the transition period, separation expenses for displaced employees, and the cost of developing new computer systems to handle fee-for-service business and other HMO and PPO customers.

In addition, disposal of the hospitals will result in a significant capital loss.

It is anticipated that the write down of real estate and restructuring costs will approximate $75 million before taxes, or $0.70 per share after taxes. The restructuring costs relate to the establishment of the Physician Practice Management Company and a reduction in FHP's administrative and staff functions. Most of these costs will be recorded in the June quarter, but recent accounting and SEC pronouncements require some costs to be reflected in the September and December 1995 quarters as they occur. Consequently, earnings are expected to be relatively flat during the period July to December of this year compared with the same period in the prior year.

As part of the restructuring, FHP's administrative and staff functions at corporate headquarters and in the operating units will be reduced by 500 employees, resulting in annual savings of over $15 million. Present corporate functions will be substantially curtailed and the balance of corporate activities will be transferred to the HMO, Comprecare Medical Group, or insurance operations. The corporate organization will operate as a holding company with limited operational or staff functions.

In the restructured organization, the Comprecare Medical Group under Jack Massimino, the HMO operations under Judd Jessup, and the insurance operations under Burke Gumbiner, will report directly to FHP's President and Chief Executive Officer, Westcott W. Price III.

FHP International Corporation is a diversified health care services company which, through its HMO subsidiaries, serves more than 1.8 million people in 11 states and Guam.

CONTACT: FHP International Corporation, Fountain Valley

Anna Marie Dunlap, 714/378-5585

Ria Marie Carlson, 714/378-5750