Crowley Likely to Get Payout of $21 Million

Foundation Health Corp. chief Daniel Crowley, who has been criticized as a symbol of executive greed in the HMO industry, stands to receive a pay package of about $21 million in his firm’s merger with Health Systems International, the company disclosed in securities filings Tuesday.

Crowley will earn the $21-million payout if he leaves the HMO one year after the merger is completed and if he remains a consultant for the next three years. In addition, the value of stock and options previously issued to Crowley could substantially increase after the deal is completed.

The package is certain to raise anew the issue of executive compensation in the HMO industry, which has grown giant by preaching frugality to doctors, hospitals and companies who purchase health insurance for their workers.

Although the firm defended the compensation deal, Crowley’s lucrative pay packages in past years--including $19 million in 1994--have sparked outrage from some employer and consumer groups.

Such criticism once prompted Crowley to take a $2-million pay cut and to comment to a group of Northern California physicians in the summer of 1995 that it was “doggone piggy to put your face that far in the trough when other people are hurting.”

The pay package is detailed in a Securities and Exchange Commission filing made by Foundation Health and Health Systems in connection with their planned $1.3-billion merger. The deal between the two California-based firms would create one of the nation’s largest managed-care companies, with about 5 million members and $8 billion in revenue.

Crowley would receive $825,000 for remaining with the newly merged company for one year as its chairman, as well as a $3.5-million bonus. If he leaves the company after one year--as most observers expect him to do--he also would receive severance pay of $8.37 million and a three-year consulting contract worth $9 million over three years, according to the SEC filing.

“These type of platinum parachutes for HMO executives while patients are getting discharged from the hospital prematurely in the name of austerity is revolting,” said Jamie Court, a spokesman for Consumers for Quality Care, a Los Angeles group frequently critical of HMO practices.

But a Foundation spokesman stressed that Crowley’s compensation must be viewed in context. The former accountant took over the company in 1989 when it was teetering toward bankruptcy and built it into one of the country’s biggest HMOs. Revenue during that period grew from about $800 million to nearly $4 billion.

“It’s fair that he walks away with something,” the spokesman said.

In contrast, the recent furor over departed Walt Disney Co. President Michael Ovitz’s estimated $90-million severance package involved an executive who had been with the company little more than a year with few notable achievements.

David Olson, a spokesman for Woodland Hills-based Health Systems, said Crowley’s pay package is “consistent with his contractual obligations and with standard practices in this kind of [merger] situation.”

Other senior executives of Foundation Health, headquartered near Sacramento, have also negotiated handsome pay packages under the merger.