LOUISVILLE, Ky. (WDRB) – Passport Health Plan, the primary manager of Medicaid benefits in the Louisville area, will be converted into a for-profit company under a deal with Evolent Health, a Washington DC-based health plan administrator.
Evolent will buy 70% of Passport for $70 million, according to terms the companies disclosed Wednesday. The sale is expected to close in the fall.
The change is intended to be invisible to the roughly 300,000 low-income people – including 200,000 in the Louisville region – who get Medicaid health coverage through Passport.
Founded in 1997, Passport is controlled by a group of nonprofit Louisville-area healthcare providers – the University of Louisville and two of its affiliates, Norton Healthcare, the nonprofit that formerly owned Jewish Hospital & St. Mary’s Healthcare and the Louisville-Jefferson County Primary Care Association.
Those organizations, called “sponsors” of Passport, will retain a 30% stake in Passport under the deal announced Wednesday.
U of L President Neeli Bendapudi said in a campus-wide email on Wednesday that the school will receive $45 million from the sale, which will help with "financial pressures" at its medical school and at U of L Physicians, the practice plan for university-employed doctors.
U of L, which has 64% of the ownership in Passport, will retain a 19.2% stake following the Evolent purchase, Bendapudi said.
Earlier this year, Passport emerged from a bruising battle with Gov. Matt Bevin’s administration over cuts the state imposed in 2018 to Medicaid payment rates in the Louisville region.
The state Cabinet for Health & Family Services has previously said that the rates are not decided by administration officials, but by the calculations of a third-party actuarial firm contracted by the state under a process proscribed by the federal government.
After Passport said it was on track to fall apart financially, the administration gave Medicaid contractors a payment increase in April that stabilized Passport’s finances and removed the immediate threat of insolvency.
Even so, Passport said the cuts did lasting damage and continued a lawsuit against Bevin’s administration, which seeks compensation for the financial hit.
Speaking to investment analysts on Wednesday, Evolent CEO Frank Williams said the rate fight hit Passport "pretty hard" and led to discussions that resulted in the sale agreement.
"You had deteriorating financial performance and that’s when we got more heavily engaged," Williams said. "The (Passport) team said, 'Hey we really need your support; it’s an urgent situation.'"
Evolent will put $20 million into Passport to shore up its balance sheet in addition to the $70 million purchase price.
Passport brings in nearly $2 billion a year in Medicaid payments from the state, which it then pays to providers such as doctors and hospitals.
Passport CEO Mark Carter will be replaced by Scott Bowers, the president of Evolent's national Medicaid business.
Passport and Evolent already have close ties. About 450 of the roughly 600 people who work at Passport’s headquarters in southern Jefferson County are actually Evolent employees.
In 2016, Passport and Evolent said they would join to make Louisville the headquarters of Evolent’s growing line of business helping Medicaid plans like Passport perform better. At the time, Passport received stock in Evolent valued at $15 million.
Earlier this year during the feud with Bevin’s administration, Carter said Evolent helped Passport stay afloat by granting a substantial discount on the fees Passport pays Evolent for subcontracted employees.
The conversion of Passport from non-profit to for-profit status will have to be approved by Attorney General Andy Beshear’s office, a source said.
It wasn’t immediately clear what the Evolent deal means for Passport’s stalled construction of a new headquarters building and health and wellbeing campus at 18th Street and Broadway in west Louisville.
A source said Evolent won’t abandon the site, but may have a different vision for the property.
"Evolent is dedicated to bringing the project to fruition in partnership with developers and other key stakeholders," Bendapudi said in her campus email on Wednesday.
A big turning point ahead is whether Passport will ink another five-year contract with Kentucky to continue providing managed care for Medicaid.
The current five-year contract is up June 30, 2020, and the state is seeking bids for the next period beginning July 1, 2020. The decision will be made in September 2019, Evolent told investors.
Passport is one of five Medicaid managed care organizations who serve Kentucky. The others are for-profit health insurance companies -- WellCare, Anthem, Aetna and Humana.
If Passport does not win the business, Williams told investors that it could lead to a "wind down," or liquidation, of the plan in mid-2020.
But Carter said in an interview with WDRB on Wednesday that Passport could survive even if it doesn't win another five years of business with the state.
"It's not like the entire future of passport is dependent on winning that RFP. Part of the reason we did the partnership with Evolent in 2016 was essentially to reduce our reliance on a single state contract," Carter said. "The whole concept around having this Medicaid Center of Excellence was that, as Evolent's presence in other states and as Medicaid expanded, there would be job growth and job opportunity here because the centralized service center was here in Louisville."