Shares of the health care consulting firm Evolent Health, which has close ties with Passport Health Plan, spiked more than 10% early Thursday, only hours after Passport’s CEO said that he was optimistic the nonprofit could avoid insolvency.
Passport accounts for about 10% of revenue for Evolent, which is based in Arlington, Va., but has sizable operations in Louisville, primarily employing former Passport workers.
At 9:48 a.m. Thursday, Evolent shares were trading at $13.97, up 10.09%. Passport, which had been losing $1.25 million per week even after drastic cost cuts, was facing insolvency because the state last year changed the way it distributes Medicaid dollars, which is essentially Passport’s sole revenue stream.
However, Passport CEO Mark Carter said Wednesday that he is “cautiously optimistic” that the state’s new Medicaid disbursement rates will be enough to avert insolvency. The state finalized the rates this week. The rates will be retroactive to June 1, and the state will reconcile this month’s Medicaid payment in May.
The state said it is increasing the Medicaid base rate for the 16-county area that includes Jefferson by 4.3%. Carter said the new rate will boost Passport’s annual revenue by $80 million, which should be enough to cover Passport’s previous annual shortfall of about $60 million and pay for additional health care benefits for existing and new Medicaid beneficiaries.
Nonetheless, Carter said that the previous rates have depleted the nonprofit’s finances, and Passport would not drop the lawsuit it has filed against the state to recover additional dollars.
Evolent analysts were bullish in research notes published Thursday, with the Cannacord analyst Richard Close saying Passport’s announcement would make him “an aggressive buyer of the stock.”
Passport handles Medicaid benefits for about 305,000 Kentuckians, of whom two-thirds live in the Louisville area, including nearly 128,000 in Jefferson County, about 18,000 in Hardin County and 10,500 in Bullitt County.
The nonprofit has been paying Evolent hundreds of millions of dollars in non-employee management fees in the last few years, a practice that state leaders have criticized as having contributed to Passport’s fiscal problems. Carter and Evolent CEO Frank Williams have defended the parties’ cooperation, saying Evolent has been providing services for less money than prior contractors while at the same time improving care for Medicaid beneficiaries.
The stock spike also is good news for Passport, which holds about 1.1 million Evolent shares. At the closing bell last night, those shares were worth $14 million. Thursday morning, they were worth about $1.4 million more.
Despite Thursday’s spike, however, Evolent shares were still down more than 50% since late September.