Evolent’s five-day stock chart | Courtesy of Nasdaq

Shares of the consulting company Evolent Health jumped nearly 7 percent Thursday after the insolvency risk of its biggest customer, Louisville-based Passport Health Plan, appeared to be diminishing.

Passport told Insider Friday that its sole revenue stream, Medicaid dollars from the state, was scheduled to widen more than expected on April 1, “which is a positive development.

“However,” the nonprofit said, “the rates are not yet final, and there are a number of considerations under way to determine Passport’s long-term viability.We remain committed to finding a path forward and continuing to serve our more than 310,000 members across the Commonwealth.”

Meanwhile, an analyst with Baird Equity Research who covers Evolent this week wrote that “recent indications seem positive” based on news reports and comments from Evolent officials. Baird estimated that for shareholders of Evolent, the value of Passport’s survival is about $500 million.

Passport is one of five organizations in Kentucky that manage Medicaid benefits. About two-thirds of its customers live in the Louisville area. Medicaid is a mostly federally funded health insurance program primarily for the poor, pregnant women and people with disabilities.

Passport officials have said that the state last summer changed its rates arbitrarily and that they unduly harm Passport. The nonprofit has sued the state to restore previous disbursement rates. However, state officials have told Insider that they changed the distribution rates because of budget cuts and to bring profitability of Kentucky’s managed care organizations in line with the national average.

Unrelated to its dispute with Passport, the state has proposed a new distribution rate for Medicaid dollars for April 1, and while Passport reiterated Friday that the rates are higher than expected, neither the state nor Passport have disclosed details.

The size of the rate increase is critical to determining whether Passport, which despite drastic cost-cutting is losing about $1.25 million per week, can survive long-term.

Passport has paid Evolent hundreds of millions of dollars in the last few years on non-employee management fees. The relationship between the nonprofit and the publicly traded Evolent has been criticized by state officials, but Passport and the company have defended their relationship and said that it has benefited both the nonprofit and its beneficiaries. Passport is Evolent’s biggest customer, accounting for about 11 percent of revenue.

Matthew Gillmor, a senior research analyst with Baird, wrote this week that while there was no “perfect clarity,” he believed the dispute between Passport and the state was subsiding.

“… at an investor conference this week, (Evolent) reportedly suggested the new rates would offset prior reductions and put Passport in a more stable financial position,” Gillmor wrote. “These indications read positive to us, and we hope to learn more in the coming days.”

The analyst said that Baird believed Evolent’s stock was worth at least $25 per share and that while the loss of Passport “would be a significant negative,” Baird would “expect the stock to ultimately recover above current levels.”

Evolent shares rose 6.9 percent Thursday, closing at $14, though they fell more than 3 percent Friday morning and were trading at about $13.50 shortly after noon.

Gillmor said Baird believes the stock is worth at least $25 per share if Passport survives, and about $19 if Passport folds. With about 82 million shares outstanding, that $6 per share difference means Baird believes the value of Passport’s survival is worth about $500 million for Evolent shareholders.

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Boris Ladwig
Boris Ladwig is a reporter with more than 20 years of experience and has won awards from multiple journalism organizations in Indiana and Kentucky for feature series, news, First Amendment/community affairs, nondeadline news, criminal justice, business and investigative reporting. As part of The (Columbus, Indiana) Republic’s staff, he also won the Kent Cooper award, the top honor given by the Associated Press Managing Editors for the best overall news writing in the state. A graduate of Indiana State University, he is a soccer aficionado (Borussia Dortmund and 1. FC Köln), singer and travel enthusiast who has visited countries on five continents. He speaks fluent German, rudimentary French and bits of Spanish, Italian, Khmer and Mandarin.