Embattled Passport Health Plan officials are mum about what steps they’re taking — if any — to cut costs given the nonprofit’s fiscal struggles, which CEO Mark Carter recently said could lead to bankruptcy as early as this summer.
Passport officials would not answer questions related to cost-reduction measures but told Insider Louisville in an emailed statement that they were continuing to work with state officials “and feel we are making progress.”
A state spokesman, meanwhile, told Insider via email that the state has plans for continued discussions, but declined to elaborate.
Documents obtained by Insider also indicate that Passport was expecting to lose about $4 million per week in January, dwarfing even the operating losses at the struggling Jewish Hospital.
In a letter to state officials on Jan. 7, Carter said the loss of Passport would have severe repercussions for the Louisville community, including disruptions for Passport’s 312,000 Medicaid beneficiaries, a weakening of the University of Louisville School of Medicine and the loss of tens of millions of dollars in investments from three national community development entities.
“And,” Carter wrote, “Passport’s groundbreaking project in west Louisville will likely fail.”
Passport is planning a new $87 million headquarters at 18th Street and West Broadway, a project that community leaders have said they hoped would stimulate the economy and inhibit further social degradation in an underserved part of the city.
The nonprofit employs about 200 in Louisville, but it has outsourced some services to Arlington, Va.-based Evolent Health, which also employs hundreds in Louisville, though the health care consulting company won’t say exactly how many.
The Courier Journal first reported on Passport’s problems Jan. 15, based on an appeal Carter had filed with the Kentucky Department for Medicaid Services to protest recent changes to the way the state distributes dollars for Medicaid, the government health insurance program for the poor.
Passport, one of five managed care organizations in Kentucky, administers Medicaid benefits for more than 313,000 Kentuckians, about two-thirds of whom live in Louisville. The state in total provides Medicaid to nearly 1.3 million residents, or about one in four Kentuckians.
While reimbursement rates are contributing to Passport’s fiscal problems, an analysis by Insider, based on Internal Revenue Service records and Securities and Exchange Commission filings, showed that the nonprofit’s finances also were being undermined by hundreds of millions of dollars in management fees to Evolent Health.
Loss projection for 2019: $4M per week
Documents Passport sent to the state last month show that the nonprofit projected to generate revenue of nearly $160 million per month through June, but that expenditures would exceed that amount by about $4 million per week. The nonprofit’s leaders previously had said that, barring any reimbursement changes, they were projecting a loss of $144 million this year, on top of a loss exceeding $70 million for 2018.
While the nonprofit’s leaders expressed concerns about “the dramatic reduction in … payments proposed for Passport” to state officials as early as June 20, they sounded upbeat about their $87 million headquarters project in the fall and winter.
The first phase, which includes a four-story, 340,000-square foot building, was to be completed in 2020. In September, a Passport spokesman had said that the organization was receiving “so much incredible input and interest” that it was considering moving up construction of the project’s second phase.
And in December, Passport announced that it had secured $24.35 million in New Markets Tax Credit Financing from three national Community Development Entities. The mechanism provides investors with a tax credit toward their federal income tax if they invest in low-income communities. The three entities — National Development Council, Reinvestment Fund, Telesis Corp. — could not be reached Tuesday. Insider also could not reach Old National Bank, which is providing the $63 million traditional construction loan for the project.
In a letter dated Jan. 10, Carter told state officials that without state intervention, the headquarters project “will likely fail.” He also said, though, that the new HQ would, in the long run, reduce Passport’s costs and would make sense because of its proximity to the nonprofit’s clients.
“The West End of Louisville has a population of approximately 60,000 people, many of them Medicaid beneficiaries,” he wrote. “It is an area tragically encumbered by negative health disparities, not to mention a level of hopelessness. … the move will allow Passport to directly and positively affect its members by going right at many of the social determinants of health, by providing jobs, training, food, health services and any number of other benefits so often denied to our out of reach for this population.”
Metro Councilwoman Barbara Sexton Smith, in whose district Passport’s new headquarters are being built, said that if the project failed, it would be “catastrophic” for Louisville.
More than 300,000 customers would have to find a new Medicaid administrator, which, Sexton Smith said, is not going to be as easy as some people think. In addition, she said, the loss of the headquarters would mean the city would lose hundreds of jobs from both Passport and Evolent and miss out on Phase 2 of the development, which is to include office and retail space.
“This is far-reaching, far beyond a simple mathematical discussion about reimbursement rates,” Sexton Smith said. “Passport needs to be kept whole.”
Passport officials could not be reached via email or phone to say whether they’ve taken steps to reduce expenses and, if so, how much those steps would save and whether they would delay the organization’s projected insolvency.
In an emailed statement, Passport said: “We are working with the Cabinet for Health and Family Services and the Department for Medicaid Services and feel we are making progress. We will continue to work with them through this process.”
A state spokesman would not say by when the state expects to reach a decision on Passport’s appeal, but told Insider via email that, “We have met with Passport since the appeal was filed and have plans for continued discussions in the near future.”
Sexton Smith said she was confident in Passport leaders’ ability to adjust to the state’s actions, but she also said she hoped the state and the nonprofit would reach an agreement that allows Passport to continue to serve Medicaid patients in Louisville and beyond.
This story has been updated to include comments from Sexton Smith.