Evolent Health is acquiring a $70 million stake in the Passport Health Plan. | Screenshot

For-profit health consulting company Evolent Health plans to acquire a $70 million stake in Louisville-based Passport Health Plan, a nonprofit Medicaid administrator.

The parties announced the planned deal, which would see Evolent take a 70% stake in Passport, on Wednesday morning.

While Evolent CEO Frank Williams said in the news release that he believed Evolent’s expertise could “drive strong operational and financial performance” as well as improving health outcomes of Medicaid beneficiaries, Evolent investors did not react favorably: The company’s shares fell nearly 30 percent through mid-afternoon Wednesday, wiping out about $343 million in shareholder value.

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, according to state data. Medicaid is a mostly federally funded health insurance program primarily for the poor, pregnant women and people with disabilities. The state funnels the federal dollars to managed care providers, including Humana and Passport.

Passport told Insider via email Wednesday that beneficiaries would “see no change in their coverage or service from this acquisition. All member-related  services, coverage and access to provider networks will continue in their current form.”

Under the proposal revealed Wednesday, Passport would be “jointly owned and operated through a partnership between Evolent, the University of Louisville, University of Louisville Physicians, University Medical Center, Jewish Heritage Fund for Excellence, Norton Healthcare and the Louisville/Jefferson County Primary Care Association,” Evolent said.

The current owners “have been seeking a partner to provide expanded management and operational support, as well as capital through joint ownership of the health plan, and have selected Evolent as its long-term financial and operating partner,” the company said.

Williams said the company was “honored by the vote of confidence the owners of Passport have given us to continue to build on an extraordinary legacy of delivering an excellent member experience to Kentucky’s Medicaid beneficiaries.”

UofL President Neeli Bendapudi said the university was “proud to partner with Evolent Health to begin a new chapter that will continue to spark innovation in the delivery of care.”

Passport’s payments are a critical revenue stream for Evolent, accounting for about 12 percent of revenue. Before Passport’s fiscal challenges came to light, Evolent’s shares traded for as high as $29.05. They fell as low as $10 on Wednesday, down nearly 66% from the all-time high.

Passport has lost $164 million in the last three years, including $123 million last year, blaming recent struggles on the state lowering its disbursement of Medicaid dollars. The state said that it had made changes to the Medicaid program because of budget constraints and because Kentucky’s managed care organizations were generating much higher profit than their peers in other states.

State officials also have suggested that Passport’s fiscal wounds were at least partially self-inflicted, as the nonprofit was paying more in penalties than its competitors and was paying health care providers more than its competitors. Passport has sued the state to claw back some of the money that it alleges that state should have paid the nonprofit in the last year. Passport said Wednesday that it is working to find a solution to the dispute.

An analysis by Insider, based on filings with the Internal Revenue Service and the Securities and Exchange Commission, also showed that Passport’s finances had been dragged down by hundreds of millions of dollars the nonprofit paid in the last few years in management fees to Evolent. The parties have defended the payments, saying they lowered payments to other third parties and improved health outcomes of Medicaid beneficiaries.

Passport CEO Mark Carter had said that without additional dollars from the state, Passport could face insolvency as early as this summer. The fiscal problems prompted the nonprofit to make drastic budget cuts and to halt construction on a planned new $87 million headquarters at 18th Street and West Broadway.

The state increased its Medicaid disbursement rates last month, and Carter said at the time that he was “cautiously optimistic” the new rates would be enough to avert the nonprofit’s insolvency, though Passport officials have declined to provide details.

Passport also told Insider that its employees would become “employees of the new health plant joint venture when the transaction officially closes in the fall.”

And while the acquisition would have no direct impact on reimbursement rates to health providers, Passport said that it continuously reviews such rates, which is standard practice in the industry.

The nonprofit also said that it is working with Evolent to find ways to bring its headquarters project to life, but did not provide details. “Evolent plans to be a multi-year tenant of the future campus, and we will work with the developers and key stakeholders to create a definiteive plan and slelect a real estate developer to bring the project to fruition.”

Evolent could could not be reached Wednesday.

The proposal that was announced Wednesday has yet to be approved by state and federal regulatory agencies.

This story has been updated.

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.