Nonprofit Medicaid insurer Passport Health Plan will be bought by its business partner, the for-profit consulting firm Evolent Health.
Officials announced Wednesday that Virginia-based Evolent Health will purchase a 70 percent stake in Passport. The news comes almost five months after Passport said it faced potential insolvency due to state cuts in Medicaid reimbursement rates. Evolent already had a business agreement with Passport, supplying staff and administrative support to the health plan since 2016.
Scott Bowers, the current National Medicaid President for Evolent Health, will take over as the CEO of Passport on June 7, when current CEO Mark Carter steps down. Bowers said he has plans for improving Passport’s operating expenses and balance sheet, and expects the company to be financially stable overall by 2020. It could break even by the third or fourth quarter of this year, he said.
“Some of the initiatives that I talk about take time to get ramped up, so there’s a natural runway to make all that happen,” he said.
With this deal, Passport will become a for-profit entity. Carter and Bowers said they do not expect that to affect patient care or services. Carter addressed concerns that the move from nonprofit to for profit could impact Medicaid enrollees. He said there’s always concerns about for-profit health entities fulfilling stockholder desire to drive profit and deny health claims – but he said that won’t be the case for Passport.
“You know, there’s always debate about whether or not proprietary health care appropriately reduces cost – I don’t think that that’s a long game that anybody can play,” Carter said. “There’s sufficient regulatory controls at the state level that would pick up and identify that before it could happen. I think we’ve picked a partner that’s not interested in doing that.”
Replenishing the funds Passport has in reserves will be especially important going forward, because if they fall too low, it can put the company in danger of a state Department of Insurance takeover. Passport executives earlier this year said that was a possibility.
Founding members the University of Louisville, University Medical Center, University of Louisville Physicians, Jewish Heritage Fund for Excellence and Norton Healthcare will remain 30 percent owners.
U of L president Neeli Bendapudi said the university’s stake will drop from 64 percent to about 19 percent, which could net it about $44.7 million.
“We’ll still be one of the largest minority stakeholders,” she said. “We have every intention of being actively engaged. It matters to us what happens in the community. It matters to us that this is a viable entity.”
U of L’s financial woes — longstanding debt and deficits, including about $20 million for the medical school — are part of the reason for offloading so much equity, Bendapudi said. She said the university will use the money from the sale first to pay off debt and to address “critical and urgent needs” on the health sciences campus.
Outgoing CEO Carter said Passport requested purchase proposals from about 12 companies over the past three months. They judged them based on the ability to not disrupt patient experiences, to maximize opportunities for employees, to invest capital and to give sponsors like U of L a payout and a commitment to the proposed headquarters project in west Louisville.
Carter said Evolent checked all of those boxes, and had a “deep familiarity” with Passport.
“The transition would be very smooth, relatively fast, which in something like this, that speed has a value in and of itself,” he said.
Shares of Evolent Health, which trade on the New York Stock Exchange, fell more than 25 percent by Wednesday afternoon following news of its increased stake in Passport, as well as a filing on Tuesday related to the resale of some common stock.
West End HQ
In February, Passport paused construction of its $130 million headquarters in west Louisville. The complex has been hailed by city leaders as an anchor in the revitalization of the West End
Evolent will likely bring in a third party real estate developer to complete construction, Carter said. Originally, the plan was for Passport to own the buildings and lease space to Evolent and other tenants. Evolent is still committed to leasing 140,000 square feet in the multi-building complex.
The scope of the project could change somewhat, with buildings possibly stopping at three levels, rather than the planned four, Carter said. Despite that, he said he expects city incentives, including a tax increment financing district to remain in place.
Carter said costs for the project could rise, but scaling back the square footage could help the budget overall. He said any change wouldn’t diminish the project’s impact on the community.
The point of the campus is connecting Passport directly to social factors that impact health, Carter said, like jobs and economic opportunity. He still expects it to include affordable to market-rate housing, grocery and other elements.
“The original vision for the building wasn’t so much just an office building and a headquarters, it was how can we have a positive impact in that community?” he said.
Metro Council president David James, who represents the district that borders the new campus location, said the news of Passport’s sale and the plan to renew the campus’ development is “outstanding.” He said he had been concerned about the potential loss of Passport for the community.
“It allows for job opportunities for people that live there, it allows for all the services that are going to be housed in that area,” James said. “It’s just a big boost for the area. It’s financial, economic development for the area, it’s health care for the area, it’s just everything we’ve been looking for.”
The deal will have to be approved by federal and state authorities, including the Centers for Medicare & Medicaid Services, the Kentucky Department of Insurance and the Kentucky Cabinet for Health and Family Services.
Passport is primarily a Medicaid insurance company, providing health insurance to about 300,000 Kentuckians.
Reporter Evan Heichelbech contributed to this report.