A screenshot from Passport's website showing the hands of a medical professional holding a clipboard and taking notes. Evolent Health gave Passport a $40 million loan in the second quarter.


Evolent Health gave Passport Health Plan a $40 million loan to shore up the nonprofit’s finances before it reapplied for the Kentucky Medicaid contract, which last year paid Passport about $2 billion.

Evolent CEO Frank Williams mentioned the loan late Tuesday in an earnings call, saying that it was twice as big as the parties had projected in May as part of a merger deal. At the time, Evolent officials said they would take a $70 million, 70% stake in Passport, which had been struggling financially.

A Medicaid expert had told Insider that the bailout was vital to Passport’s survival because, without Evolent’s backing, Passport likely would have lacked the capital required to even qualify to apply for the new five-year Kentucky Medicaid contract, which is essentially Passport’s sole revenue stream.

Passport is one of five managed care organizations in Kentucky that handle Medicaid benefits for 1.4 million Kentuckians. Passport, the only nonprofit among the five, covers about 306,000 beneficiaries, including nearly 128,000 in Jefferson County. The nonprofit is owned by parties including the University of Louisville and Norton Healthcare.

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. WellCare is the largest provider in Kentucky, with about 435,000 beneficiaries.

The new Kentucky Medicaid contracts will take effect next summer and run through 2025. Bids were due last month. Passport said it has applied. The state told Insider that it cannot disclose which or how many other organizations have applied, though a Medicaid expert had hinted that it’s likely to be more than five. Williams said Tuesday that he expects a decision on the contracts in October.

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.

A portrait of Evolent CEO Frank Williams

Frank Williams

Williams also said Tuesday that Passport’s financial performance is improving and that through June, the nonprofit’s margin had increased by eight percentage points. He predicted that the margin would rise another four percentage points in the third quarter.

Williams said Evolent and Passport had achieved that improvement “through multiple medical expense initiatives, higher payment rates, lower admin spending and a more integrated approach to behavioral health, dental and pharmacy.”

As Insider reported, Passport has cut reimbursement rates to medical providers, including a 35% cut for dentists. Dentists have told Insider that the lower rates would prompt more dentists to stop accepting Medicaid patients, which would mean that more of them will seek help in already crowded emergency rooms when delayed care leads to complications, excruciating toothaches and higher costs.

The Passport acquisition is expected to close in November.

Evolent shares spike

The stock chart of Evolent Health for the morning of Aug. 7, 2019

Evolent’s stock chart for Wednesday morning. | Courtesy of Yahoo Finance.

Evolent shares on Tuesday had fallen to an all-time low of $5.50, but spiked Wednesday morning. The company had announced second-quarter results after markets closed Tuesday.

Wednesday morning, shares soared as high as $8.10, up 39%, before giving back much of that gain by early afternoon. At 12:35, shares were trading for $6.27, up 7.6% for the day so far. The S&P 500 and Dow Jones Industrial Average were down about 1%.

The Evolent stock spike was good news for shareholders, which includes Passport, which holds about 1.1 million shares of the Arlington, Va.-based health care consulting company.

Those shares were worth nearly $6.9 million Wednesday afternoon, or about $500,000 more than Tuesday evening.

However, they were worth nearly $32 million in November. Passport’s shares have fallen nearly 80% since then, primarily because of Passport’s troubles. The nonprofit accounts for about 12% of the company’s revenue.

Evolent said Tuesday evening that its second-quarter revenue, at $192 million, was up 33% from a year ago. However, expenses, at $217 million, jumped 42%. The quarterly net loss, of nearly $32 million, was more than three times as bad as the loss the company incurred in the second quarter of last year. Zacks Equity Research said the quarterly loss per share, adjusted for non-recurring items, was worse than expected.

Nonetheless, Williams said that Evolent had gained six new customers this year and had “a strong new partner pipeline.”

“We feel very good about our overall growth strategy and continued position as a market leader,” he said.