Passport Health Plan CEO Mark Carter told a legislative committee in Frankfort on Wednesday that the health care nonprofit could face insolvency by the middle of this year if the state follows through on lowering Medicaid reimbursement rates in the Louisville region.

Passport has appealed a decision by the Kentucky Cabinet for Health and Family Services to lower reimbursement rates for Medicaid Managed Care Organizations (MCOs) in the Louisville region by 4.1 percent — where Passport’s 200,000-plus members make up 65 percent of the market share — while raising these rates by 2.2 percent everywhere else in Kentucky.

In Passport’s appeal, the nonprofit disputed the process used by the state to change the rates, adding that “because of the Contract’s arbitrary rates, Passport projects significant financial losses which will jeopardize its fiscal solvency and continued existence.” The appeal added that such changes could jeopardize Passport’s license to operate as an MCO.

The Interim Joint Committee on Health and Welfare and Family Services on Wednesday received testimony from executives of the five MCOs currently operating in the state, with Carter and Passport Vice President Carl Felix briefly explaining the difficulty created by the rate changes.

Asked by Sen. Stephen Meredith, R-Leitchfield, if Passport is “on the verge of bankruptcy,” Carter said it was not, but maybe by this summer unless the current conditions change.

“No, we’re not on the verge of bankruptcy,” said Carter. “But if the run rate of losses continues – and of course we’ve made our estimates of what those might look like – that is a real threat down the road. And by down the road, I mean mid-year 2019, that that could be a possibility. That we would be deemed insolvent by the Department of Insurance.”

In a letter to Gov. Matt Bevin’s chief of staff two weeks ago, Carter questioned whether or not the administration had “an ulterior motive to push Passport out of the Medicaid market.”

A slide presented by Passport to the committee showed how the Louisville region had its Medicaid reimbursement rates lowered by 4.1 percent, while the rate was raised by 2.2 percent in the other seven regions | Screenshot from KET

Secretary Adam Meier of the Cabinet for Health and Family Services issued a letter to the chairmen of the joint health committee on Tuesday, rejecting Carter’s accusations as “absurd and nonsensical,” stating that the rates were changed in good faith and according to an independent actuarial process. He also requested to speak on the matter to the joint committee on Wednesday, but will instead testify to the Senate Health and Welfare Committee at their next meeting.

Passport’s current financial situation also puts the construction of its proposed headquarters at 18th and Broadway in jeopardy, which Mayor Greg Fischer and Metro Council President David James have said would be a blow to development efforts in west Louisville.

Asked by Sen. Morgan McGarvey, D-Louisville, how this affects the prospects of the $100 million-plus development, Carter said, “it would be just a catastrophic loss” for west Louisville if the project had to be scrapped.

“The social implications of that building, in terms of what it could do for west Louisville, are dramatic and far-reaching,” said Carter, as it would be an “economic development engine for that community that will transform it, flat-out. And that’s what will reduce health care costs over time in west Louisville.”

Carter added that the harm caused by Passport’s financial woes under the status quo starts with their 200,000 members in the Louisville region who would be disrupted, along with their employees and the health programs it funds, like the sexual assault nurse examiner program at the University of Louisville.