State’s top health official: Passport lawsuit has ‘small likelihood of success’

U.S. Rep. John Yarmuth, D-KY., and other local leaders on Monday called for the state to help avert Passport Health Plan’s likely insolvency. | Photo by Boris Ladwig

Passport Health Plan’s lawsuit against the state has a “small likelihood of success” and even if the state changed how it distributes Medicaid dollars, the Louisville-based nonprofit still would lose money, the state’s top health official said Monday.

“There’s not enough flexibility … for us to make them whole,” Adam Meier, secretary of the Kentucky Cabinet for Health and Family Services, told Insider.

Meier and Scott Brinkman, secretary of Gov. Matt Bevin’s executive cabinet, crashed a Monday morning meeting organized by U.S. Rep. John Yarmuth, D-Ky., who, together with Louisville officials including Mayor Greg Fischer, called for the state to help Passport and protect it from fiscal insolvency.

The cabinet last summer changed the way that it distributes Medicaid dollars to Passport and four for-profit businesses that provide for the delivery of Medicaid health benefits. Medicaid is a mostly federally funded health insurance program primarily for the poor, pregnant women and people with disabilities.

Passport has sued the state to restore the previous disbursement rates. The nonprofit’s fiscal problems had prompted the nonprofit to announce drastic cuts on Friday.

A week earlier, the organization had halted work on its $87 million planned headquarters at 18th Street and West Broadway, to the dismay of community leaders who had said that they hoped the project would stimulate the economy and inhibit further social degradation in an underserved part of the city.

On Monday morning, community members crowded into part of a strip mall on West Broadway, less than a block from the skeletal — and idle — framework of Passport’s planned HQ, as Yarmuth and others criticized the state for they said was targeting Passport for Medicaid cuts.

The idle construction site of Passport Health Plan’s proposed new headquarters at 18th Street and West Broadway. | Photo by Boris Ladwig

Since the state changed how it distributes Medicaid dollars, the Louisville region, where Passport has the most of its roughly 312,000 customers, has been receiving less money, while the rest of the state, where Passport’s competitors have more customers, have been receiving more money.

Passport officials have said that the state has made distribution changes capriciously and that they have cut the nonprofit’s revenue so drastically that it was facing fiscal insolvency as early as this month — though that was before it reduced its expenditures.

John Yarmuth

Yarmuth said distribution changes have disproportionately harmed Passport, and the state has implemented those adjustments with a “lack of transparency and honesty.”

The congressman told Insider after the meeting that he would request a formal meeting with the governor to discuss Passport’s troubles, though he acknowledged that the parties appear to be at a “standstill.”

Councilwoman Barbara Sexton Smith, whose district includes the construction site, said the state can afford to help Passport because the state’s Medicaid program had generated a $30 million surplus.

“What would you do? You would help your neighbor,” she said.

The Rev. Kevin Cosby, pastor of St. Stephen Church, which is about a mile from the Passport construction site, also encouraged local and state leaders to find a solution to Passport’s problems. Another failed project in this part of the community, he said, would generate further despair and hopelessness.

Health care experts also have told Insider that they fear Passport’s insolvency could disrupt care for Medicaid beneficiaries and undermine their long-term health prospects.

Crashing the meeting

Adam Meier

Meier and Brinkman, who interjected themselves in the presentation’s question-and-answer session, rejected the notion that the state had singled out Passport for cuts and said the state arrived at the new disbursement rates through actuarial analyses that were based on data provided by the five managed care organizations, including Passport.

The state cannot arbitrarily change the disbursement rates to the benefit or detriment of any single managed care organization, state officials have said.

Exchanges between state and local officials on Monday were occasionally testy. Yarmuth asked Brinkman to promise that the governor would meet with local stakeholders, but Brinkman, eliciting jeers from some audience members, said he could only pass on the request to the governor — not guarantee the governor would schedule a meeting.

Meier told Insider after the meeting that he had not been invited to Monday’s event but learned of the meeting through social media. He said he attended because he was curious about what would be said and because he wanted to make sure there would be a “fact-based dialogue.”

Meier told Insider that the Medicaid dollar distribution is governed by a data-driven process that is not tainted by politics.

Unfortunately, he said, Passport officials have made the process political.

“It’s purposeful, he said, “to distract.”

Based on data Passport has provided, the nonprofit should be able to operate on a surplus, Meier said, and it’s unclear why it isn’t. Passport is paying more in penalties than its competitors, and it may be providing optional services to Medicaid beneficiaries that are too expensive, he said. Meier said Passport’s administrative overhead also may be too high, and it may be paying health care providers more than Passport’s competitors do.

Meier also said that a calling for a meeting with the governor is pointless because the governor is not involved in the process, as the rates are set by the Department for Medicaid Services, which is part of Meier’s cabinet.

Scott Brinkman

Brinkman said that the state’s actuarial analyses, which rely on claims data provided by the managed care organizations, produce a narrow range in which the state is allowed to distribute Medicaid dollars. 

With permission from state and federal agencies, the state could increase its overall Medicaid spending, but that would require the use of additional taxpayer dollars. More importantly, he said that even if the state distributed the dollars at the high end of the range, Passport for the nine months that end on March 31 would receive only $25 million more than under the current rates — not nearly enough to cover the nonprofit’s projected $144 million shortfall for the year.

Brinkman said that unless the actuarial analyses that form the basis of the current distribution range are found to be flawed, the disbursement rates cannot be changed by any significant amount. And, he said, even Passport’s experts have said that the state’s rates are actuarially sound.

Passport could not be reached to react to comments by Meier and Brinkman. Notably, no Passport leaders attended Monday’s event. Passport personnel who attended said they were present to thank people for their support.

While lower disbursement rates have narrowed Passport’s revenue stream, an analysis by Insider, based on filings with the Internal Revenue Service and the Securities and Exchange Commission, indicated that the nonprofit’s fiscal health also was being undermined by hundreds of millions of dollars in nonemployee management fees to the Arlington, Va.-based consulting company Evolent Health.

Both Passport and Evolent have declined Insider’s request for information about how their relationship is benefiting Passport and/or its beneficiaries.

Brinkman raised the issue during the meeting, saying that Evolent should be involved in any discussions about Passport’s financial problems and that either party should reveal what Evolent has provided for the hundreds of millions of dollars it has received from Passport.

Passport said Friday that as part of its cost-cutting it had altered its arrangement with Evolent, but did not provide any details. The company’s shareholders reacted favorably on Monday, sending the share price up 6.5 percent. The S&P 500 was down about 0.4 percent. Evolent’s shares through last Friday had lost about half their value since September.