Passport Health Plan will suspend construction on its west Louisville headquarters amid a fight with the state over Medicaid rate cuts the nonprofit organization says threaten to put it out of business.

Passport CEO Mark Carter said in a news release Friday that the rate cuts it has unsuccessfully appealed have forced the company to stop work on the $82 million headquarters it planned to move into next year.

"While we remain passionate about the continued revitalization of west Louisville and hope to play a significant role in those efforts in the future, we have no choice but to delay any further work on Passport's new headquarters building," Carter said.

For now, contractors will suspend work on the 337,000-square-foot complex and secure the site while it challenges the rate cuts through a lawsuit, the news release said.

What is Passport? And why is it halting its west Louisville headquarters?

The news is an enormous blow to Louisville leaders and others excited about the development at 18th and Broadway in a community long in search of jobs and economic growth. City leaders, west Louisville ministers and others marked the groundbreaking last year with a celebration at the construction site.

"It's devastating, absolutely devastating," Louisville Metro Council member David James said.

Louisville Mayor Greg Fischer also expressed dismay.

“The mayor is deeply concerned by today’s news from Passport, and beyond frustrated that we have gotten to this point," said spokeswoman Jean Porter.

But Adam Meier, secretary of the state Cabinet for Health and Family Services, which runs Medicaid, called Passport's decision to suspend construction of the headquarters "prudent" and said the state's rates are fair to all managed care companies, or MCOs, that contract with Kentucky to serve Medicaid enrollees.

“Rate setting is an apolitical, data-driven process done by independent third-party actuaries — whether or not an MCO needs additional resources to build a new headquarters is irrelevant to that process," he said.

Related:Passport could face bankruptcy this year because of cuts, CEO says

Passport, a nonprofit, disputes Meier's claims that the rates are fair — saying that it is bearing the brunt of steep cuts while its for-profit competitors got an overall increase under changes effective July 1, 2018.

The dispute became public last month after the Courier Journal reported Passport was claiming the cuts could put it out of business, causing it to lose $65 million last year. It projects losses of $144 million in 2019.

Passport employs about 700 people and estimates another 300 jobs would result from the headquarters project. It serves about 315,000 Medicaid enrollees, most in the Louisville region.

It is the second largest of the five companies that handle most of the state's $11-billion-a-year Medicaid program, which serves 1.3 million low-income and disabled Kentuckians.

James said he blames Gov. Matt Bevin's administration for failing to reach a solution that will enable Passport to remain solvent and continue construction on the headquarters, which is part of a complex that also includes a new YMCA.

"I lay it at the feet of the governor and his administration," James said.

Speaking at an event on Tuesday in Frankfort, Bevin blamed Passport for its financial difficulties.

"It seems that they are in a bit of a pickle," he said. "I don't think it's been as efficiently run, it would seem, as it might have been through the years."

Passport vehemently disputes such claims in a lawsuit filed last week in Franklin Circuit Court seeking emergency relief from Medicaid cuts it says would render it insolvent and subject to state takeover by March.

Passport formed in 1997 as a pilot project to help the state control Medicaid costs in the Louisville region — at the request of state officials — and has saved Kentucky millions of dollars and has operated as an efficient and stable health plan for more than 20 years, the lawsuit said.

Later, Kentucky expanded managed care statewide to try to contain growing Medicaid costs. Passport currently shares the state's Medicaid managed care business with the four commercial insurance companies.

Now, due to arbitrary rate cuts imposed in violation of Passport's contract with the state, "Passport's very existence hangs in the balance," the lawsuit said.

The rate cuts hit it disproportionately, Passport said, because the state decided to cut Medicaid payments 4.1 percent in the Louisville region, the area it was founded to serve. Meanwhile, the state increased payments by 2.2 percent for the rest of the state where the other four health plans serve most of the Medicaid enrollees.

More:Kentucky wants to pour another $20 million into its already over-budget internet plan

By doing so, Passport's lawsuit said, the state "effectively singled out Passport for a catastrophic rate reduction" while its competitors received an overall rate increase.

Further, the lawsuit said, the state "is well aware it is inflicting disproportionate harm on Passport that will cause its imminent demise."

Despite multiple meetings and a formal appeal, state officials have refused to consider any changes, it said.

Louisville Metro Council member Barbara Sexton Smith said the events forcing Passport to suspend construction at the site are "unconscionable," and also blamed the Bevin administration for not working with Passport to resolve the rate dispute.

"This is political bullying at its worst," she said.

Report:Kentucky middlemen reap $123 million from Medicaid at pharmacies' expense

And the Rev. Charles Elliott, pastor of King Solomon Missionary Baptist Church, said he is deeply disappointed by the news and plans to lead a group from west Louisville to Frankfort Thursday to pray and protest at the Capitol.

"We really need to appeal this," he said. "It’s going to hurt too many poor people."

A hearing is scheduled Tuesday in Franklin Circuit Court for emergency relief the company said it needs to stay in business.

State officials have said that while they commend Passport's interest in moving into west Louisville, it isn't the purpose of Medicaid, a federal-state health plan for the poor, to finance such ventures.

"The purpose of managed care contracts is to provide medical coverage to our beneficiaries," a statement from the cabinet said.

Carter, the Passport CEO, said in a letter to state officials about the rate cuts that argument is spurious.

Passport rents commercial office space in southeastern Jefferson County and was seeking new space when it decided to build its own headquarters largely from reserves it had built up from investments and income from a separate Medicare plan it manages, he said.

"In the long run, leasing costs more than owning and provides less stability and flexibility," Carter's letter said.

And no one questions where the four commercial insurance companies that also provide managed care for Medicaid — Aetna Better Health of Kentucky, Humana CareSource, WellCare of Kentucky and Anthem — locate their offices, his letter said. Nor does the state object when those companies make a profit, it said.

"No one wrings their hands each time one of them declares a shareholder dividend," his letter said.

Sexton Smith, the metro council member, said the state needs to consider the history of Passport. Groups including the University of Louisville, Jewish Hospital and multiple clinics and health providers through a 16-county region organized to create Passport at the state's request to help it improve the Medicaid program.

Now, she said, it appears that the state is working to put Passport out of business.

"It makes absolutely no sense," she said. "I shall remain hopeful that there is a potential for some relief."

Deborah Yetter: 502-582-4228; dyetter@courierjournal.com; Twitter: @d_yetter.