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By Rose Hoban

A report by the North Carolina state auditor has found the largest state-funded mental health managed care organization, Cardinal Innovations, overstepped its bounds in terms of administrative spending, contracting and work.

Auditor Beth Wood’s scathing report argues that, despite receiving close to $600 million in annual state Medicaid dollars and having a state mandate, Cardinal was out of line by:

  • Paying to hire consultants on no-bid contracts to explore “opportunities to expand its business portfolio” all while accumulating $70 million in Medicaid savings in the past two fiscal years.
  • Failing to focus on its “core function” of managing the provision of mental health services for the as many as 850,000 members in the 20 counties where it works.
  • Making lavish expenditures on things such as cars, credit cards, parties, travel and bonuses for employees.

The auditor concluded that “because Cardinal spent money, time and effort to explore business opportunities outside of its core mission, these resources were not available to support the organization’s core mission to provide behavioral health services in its specified geographic area.”

Cardinal CEO Richard Topping. Image courtesy Cardinal Innovations

Cardinal officials argued that some of the expenses in question were “were spent using revenue sources such as interest income and contracts with other LME/MCOs. Therefore, they do not believe these expenses are unreasonable and they should not be held to federal guidelines for spending,” Wood wrote.

In the past, CEO Richard Topping has stated that Cardinal “ceased operating as a local government mental health agency and started operating as an MCO.”

But Wood cited a state law which implies that Cardinal remains a “political subdivision of the state.”

“There’s an opinion from the attorney general’s office that states that,” Wood said in an interview Thursday. “These organizations, all seven of them, were set up by general statute and they are governed by North Carolina statutes. They get the vast majority of their money from the General Assembly, their mission is defined in general statute.

“I don’t understand how they come to the conclusion that they are not.”

Big money

The report comes after a number of eyebrow-raising incidents involving Cardinal, including the abrupt firing of former CEO Pam Shipman in early 2015 and the revelation last fall that the Cardinal board had approved a potential total of $1.29 million in annual compensation to Topping.

Groundbreaking for the PBH corporate office in 2010. According to Thursday’s audit, former CEO Pam Shipman (third from right) received $436,680 in “unauthorized compensation” from 2014-2016. Topping received $760,158 in unauthorized compensation from 2015-2017. Photo courtesy: Cardinal Innovations

At a November 2016 meeting of the Joint Legislative Oversight Committee on Medicaid and NC Health Choice, senators scolded Topping over his salary, which was hundreds of thousands more than CEOs at other state-funded LME/MCOs.

At that meeting Topping defended himself, noting that under his leadership, the organization was saving the state millions because over the years, in part because Cardinal had absorbed other smaller mental health managed care organizations.

“We do not have six CEOs, six management teams, or six workforces,” he responded, noting the organization’s salaries are at 50 percent of the market. “So, even at market-based pay, it still costs less than to have six workforces at government pay.”

Wood found that Cardinal had paid out bonuses of $7,000, on average, over two years to top level executives, totaling  $4.3 million. Those dollars were paid out of Medicaid administrative funds, which are reimbursed at a 50 percent rate by the federal Centers for Medicare and Medicaid Services. Cardinal reported that bonuses were paid out according to how much money administrators saved.

Wood noted that this practice “runs the risk of incentivizing Cardinal reducing the utilization of services or rates paid to providers.”

Senators have argued those savings should be accruing to the state or being used to serve people with mental health or intellectual and developmental disabilities, not Cardinal’s coffers or its executives’ wallets.

One of Topping’s harshest critics, Waxhaw Republican senator Tommy Tucker said today that he was “saddened” as he read the audit.

“They spent money in ways that are very difficult to justify to those populations that are very difficult to serve… why they’re doing that and why they can’t have enough services,” Tucker said. “How do you explain that to people with mental health issues, opioid issues,  developmental disabilities.

“I just couldn’t sleep at night and spend that money when I knew I had a mission to treat the least of these,” he said.

No violation of statute

In its official response to the audit, Topping said Cardinal was “proud of our continued record of high-quality service delivery and fulfillment of our contracts.”

And in an email comment from Cardinal spokeswoman Ashley Conger, she pointed out that the spending noted in Wood’s report was “less than 0.5 percent of our total administrative spending.”

Data and table courtesy: NC DHHS

“Last year alone, we proudly spent more than $580 million on services for our members,” Conger wrote.

The vast majority of that money is state and federal Medicaid dollars paid to Cardinal, which in turn uses the money to purchase services for those with developmental and intellectual disabilities and mental health and substance abuse problems.

Topping noted in his response to the audit that, “As anticipated by the board, [the Office of the State Auditor] did not make any findings regarding any deficiencies in how Cardinal is performing with regard to payments to its providers, how it is performing under its contracts with DHHS for the management of Medicaid and State-funded services, or regarding any type of fraud or malfeasance.”

He also called Wood’s findings “subjective judgments,” and said that she “did not identify any violation of any statute or legal requirement with respect to any of these expenditures.”

Wood, for her part, noted the optics of lavish spending by leaders of a subdivision of state government dedicated to serving some of the state’s most vulnerable.

“That money, even though it was administrative money, could be used toward services for others,” she said.

Difficult past

The organization has had, at times, fraught dealings with both providers and patients. In the past, attorneys from Disability Rights NC have sued Cardinal over problems with due process and for denial of services to patients. Those cases have been concluded, but Corye Dunn from DRNC said since then, “we have represented individuals in Medicaid appeals and with other advocacy to help them access services through Cardinal.”

Dunn said her organization was “grateful” for Wood’s audit because it “addressed many questions that have swirled around in NC’s behavioral health community in recent years.”

Geoffrey Zeger, a licensed clinical social worker in Durham, expressed frustration about the audit.

“My colleagues and I are diligently trying to serve our clients and frequently have to make excuses and provide explanations for service limitations resulting from the LME/MCO system – now it is clear why,” he wrote in an email.

Kay Castillo, a lobbyist for the North Carolina chapter of the National Association of Social Workers, said that her organization has heard from providers, such as Zeger, that they have had difficulty gaining approval from Cardinal for what they feel their clients need.

“If providers are doing a good job servicing these kinds of clients, we wouldn’t want to see them have to jump through hoops to give those great services,” Castillo said.

Both she and Tucker recounted one client who was about to be evicted from her group home because Cardinal was cutting the annual amount they paid for her care. Tucker said it took a visit by him and former Sen. Buck Newton to Cardinal’s offices keep the young woman from losing her services.

“How many other people are not receiving services that I don’t know about or that might require two senators to go down there?” Tucker asked.

“It’s a travesty to play fast and loose with the most vulnerable populations in the state… when I get one to two calls a week from people denied services in this state for behavioral health,” said Sen. Tamara Barringer (R-Cary).

“One of the comments the auditor says is that it may erode the public trust. Well it has eroded the public trust.”

Rose Hoban

Rose Hoban is the founder and editor of NC Health News, as well as being the state government reporter. Hoban has been a registered nurse since 1992, but transitioned to journalism after earning degrees...

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