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By Rose Hoban
A new report from the state Department of Health and Human Services finds salaries, bonuses and severance packages for top executives at one of the state’s mental health managed care organizations are “excessive” and out of compliance with state guidance.
The DHHS Internal Auditor report follows a scathing May report by the State Auditor of Charlotte-based Cardinal Innovations, which manages mental health services in 20 counties, overseeing services for as many as 850,000 Medicaid recipients.
Late last year, legislators excoriated Cardinal CEO Richard Topping during an oversight committee hearing where it was revealed Topping was eligible for as much as $1.2 million in salary when bonuses and an annuity were added in.
In the wake of that revelation, Topping’s salary was limited to $617,000 for 2016.
Even still, “the salary and bonus opportunities for Cardinal’s CEO are more than three times higher than those of the CEO’s at the State’s six other LME-MCOs,” Monday’s report reads. “Additionally, compensation for Cardinal’s CEO is three times higher than the maximum allowable for the position established by the North Carolina Office of State Human Resources.”
The other six LME-MCO chiefs in North Carolina have salaries ranging from $175,000 to $217,155 last year.
The report reveals that Topping’s contract includes a severance package that runs for at least two, and up to three years if he is terminated.
The report also detailed how the top 10 other employees beyond Topping had their employment and severance tied to Topping’s, with a poison pill inserted in each of their contracts: If Topping is fired, or if the state were to take over Cardinal, generous, long severance packages would kick in for each of those 10 executives.
“We stand by the legality of our market-based employment practices, which have been in place without issue for 23 years,” wrote Cardinal spokesperson Ashley Conger in response to a query.
Cardinal officials have long argued that their agency does not have to abide by rules that dictate compensation and administration of state employees.
“Cardinal received approval from the state to leave the state personnel system more than 20 years ago,” reads part of Cardinal’s three paragraph response to the DHHS audit, which was signed by Lucy Drake, the chair of Cardinal’s board of directors. “As a result, Cardinal’s employees are not part of the state pay scale, do not receive state benefits and are not part of the state retirement program.
“We adopted market-based employment practices to attract and retain well-qualified staff so that we can continue to deliver high-quality outcomes for members and maintain their service continuity while the State completes its efforts to reform the Medicaid program.”
But the DHHS auditor specifically rebutted Cardinal’s assertion, noting that “six of seven LME-MCOs in North Carolina have received approval for ‘substantial equivalency’ in Recruitment, Selection, and Advancement… and Classification/ Compensation,” in accordance with the law. Further, the auditor argued that despite Cardinal being designated “substantially equivalent” in 1993, and had several more recent reviews, Cardinal did not comply with ongoing requirements to recertify its status, nor did the organization keep up with required documentation.
Dave Richard, the state’s Medicaid head said such compensation and severance packages are “not the norm for public entities,” but admitted that the state’s hands are tied when it comes to disciplining Cardinal, Topping or the organization’s board.
“We don’t have a specific actionable step that is outlined in law that allows us to take a specific action that we would like to take,” Richard said.
“But I think there are significant amount of other options to address in terms of the way that we negotiate and work with our contracts going forward with other organizations.”
Cardinal has also argued in the past that under Medicaid rules, the organization is permitted to retain any savings to use as it sees fit. Technically, Medicaid rules allow that to happen, but when lawmakers established the LME-MCO system, it was with the intent that savings would accrue back to the state.
In an interview this spring he was unequivocal.
“Cardinal’s money is public money,” Mark Botts, from the UNC School of Government, wrote in an email this spring.
Botts is an attorney who studies the state’s mental health system, and he argued “the vast majority of [Cardinal’s] revenue is either county, state, or federal money (county appropriations from the county general fund, state appropriations from the state general fund, or Medicaid and federal block grant money that is also appropriated through the state budget).
“It is possible that a tiny fraction of Cardinal’s revenue may come from private grants or client fees (non-public sources), but once that money is received, it has to be accounted for and spent in accordance with the Local Government Budget and Fiscal Control Act,” he said.
Botts also pointed out that statute requires that Cardinal’s board of directors “obtain prior approval for any salary that exceeds the salary range established by the state for LME-MCO directors.”
The audit argues that didn’t happen.
In March, House lawmakers in the General Assembly moved to rein in Cardinal’s spending, moving a bill that would have set a specific cap on LME-MCO salaries.
But Cardinal has powerful allies in the Senate and influential lobbyists on its payroll. In 2016, the organization spent $207,000 on one lobbyist, Joe Lanier, while other LME-MCOs spent, on average, $78,900 on lobbyists.
In 2017, Cardinal beefed up its lobbying capacity, adding four additional lobbyists to Lanier. One of those is Tom Apodaca, who, until summer 2016, was the second most powerful member of the Senate. Public spending disclosure forms for 2017 have not yet been filed. The organization also hired former Republican House lawmaker Rob Bryan to be the chief development officer, and current Senator Joel Ford (D-Charlotte) is a vice-president with the organization.
In June, members of the Senate gutted the bill and replaced the restrictions on Cardinal with language that would completely overhaul the state’s mental health system within two years.
The bill stalled when House leadership objected to the changes.
That leaves decisions about curbing any contract excesses to Cardinal’s board of directors.
Richard said he believed the board would have “ample opportunities to make the right decision,” and officials from DHHS have asked to meet with the body. No date has been set.
But Cardinal’s board may have its hands tied too. Those contracts described in the report allow for the top 10 executives to leave and begin drawing generous severance packages if Topping were to be fired or if the state were to attempt a takeover of the organization.
That would leave the board with a dilemma as well: If executives who have contracts tied to Topping’s presence were to follow him out the door, the organization could be rendered leaderless, even as Cardinal would be compelled to pay out millions in salary for people who are no longer there.