New State Audit Raises More Questions About Cardinal Executive Compensation

Oct 2, 2017

Credit Mark James / Charlotte Observer

Charlotte based Cardinal Innovations Healthcare is the largest provider of mental health, developmental services and drug treatment in the state.

But lately, Cardinal has made headlines for excessive executive pay which state officials say is illegal.

For the second time in less than five months state officials have released a scathing audit of the company. One that "raises concerns about the entity’s solvency and ability to continue to provide services in the event of a significant change in its leadership team."

Cardinal is not a for-profit company. But it's not a nonprofit, either. Known as a Local Management Entity / Managed Care Organization (LME/MCO), Cardinal and six other LME's in North Carolina are a way for the state to outsource mental health care, addiction treatment, developmental programs and other services paid for by Medicaid.

The thinking here is these semi-private LMEs would better control costs and give the state and patients more bang for each taxpayer buck spent.

And Cardinal gets a lot of those bucks, with more than $680 million in revenue last year, mostly from the Federal government and the state.

Then, last May, State Auditor Beth Wood released an audit which found Cardinal was hording $70 million that was supposed to be spent on patient care. But they weren't so thrifty when it came to company leaders. The audit said Cardinal spent freely on lavish trip for their board of directors, company parties and a $12,000 car allowance for Richard Topping, Cardinal's CEO. Who, the audit also found, was paid $617,000 in salary and bonuses, more than three times what state law allows.

That audit got the attention of officials at the North Carolina Department of Health and Human Services or DHHS. And they launched their own audit. "We saw several things," says Dave Richard, deputy secretary of medical assistance. "One is, we agree with the state auditor that the salary was beyond what the current state statute allows."

And that would have been noteworthy on its own because DHHS is the conduit for both the federal and state tax dollars that make up Cardinal's budget.

But Richard says, "Then we found additional items that concern us about severance pay not only for the CEO but also for multiple staff members."

Ten additional staff members to be precise. These severance packages, Richard says, were extremely generous in terms of both length and cause.

The 10 top staff members are guaranteed between two and three years of full salary plus health care.

These severance packages are triggered not just for being fired without cause, as is standard, but for a whole slew of reasons including regulatory changes that materially alter Cardinal's services, certain changes in the company's board of directors, even changes in revenue.

Or if the CEO is fired or resigns for any reason.

When all this and other factors in the report are taken as a whole, it makes you wonder.

TOM BULLOCK: "It sounds like that could mean that these key, 10 positions, have more allegiance to the CEO than the company they are there to lead."

DAVE RICHARD: "That's correct. I think you've identified one of those important issues that this is an organization, they are a public entity and in any kind of organization, if you have an allegiance of the key staff members to one individual, a CEO, not to the board of directors or the organization itself, then we believe you put in jeopardy the ability of that organization to sustain itself."

Richard Topping, Cardinal's CEO has the same severance package as well. A guarantee of two to three years at full salary, plus health benefits.

And to be clear, Dave Richard says, none of the other six LME's in North Carolina are anywhere near as generous. "We've seen nothing that comes close to this." He adds, "I think it undermines the trust of the public in terms of this organization and the way that the board has executed their responsibilities."

Cardinal's board, after all, does have to approve these compensation and severance packages.

And that is where the Department of Health and Human Services will now focus. This new audit says if Cardinal "fails to take appropriate action to immediately correct the problem," the state "would have grounds to terminate the contract."

Cardinal declined our interview request. But the company did send a statement which itself has some news.

Cardinal Innovations is in active litigation with North Carolina's Office of State Human Resources to address and resolve the concerns raised by the state auditor and reiterated by the Department of Health and Human Services.