State Official: 'Outrageous' Management By Cardinal CEO, Board

Nov 20, 2017

Credit Alex Olgin / WFAE News

Claims of a vindictive board of directors, more loyal to a CEO than the company they watch over.

A CEO who's salary far exceeds his peers.

Throw in expensive staff parties and retreats and you'd have a shareholder scandal in publicly traded company.

But when all of this happens and is paid for with tax dollars, you have something else entirely. The story of Cardinal Innovations Healthcare.

If Cardinal had a center of gravity for Cardinal Innovations Healthcare, you would hope it would be what the company calls their members. The 850,000 North Carolinians who rely on Cardinal to pay for mental health care, substance abuse treatment and developmental disability services in Mecklenburg and 19 other counties. All paid for with money from Medicaid, the health insurance program for the poor and disabled.

All told Cardinal received $682 million tax dollars in FY16, the last data released by the company.

But a series of three state audits, combined with the minutes from two years of board meetings obtained by WFAE paint another picture.

Read the May, October and November audits here. 

Cardinal's center of gravity seems to be a single person, CEO Richard Topping.

“Mr. Topping bears an enormous amount of responsibility for his leadership or questionable leadership I would say,” said Deputy Secretary for Medical Assistance at North Carolina's Department of Health and Human Services Dave Richard.

The agency controls the Medicaid money going to Cardinal. DHHS has been highly critical of the $617,000 they thought Cardinal CEO Richard Topping had been earning which included a $100,000 bonus. But in a follow up audit released Monday the department showed their earlier assessment had been too low.   

Tom Bullock: “Let's start with his base salary. What now do we know his 2017 base salary is?”

Dave Richard: “That was $635,000.”

Tom Bullock: “And the bonus we had been reporting was $100,000. And that also was wrong.”

Dave Richard: “That's correct, it was $254,000.”

That comes to $889,000 in salary and bonus.

“For an organization whose responsibility is to manage taxpayer dollars, the numbers are just outrageous,” said Richard.

The audit also cites $302,000 in other financial payments ranging from buying out Toppings unused Personal Time Off, which Cardinal did company wide. And then there were some extra perks specific to the CEO like a $12,000 annual car allowance plus gas money and someone to detail his car, each month.

Add all of this up, the salary, the 40-percent bonus, and the extras and in Fiscal Year 2017, Richard Topping made $1,191,671.

The state audit says if Cardinal has all this money to spend on compensation for its CEO and other executives, then it has money to provide more services to the Medicaid patients with behavioral health needs.  

Since Cardinal is not a for-profit company and spends tax dollars, there are rules to follow. This includes CEO Salary.

And the audit shows Topping’s salary jumped around a lot in the past few years. Cardinal's has raised and lowered CEO Richard Topping’s salary four times since June 2016. Then his base salary increased to $635,000, plus bonuses and other payouts. The board voted to lower his base salary to $400,000 in March of 2017. Cardinal has not explained why. But after that reduction, the audit said Topping threatened to resign. Two months later the board reinstated his full salary and paid him back for the months his pay was reduced.

By statute the maximum Topping could earn was $204,195. That's a $50,000 less than his last bonus. But the lower salary wasn’t being enforced by the State's Office of Human Resources, until just a few months ago.

So just two days after his salary was reinstated, the board voted to lower it to the state maximum of $204,195.  He refused the lower salary. A kind of standoff ensued. Which ended Friday night at the board meeting.

Cardinal Spokeswoman Ashely Conger said, “The Cardinal Innovations Board of Directors has terminated CEO Richard Topping, effective 12/1.”

THE BOARD OF DIRECTORS

This sounds like the board of directors acting appropriately, but that’s not the full story.

There was another dismissal Friday night that was effective immediately. The ousting of board member Bryan Thompson. It happened just 90 seconds after the meeting began. With no specifics given as to why.  

Richard said, “[That’s] another clear indication that the board of directors does not have the best interest of the organization at heart.”

According to board minutes, Thompson was the only one to vote against giving CEO Topping a 40-percent raise in June of 2017. Dave Richard believes that is not a coincidence.

“There is no other way to view it other than this was punishment for him taking his fiduciary responsibility as a board member for an organization that manages public funds for the state of North Carolina,” Richard said.

Topping was officially hired as CEO on July 1st of 2015. A promotion from his previous role as Cardinal’s General Counsel. Starting salary as CEO was $400,000. Same as his predecessor. Within a year that had changed significantly.   

In June of 2016, the board voted to give their CEO a quote "annual long-term incentive" value of $412,000. And this incentive is new to the Cardinal CEO pay saga. Something WFAE discovered going through the board's official minutes. When asked for more information about this Cardinal issued a statement which reads 

“The Long Term Incentive is put in place to retain key employees. It becomes vested after an employee has been with the company for a length of time and is meant to pay out over a multi-year period. In the case of severance, any accrued incentive is accelerated and included as part of the total severance.”

Cardinal also acknowledged Topping is the only employee that has received a long-term incentive. Richard said all this shows a continued problematic pattern. The board is part of the problem.

Dave Richard: “I want to be clear, I think it's the leadership of the board. And maybe the entire board but I believe the leadership bares the most responsibility for this.”

Tom Bullock: “And is there anything the state can do in terms of that board?”

Dave Richard: “We're examining every option that I have but, I think from a department standpoint we believe there needs to be a significant change in culture and the leadership of the board of directors.”

Lucy Drake is the Chair of Cardinal's Board responded to requests for comment with this statement:

"The Board agreed to continue to evaluate their policies and better align them with community standards."

Cardinal also released a statement on this latest DHHS audit.

“We have been having ongoing and productive dialogue with the state and that will continue.”

SEVERANCE

The board also voted to give Topping two years severance. Cardinal has declined to comment on which salary level this will be paid out at. The $204,000 Topping declined or the $635,000 base salary we now know he was making. Cardinal said they will announce those details later this week.

But he’ll get more than two years of either of those base salaries. He’ll get that $412,000 ‘long-term incentive’.  If he’s paid his full salary of $635,000 plus that extra sum, he will receive $1.6 million in severance, after being fired for refusing to take a salary mandated by state law.

This is something Richard said the state told Cardinal not to do.

“We told them we didn't want them to pay anything without approval of the state,” Richard said Cardinal hasn’t asked the department for yet. “I can assure you that whatever is paid or will be paid to Mr. Topping, we will issue a demand letter for that amount of money to be repaid to the state of North Carolina from Cardinal from administrative funds.”

And DHHS controls the contract that funnels Medicaid money to Cardinal so Richard believes the department does indeed have the ability to recoup that money.  

This is a developing story. Check back for updates here and during Morning Edition.

Contact the reporters aolgin@wfae.org or tbullock@wfae.org or 704-926-3859