Saying Cardinal Innovations “acted unlawfully” in giving its ousted CEO $1.7 million in severance, the N.C. Department of Health and Human Services on Monday took over the Charlotte-based agency.
The state DHHS also fired the board that gave a total of $3.8 million in severance to CEO Richard Topping and three other departing managers.
“For people to approve those kind of payout options and for people to accept those kind of payout(s) is in my opinion immoral,” said state Rep. Nelson Dollar, a Cary Republican who chairs the House committee that oversees Cardinal.
State lawmakers, meanwhile, vowed to void the severance packages or get the money back.
DHHS Secretary Mandy Cohen outlined the takeover in a letter to lawmakers.
“DHHS staff will be on site at Cardinal Innovations and will work closely with interim CEO, Trey Sutten, and other Cardinal staff to manage and stabilize the organization, hire additional executive team members, and develop a corrective action plan to bring Cardinal into compliance with all applicable laws,” she wrote.
“Executive leadership who are in the process of leaving the organization (including former CEO Richard Topping) will not be permitted on the premises of Cardinal during this time.”
Topping was scheduled to leave this Friday.
Cardinal is the largest of the state’s seven managed care organizations. Known as Local Management Entity/Managed Care Organizations, or LME/MCOs, they contract with the N.C. Department of Health and Human Services to manage treatment networks for mental health, developmental disabilities and substance abuse.
Cardinal offers services for people with disabilities, mental health needs and substance abuse in 20 counties including Mecklenburg.
In May, State Auditor Beth Wood ripped Cardinal for spending on CEO pay as well as on lavish Christmas parties and board retreats, charter flights for executives and “questionable” credit card purchases, including alcohol. Her report said all that threatened to “erode public trust.”
Last week Cardinal came under fire again for a $1.7 million severance package to Topping. It also paid another $2.1 million to three other departing executives.
One lawmaker said the state already is working on ways to get money back from the departed executives.
“There have been lawyers working for some time on the ability to claw back the severance packages,” said Republican Sen. Tommy Tucker of Union County, “and we have every intention of doing so.”
Cohen said no one at Cardinal beyond those who had severance packages had lost their job. Dollar, the lawmaker, praised most Cardinal employees.
“There are a lot of great people at Cardinal who are dedicated to serving the families and serving the patients,” he said. “Unfortunately the board and the leadership of the organization have clearly lost sight of the mission … of serving those families and individuals who are most in need.”
In October, the state Health and Human Services agency’s Office of the Internal Auditor released a 17-page report that criticized Cardinal’s severance packages for being offered for longer than similar entities and offering severance pay to 10 employees other than the CEO.
The review found that four of seven similar quasi-government groups, including Cardinal, offer severance packages. Three do not offer payouts at all.
Cardinal board chair Lucy Drake defended the packages. “We always pay market,” she said. “The last CEO was paid market. Our bonuses were market.”
Drake said the takeover concerns her.
“I worry about the employees, I worry about the providers,” she said, adding “And I worry also about the members that we serve because my son’s one of them.”
Another board member, Mecklenburg County commissioner George Dunlap, said he’s not surprised by the state action. He said other board members “just didn’t get it.”
“It has been extremely difficult for them to understand the urgency with which decisions have to be made and the kinds of decisions that had to be made,” Dunlap said. “They just didn’t get it. It was more about a fight: ‘We’re not going to be controlled’.”
Client advocates blasted the board.
“Cardinal’s board had demonstrated that they weren’t exhibiting the proper attention to the consumers who so desperately need these services,” said Vicki Smith, executive director of Disability Rights NC, adding “DHHS took a bold step to insure that the people who needed services continued to get them.”
Cardinal’s actions have been a pattern of noncompliance with the rules and regulations surrounding spending, Cohen said. “The organization just kept taking steps in the wrong direction.”
Cohen said that the takeover will not interrupt service to consumers or payments to providers. The takeover will be a short period of time to stabilize the organization, she said.
“We really do mean temporary,” Cohen said.
This year Cardinal is getting $100 million in state and federal funds from the sate Division of Mental Health. It’s also getting $721 million in Medicaid funds, a third of which comes from state money.
Lawmakers say Cardinal’s troubles are not an indictment of the LME/MCO system.
“The system is fundamentally sound,” said Dollar. “And what the leadership at Cardinal was unfortunately doing in seeming being more interested in serving themselves, that’s a reflection on them.”