At Cardinal healthcare, big spending came before the fall – and the takeover

The Belmond Charleston Place hotel bills itself as a luxury hideaway in the heart of town, with Gucci and Louis Vuitton stores just off the lobby.

That’s where the board of Cardinal Innovations Healthcare held two taxpayer-funded retreats at a total cost of $133,155, including a $2,127 bar tab.

The retreats were part of what the state auditor later called Cardinal’s “unreasonable” spending, capped by a $635,000 salary to Richard Topping, then-CEO of North Carolina’s largest taxpayer-funded managed care organization.

Last month, after Cardinal’s board fired Topping and paid him and three other executives $3.8 million in severance, the state Department of Health and Human Services took the unusual step of taking over the Charlotte-based organization.

It was a sudden fall for leaders of the state’s fastest-growing health care group.

Cardinal serves the most vulnerable N.C. residents, contracting with providers to offer care to poor patients with developmental disabilities, mental health needs and substance abuse problems.

Interviews with health care officials, experts, lawmakers and former board members portray a public entity that operated more like a private company unaccountable to taxpayers, with little oversight from its own board. Critics describe leadership marked by arrogance that allowed expensive parties and a CEO salary far outside the range allowed by state law.

“The culture starts at the top with leadership,” says DHHS Secretary Mandy Cohen. “Obviously we went into Cardinal because we saw a pattern of continued noncompliance with the law.”

Since the takeover, DHHS had temporary restraining orders issued against the ousted board and Topping. Those former Cardinal leaders fired back with a countersuit saying DHHS could not legally take over.

N.C. Auditor Beth Wood, whose scathing report in May raised alarms about Cardinal spending, says Cardinal’s leaders saw themselves as a state contractor, not an agency.

“They saw themselves as somebody that could do what they wanted, how they wanted,” she says.

Lack of board oversight

The mindset came from Topping, Wood says.

“For all the issues that we dealt with, for everything that we did, it was absolutely Richard Topping,” she says.

Topping says the ousted board wanted to run Cardinal as a business because that’s what the General Assembly asked them to do. “We recognize that there’s now a change in that and they don’t want Cardinal run as a business, but this is a striking departure from where the state was,” he said.

Wood’s audit found that CEO perks included a $12,000 per year car allowance, payment for gas with the company credit card and monthly car detailing. She says the Cardinal board failed to exercise proper oversight.

“Richard Topping was telling them what he was going to do, not them telling him what he should do.”

Mark Botts, a health care expert at UNC’s School of Government who follows Cardinal, says the board was “dependent on Richard.” Some of them, he says, “drank the Kool-Aid.”

Topping brushes off such criticism.

“Cardinal was successful despite political interference not because of political interference,” he says. “I ran Cardinal for the benefit of Cardinal’s members.”

Former board chair Lucy Drake disputes that Topping controlled the board.

“He took direction from the board, we did not take direction from him,” she says.

But Republican Sen. Jeff Tarte of Cornelius says Cardinal’s leadership appeared to lose its way.

“I don’t know if it’s hubris,” he says, “(but) you lose sight of reality and start thinking the rules don’t apply to you.”

A new CEO

Topping, who first worked at Cardinal as general counsel, took over in 2015 when longtime CEO Pam Shipman was suddenly ousted, even after she’d gotten a glowing performance review a few months before. Even now board members will not talk about it.

Drake says she can’t talk about it because of Shipman’s severance. Most such agreements with Cardinal include a non-disclosure clause. But Shipman’s attorney, John Gresham, doesn’t mind talking about it.

“From my representation of Ms. Shipman and investigation of the matter,” he says, “it had nothing to do with Ms. Shipman’s performance but everything to do with Mr. Topping’s ambition.”

Topping says while Shipman was an excellent political boss, he was promoted to CEO to run Cardinal as a business.

“Pam was very good at running health care in a political environment,” Topping said, adding, “That’s not my expertise.”

Topping is why Mecklenburg County’s behavioral health services are run by Cardinal, said former Mecklenburg Assistant County Manager Michelle Lancaster.

She oversaw the creation of MeckLINK Behavioral Healthcare, formerly the county’s mental health department. In 2014, county officials fought state efforts to switch management of those services from MeckLINK to Cardinal. Cardinal ended up in control.

Lancaster says Topping “outmaneuvered” the county.

“His goal was for Cardinal to be the sole behavioral-health provider in the state, and he was able to get a fair amount done,” says Lancaster, now an assistant county manager in neighboring Union County. “We just got out-lobbied.”

Lancaster, who has worked with Topping while representing two county governments, said the former CEO had the singular ability to successfully lobby people into sharing his vision that “Cardinal should keep growing.”

Once a model

Cardinal was once a model for the way North Carolina delivered mental health care.

It began in 1974 as Piedmont Behavioral Healthcare, a public authority that oversaw behavioral services in Cabarrus, Union and Stanly counties. As it grew, it found itself navigating sweeping changes in federal and state policy.

In 2001, lawmakers changed the way mental health services were provided. No longer could local authorities such as Piedmont provide services directly. Instead they had to contract with networks of private providers.

In 2005, with Medicaid costs rising, federal and state officials made Piedmont the state’s pilot for an experiment in managed care. They hoped that by allocating a fixed amount of money per client – rather than reimbursing the costs of services – they could control costs. And it worked.

At Piedmont, costs stabilized even as they soared elsewhere in the state, according to Botts of the School of Government. In 2011, the state required all local authorities to adopt a managed-care model.

By then Piedmont had changed its name to Cardinal Innovations. And early on, it balked at what it saw as constraints.

In 2012, Cardinal’s leaders asked lawmakers for proprietary rights to management software they developed and wanted to sell to other state-funded Local Managed Entities and Managed Care Organizations that managed the state’s behavioral care network, according to N.C. Health News. Those agencies, like Cardinal, effectively perform the same role as an insurer, contracting with health providers, to oversee care for some of the most vulnerable people in the state. Critics argued that one agency shouldn’t be able to sell something to another agency that had been developed with tax dollars.

‘Unconscionable’ salary

Even before he took control, Topping had made enemies in Raleigh.

A former infantry officer and Army lawyer, he came to Cardinal as general counsel in 2009 after a stint at the U.S. Justice Department. It was in that capacity that he first visited the General Assembly.

Rep. Verla Insko, a Chapel Hill Democrat who once chaired the mental health oversight committee, says his style didn’t go over well with lawmakers.

“He was arrogant,” she says. “It was like he told us what to do and expected us to do it. That wasn’t the way it worked.”

More critics came out in 2016 when the Cardinal board raised his CEO salary from $400,000 to $635,000. That November, Topping was grilled at a meeting of the legislative oversight committee. He argued that he should be paid a market rate. By having merged with five smaller LME/MCOs over the year – thereby saving the costs of their executive salaries – he said Cardinal was actually saving tax dollars.

But then-DHHS Secretary Rick Brajer called it “unconscionable” for Topping to have a total compensation package that with bonuses and benefits could amount to $1.2 million. Republican Sen. Tommy Tucker of Waxhaw was indignant.

“We’re serving the poor, we’re serving the least of these,” Tucker told Topping. “How do I as a legislator … getting the calls from a mom or a dad who’s got a disabled child on a five-year waiting list, how do I explain to them this board has given you that kind of compensation package?”

Six months later, Wood’s audit blasted Cardinal.

In 2015 and 2016, it said, Cardinal spent $1.2 million in “unauthorized salaries” to Shipman and Topping. Cardinal also had thrown two Christmas parties, one at Topping’s home, where it spent $2,072 for holiday decorations and $683 for alcohol. There were also the two board retreats in Charleston, in-state charter flights for executives and “questionable” credit card purchases.

All that threatened to “erode public trust,” the auditor said.

Current law prevents LME/MCO boards from raising salaries beyond the guidelines – this year the maximum is about $205,000 – without prior approval from the Office of State Human Resources. The state audit said Cardinal failed to get that approval.

“Cardinal did not seek prior approval because it did not believe approval was required,” the audit said.

Rep. Donnie Lambeth, a Winston-Salem Republican and former president of Baptist Hospital, criticizes Cardinal’s former leadership.

“We’ve talked to Cardinal many times about their style and the way they spend their money,” he says. “And it didn’t have much influence on them.”

‘A lot of good things’

One former Cardinal manager, who wouldn’t be named because of a non-disclosure agreement, described an organization that became “more and more like corporate America.”

Though funded by federal and state tax dollars, Cardinal calls itself a company on its website. It’s the only LME/MCO that doesn’t belong to the North Carolina Council of Community Programs, an umbrella group.

“They tend to view things more from a corporate perspective,” says Leza Wainwright, CEO of Trillium Health Resources, a Greenville-based LME/MCO. “The rest of us view things more from a public-sector perspective.”

Burgin, the former board member, says Cardinal never accepted the fact it was a state agency. “We felt that we were a contractor to the state rather than a state agency, right or wrong,” he says.

Another former Cardinal employee said that when Topping was general counsel, he refused to accept that Cardinal was a managed-care entity. He urged Cardinal “to stop thinking like a mom-and-pop shop and start thinking like a Carolinas Healthcare System,” the employee said.

Topping said that’s exactly what he did. “Wherever possible, I looked to the successful public hospitals in North Carolina as models,” he said.

Cardinal was named “Most Innovative Medicaid Managed Care Best Practice” last year by the Institute for Medicaid Innovation, he added.

Mary Annecelli, a mental health activist in Winston-Salem, said it became more difficult for families and advocates to get their questions answered. She said she and other members of the company’s Consumer/Family Advisory committees, known as CFACs, were forced to sign nondisclosure forms to keep their seats.

“You’re meeting in a public building supported by taxpayers and you would sue anybody saying anything about what was going on? That’s insane,” Annecelli says.

For years, the committees served as important liaisons between Cardinal and the communities it served, while handing out thousands of dollars in grants to groups working in behalf of behavioral health. Eventually, the CFAC budgets were significantly reduced, and the groups’ regular meetings were cut in half. Annecelli accuses Cardinal of “nickeling and diming community advocacy work while they were doing all this other lavish stuff.”

Botts, of the School of Government, says Cardinal “has done a lot of good things.” He says it created efficiencies and financial controls.

“But what is not good is that a culture has been allowed to develop … among executive leadership and the board itself,” Botts says, “that has ultimate been injurious to the organization itself.”

This story was originally published December 21, 2017 at 10:52 AM with the headline "At Cardinal healthcare, big spending came before the fall – and the takeover."