RALEIGH — Angry lawmakers on Tuesday advocated civil and possibly criminal action against former executives of Cardinal Innovations Healthcare Solutions, the state’s largest behavioral health network. The state wants to recoup $3.8 million in severance pay to the ousted managers.
Department of Health and Human Services Secretary Mandy Cohen told the Joint Legislative Oversight Committee on Health and Human Services that lawyers are reviewing agency emails and other material, deciding how to act against Cardinal.
Cardinal is one of seven geographically located LME/MCOs (Local Management Entities/Managed Care Organizations) providing services to clients with mental health and substance abuse issues, and intellectual and developmental disabilities.
Cohen disbanded the previous Cardinal board of directors and management team on Nov. 27, citing their “unlawful actions, including serious financial mismanagement … regarding executive team compensation and severance payments.” She said Cardinal repeatedly failed to comply with DHHS warning and demand letters.
“I’m absolutely appalled by the arrogance and avarice, the unfettered greed of those people,” said state Sen. Tamara Barringer, R-Wake. She pressed Cohen if DHHS is investigating whether executives and board members breached fiduciary obligations, “the highest duty of loyalty” to the people served.
“We are very much still sifting through a lot of information,” Cohen said, but DHHS lawyers should answer lawmakers’ legal questions. She said DHHS needs to look back at what happened, but also must look forward to implementing a corrective action plan, and implement a culture change at Cardinal.
“Going forward is very important,” Barringer said. “Going forward it’s important that we put a stake in the ground … that we’re not going to put up with someone breaching that high duty of loyalty.”
She said shareholders of a for-profit organization can ask a court to look into whether board members and other organization officials breached fiduciary obligations.
She asked if Cardinal could face similar scrutiny. The misspent funds should go to services for some of the state’s most vulnerable Medicaid recipients, Barringer said.
County commissioners in Cardinal’s 20-county service area on Thursday will seat a new governing board for Cardinal, which serves hundreds of thousands of clients.
But DHHS will maintain control of Cardinal for a few months as the new directors are trained, Cohen said.
When the state took over Cardinal, DHHS officials escorted CEO Richard Topping from the premises, and took out a temporary restraining order against the former board to prevent it from interfering. Cardinal paid Topping a $1.7 million severance. Three other dismissed executives received large severance packages, one as high as $740,000.
Although DHHS told Cardinal it would claw back that money, Dave Richard, deputy secretary for medical assistance, said Cardinal interim CEO Trey Sutten offered an alternative plan. He wants payback to come from the agency’s administrative budget, and plowed back into client services.
“I’ve been watching this with some dismay,” said Sen. Dan Bishop, R-Mecklenburg. DHHS has a supervisory responsibility over Cardinal, which includes authority to recover misspent funds. If this were a private business, “we wouldn’t sit for several months while those millions of dollars are in the hands of private individuals.”
Bishop urged DHHS to be more aggressive.
Rep. Nelson Dollar, R-Wake, said Cardinal’s plan to give its executives huge payouts was well-known, even published in press accounts.
“It seems like there should have been some action taken to have prevented the LME/MCO board, or the Cardinal people working there, from writing those checks to begin with,” Dollar said. Every effort should be made to recover the money “from people who got golden, gilded parachutes, just unheard of with taxpayer money.”
Dollar worries DHHS will have less ability to recover money once it enters contracts with nongovernmental agencies after the Medicaid managed care transformation occurs.
Cohen said DHHS new contracts will have more enforcement provisions, including potential sanctions, the ability to withhold funding, and termination clauses. Officials will check with other states using Medicaid managed care for recommendations.
An internal DHHS audit and a blistering state performance audit found Cardinal built a large pool of cash reserves rather than providing client services, and $1.2 million in improper executive salaries. Cardinal paid excessive bonuses, held expensive staff events, rented high-end office space, purchased alcohol, and booked charter jet flights for in-state meetings.
Cardinal paid Topping a $617,526 annual salary, about 3 ½ times more than any other LME/MCO boss. The state ordered a pay cut, and Cardinal sued. The agency later backed down and reduced Topping’s salary to $204,195, the maximum allowed under state law.
As a state-created entity, Cardinal is a political subdivision of the state. The deposed board had moved to act as an independent contractor as the state switches to a Medicaid managed care format.