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The fired executive director of Cardinal Innovations Healthcare Solutions and the chairwoman of its board of directors discussed in an email exchange how to thwart state officials before they could freeze the agency’s fund balance.

The exchange took place Sunday, the day before the state took control of Cardinal.

The emails between ousted chief Richard Topping, Chairwoman Lucy Drake, other board members and, later, interim Chief Executive Trey Sutten were introduced as evidence on the last six pages of the state’s 104-page motion for obtaining a temporary restraining order against Topping and the board.

The motion for the 10-day order was made by N.C. Health Secretary Mandy Cohen. It was granted Wednesday by Judge Todd Pomeroy of Mecklenburg Superior Court.

Pomeroy wrote in his order that the N.C. Department of Health and Human Services “reasonably believes and alleges that defendant Topping and/or the Cardinal board and/or individual members ... are attempting to interfere with DHHS’ exercise of its lawful authority under (state law) and may be attempting to gain access to Cardinal funds without right, and with the goal of preventing proper use of those funds.”

The DHHS said in a statement Wednesday that its staff members have “discovered documents that raise serious concerns about proposed financial activities by former board leadership and the former CEO,” a reference to Topping.

In the series of e-mails, Sutten responded at the tail end of the exchanges to inform Topping and the board members “that I cannot be part of or authorize any such action” as discussed in the emails.

The most pertinent email was sent by Topping at 9:02 a.m. Sunday from his Cardinal email address. It indicated that Topping expected “a raid” of Cardinal’s fund balance by state officials.

One potential option by state officials could have sought to prevent Cardinal from using the fund balance to pay severance packages worth $1.7 million to Topping and another $2.1 million to three other executives who had resigned their duties Nov. 20.

“The key, of course, is that it has to be done before the state raids — whether legal or not — the fund balance.” Topping wrote. “If the money is gone, they have to chase it. Since they don’t have a legal right to it, they’ll never get it.

“If they already have it, it will be much harder to go get it back. You can use the money to defend the money. But if it’s gone, you can’t use it to chase it.”

Drake, representing Union County, responded to Topping from her personal email account at 12:11 p.m. Sunday.

“Well I use (sic) to have your private email. Guess will need!” Drake wrote.

“We definitely need to do this. ... Whatever we need to do to get this done I’m in. Our funds are needing to get secured for certain.”

In his court order Wednesday, Pomeroy, the judge, wrote that the DHHS “is likely to succeed on the merits of its claims.”

In a phone interview later Wednesday with The Associated Press, Topping defended Cardinal’s administrative expenses — including his one-time salary of $635,000 — as reasonable and that critics had cherry-picked certain numbers “for political purposes.” The DHHS went to court to cover its tracks after Monday’s takeover, he said.

“DHHS came in and seized Cardinal Innovations without a court order and without justification to do so,” Topping said.

Drake sent an email after Monday’s takeover of Cardinal in which she questioned why state officials were allowed to seize the operations “without a court order.”

“Why were the executives locked out without first consulting the board?” she asked.

State law permits the health secretary to remove the executive director and the board of a behavioral-health managed-care organization, or MCO, as well as end its contract with the state Medicaid program, if the secretary determines that the MCO demonstrates serious financial mismanagement or serious regulatory noncompliance.

“There has been a serious mismanagement of funds,” Cohen has said.

She told co-chairs of legislative oversight health-care committees on Monday that Cardinal has paid the severance packages to the executives, which Cardinal said was to be paid over two years. Legislators have encouraged Cohen to take legal action to regain the money, as well as pursuing reimbursement from state-paid administrative funding.

The severance payments, which Cohen described as “exorbitant,” were made “despite explicit instructions to the Cardinal board of directors regarding the lawful management of public funds.”

DHHS is demanding that Cardinal repay the state $3.8 million for the severance by the end of the week.

The Cardinal board fired Topping on Nov. 17 but agreed to allow him to stay on the job until Dec. 1. Cohen ordered that the four executives’ last day with Cardinal was Monday.

State Rep. Donny Lambeth, R-Forsyth, one of the legislature’s top health-care experts, said he was not surprised by the email comments.

“This continues to emphasize the toxic environment created by a misguided leader who seems more focused on his own value and worth than the patients he was hired to serve,” Lambeth said.

“This affirms the decision to take over Cardinal was a good one by the secretary,” he said. “I will not be surprised if additional emails are found that highlight the arrogance of the leadership.”

Disagreement

Cardinal and Topping have for years viewed the agency as an independent contractor as part of state Medicaid reform, gaining financial and business flexibility from the legislature beyond those of the other six behavioral-health MCOs.

However, Cardinal is considered a political subdivision of the state, with oversight contracts subject to approval by the state health secretary and executive compensation subject to Office of State Human Resources guidelines.

State Auditor Beth Wood said in a scathing May report that Cardinal’s “whole independent contractor claims have been taken out of context, and they are being misleading when they say they are.”

The same audit determined that Topping had been paid $1.2 million more than what state law allows for the top position at a behavioral-health MCO for a behavioral-health MCO.

“Yes, Steve and I connected,” Topping wrote in his Sunday email, referring to board member Steve Yuhasz. Yuhasz made the motion to remove Bryan Thompson, the local representative on the Cardinal board, at the Nov. 17 meeting.

“Yes, his idea is brilliant. I’ll be retired with time on my hands, so I’d be happy to help from the outside. It was in our ‘if we lose our (Medicaid) contract’ contingency planning, so I’ve already given thought about how to make it happen.”

According to an internal DHHS audit of Cardinal, the Cardinal board approved in Topping’s three-year contract providing severance “for a broad range of reasons” beyond termination of employment without just cause. They include:

  • If Cardinal is taken over or ceases to be an independent entity.
  • If a majority of the board is replaced without the board’s approval.
  • If the agency is “materially” affected by statutory or regulatory changes to its services, revenue, governance or employment practices.

Drake and Yuhasz were two of three board members who voted Oct. 17 against reducing Topping’s salary from $635,000 to $204,195.

DHHS said in Wednesday’s statement that it has taken a variety of administrative actions related to the financial management of the organization.”

“In addition to those activities, we are pursuing this litigation out of an abundance of caution in the protection of taxpayer dollars.”

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rcraver@wsjournal.com 336-727-7376 @rcraverWSJ

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