A bipartisan group of lawmakers said Tuesday that the “ultimate arrogance” displayed by Cardinal Innovations Healthcare Solutions’ former executive director and board of directors justified the state’s takeover of the agency.

On Monday, state Health Secretary Mandy Cohen ordered state Medicaid head Dave Richard to temporarily take control of the daily operations of Cardinal and remove its board.

“I am acutely aware of the need for stabilizing the agency for recipients and providers so they can continue to receive the care they need and providers receive payment,” Cohen said Tuesday during a teleconference between DHHS and the N.C. Association of County Commissioners.

“This is an unprecedented step taken by DHHS, so we’re reassuring that the county commissioners have a prominent voice in this process,” said Kevin Leonard, executive director of the association.

Richard Topping‘s last day as executive director was Monday. He was terminated by the Cardinal board after 26 months on Nov. 17 with an approved $1.7 million severance package, but the board chose to allow him to stay on until Dec. 1.

Monday also was the last day for three executives who had submitted their resignations Nov. 20, primarily in an attempt to qualify for severance packages of about $700,000 each.

Cardinal has paid the four executives their severance packages, according to a letter Cohen sent Monday to the co-chairs of legislative oversight healthcare committees.

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

Cohen said payment of the severance packages led "DHHS to conclude that we can no longer rely on the board and executive leadership at Cardinal Innovations to bring Cardinal into compliance with its legal requirements."

Sen. Tommy Tucker, R-Union, co-chairman of a legislative oversight healthcare committee, said the expectation is DHHS operating Cardinal for at least six months.

“I am pleased and gratified that Sec. Cohen had the guts to step in and do what had needed to be done for months, if not years, to address the ultimate arrogance on the part of Cardinal management and board,” said Tucker, the most vocal legislative critic of Topping and Cardinal.

As the state’s largest of seven behavioral health managed-care organizations, Cardinal oversees providers of services for mental health, developmental disorders and substance abuse for Medicaid enrollees in 20 counties, including more than 96,000 in Alamance, Davidson, Davie, Forsyth, Rockingham and Stokes.

Cardinal handles more than $675 million in annual federal and state Medicaid money.

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

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

Tucker places 60 percent of the blame for Cardinal’s noncompliance on Topping and 40 percent on the board, led by Chairwoman Lucy Drake.

“Topping evidently convinced himself and the board that Cardinal would emerge from Medicaid reform as a statewide for-profit MCO with additional state and federal Medicaid resources flowing in, and that the board would be compensated for services like a corporate board,” Tucker said.

Tucker said that when DHHS provided Cardinal management and its board with a corrective action plan in October, Cardinal chose not to embrace it.

“They had clearly lost sight of their mission to serve, and Topping became toxic to the whole organization, so Sec. Cohen had the legislative blessing to take these steps,” Tucker said.

Rep. Verla Insko, D-Orange, and Democratic whip, supports Cohen’s actions “as the most appropriate measure she could take.”

“I have full confidence in Sec. Cohen’s ability and commitment to put things in order and restore the confidence of the public and the people served by the agency,” Insko said.

Replace executive team

Richard said that he and Trey Sutten, interim executive director for Cardinal, held a conference call Tuesday in which more than 700 employees participated.

Some employees have told the Winston-Salem Journal they prefer DHHS restoring Pam Shipman, Topping’s predecessor at Cardinal, to the helm.

Tucker said that while he is amenable to having Shipman serving in a stabilizing role, “I am not certain she would be a preferred candidate as executive director.”

As part of the legislation setting Cardinal up as the first MCO, it allowed it to have limited direct county representation as it expanded its network. On Monday, Cohen revoked that board structure.

It is possible each county could have a direct representation since state law permits a maximum of 21 members.

However, there are specific healthcare, legal and regulatory expertises per state law that perspective members would have to have to fill certain slots.

Cohen and Richard said there are no plans to return to having individual counties, such as Forsyth and Mecklenburg, operate their own behavioral health oversight agencies.

Dave Plyler, chairman of the Forsyth commissioners, said the DHHS takeover “was the right thing to do.”

“Cardinal needs to correct its course and serve the people who to date have not been the focus of discussion. DHHS has a golden opportunity to get it right.”

Audit found issues

The decision by Cohen is the strongest action taken by state health regulators in addressing the Cardinal management saga that reached a boiling point in May with a scathing report from the state Auditor’s Office on Cardinal’s executive compensation packages and non-core spending.

In September, the Cardinal board buckled under a threat by Topping to resign if it did not restore his salary back to $635,000 from the $400,000 he had agreed to take in July as part of addressing the state Auditor’s Office report.

“The severance package approved by the board to the Cardinal management was the crowning incentive to replace Topping and the board,” Tucker said.

Cohen said that DHHS “doesn’t have an answer to the severance packages, when or if they have been paid. We will be considering those details and addressing what our authority by state law allows, consulting with our lawyers.”

Richard has said DHHS could regain the severance package funds from Cardinal’s administrative funding.

Andy Hagler, executive director of Mental Health Association in Forsyth County, stressed that “there are a lot of fine, caring, dedicated people who work for Cardinal.”

“Hopefully, in the weeks and months to follow, the new upper management and the new governing board of Cardinal will reset the public’s trust and there will be a collective focus — from the top down — on serving our most vulnerable citizens.”

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

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