State Auditor find lavish spending by Medicaid provider, eroding public trust

By Jason Debruyn

The CEO of Cardinal Innovations Healthcare Solutions, a company that accepts hundreds of millions of dollars in state and federal Medicaid money to pay for the care of mental and behavioral health patients in North Carolina, was overpaid by $1.2 million, and the company’s executives and board of directors enjoyed retreats, chartered flights, Christmas parties and other perks "potentially resulting in the erosion of public trust," according to an audit.

North Carolina Auditor Beth Wood released the findings, and more, Thursday. Wood's office reported the "audit was initiated due to several concerns and questions from members of the General Assembly relating to Cardinal operating outside of its statutory mission and extravagant or excessive spending," according to the audit.

Cardinal works as a go-between that provides payments to mental and behavioral health providers who see Medicaid patients. For physical health Medicaid patients – a low-income pregnant woman for example – providers bill the state directly. For mental health patients – like those suffering from addictions or other disorders – N.C. Department of Health and Human Services contracts with organizations to manage and coordinate services.

Across the state, there are seven such organizations, named Local Management Entities or Managed Care Organizations (LME/MCO). Cardinal is the largest such LME/MCO. It serves more than 850,000 patients in 20 counties and has received more than $565 million in Medicaid funding each of the past two years.

Entities audited by the state auditor's office are always allowed a response, and Cardinal offered 22 pages of answers to the various audit findings. Underlying many of its counter-arguments, Cardinal asserts that it does not operate as a government entity. For instance, it competes for employees with large for-profit corporations and, unlike other public entities, does not participate in the state or other local government retirement plan.

However state auditors reviewed those responses and noted that in those 22 pages, "Cardinal made numerous inaccurate statements," including that state law "explicitly requires Cardinal to demonstrate accountability as a government entity."

One disagreement between auditors and Cardinal executives surrounds compensation. Cardinal asserted the "Office of State Human Resources (OSHR) has not established any salary range for the LME/MCO Area Directors."

In fact, however, the OSHR provided, and the State Personnel Commission approved, a salary range of $105,576 - $187,364. According to the audit, Cardinal paid its previous and current chief executives annual salaries between $200,000 and $635,000. Current CEO Richard Topping took over the role in 2015. The overpayments total $1.2 million since July 1, 2014, according to the audit.

The audit flagged other expenses as well, including

• $5,000 for alcohol
• $10,000 for first-class airline tickets
• $15,000 for chartered flights
• $28,000 for two Christmas parties
• $58,000 for hotels (and another $13,000 in hotel cancellation fees)

"(Cardinal) has not demonstrated accountability in the use of its federal and state resources as evidenced by some of its spending. This type of unreasonable spending erodes the public’s trust in Cardinal’s ability to deliver quality healthcare to a vulnerable population," according to the audit.