State takeover will protect taxpayers, Cardinal's patients

Amid growing outrage over irresponsible spending and executive greed at Cardinal Innovations Healthcare, state regulators sprang into action this week to set the mental health agency’s affairs in order.

The N.C. Department of Health and Human Services assumed temporary control of the troubled agency on Monday, dismissed its appointed board of directors and banned fired CEO Richard Topping from Cardinal’s premises.

The DHHS cited “recent unlawful actions, including serious financial mismanagement” in the awarding of severance packages worth $3.8 million to four top leaders Cardinal ousted, including a $1.7 million golden parachute for Topping.

“I am deeply disappointed in the actions of Cardinal Innovations’ leadership and board,” Health and Human Services Secretary Mandy Cohen said in a prepared statement. “They are entrusted with the responsibility to care for some of our most vulnerable residents, but instead of living up to that obligation, they have lost the public’s trust by violating the law and mismanaging public funds. DHHS is temporarily taking control of Cardinal to stabilize the organization and return its focus to the consumers and families that Cardinal serves.”

State officials’ swift action follows withering criticism from Sen. Tommy Tucker, R-Union, and the DHHS received the Joint Legislative Oversight Committee on Health and Human Services leadership’s blessing to intervene. Tucker is a member of that committee and undoubtedly alerted its co-chairs to the crisis unfolding at Cardinal.

A state statute authorizes the department to temporarily remove managed care organization-local management entity functions “from an entity that demonstrates serious financial mismanagement or serious regulatory noncompliance.” Cardinal’s actions fit the bill.

Handing millions to Topping and his lieutenants on their way out the door was the straw that broke the camel’s back. They were fired, after all, in the wake of a May report from State Auditor Beth Wood that exposed lavish spending on board meetings, booze and executive travel and noted that the CEO’s salary was three times higher than the state-mandated maximum pay for his position.

Former Cardinal board Chairwoman Lucy Drake was predictably tone-deaf in her comments to The Charlotte Observer, seeming gobsmacked that the state chose to step in. She defended the severance packages as part of ousted executives’ employment contracts and said Cardinal was bound to honor them.

We can’t imagine a contract so ironclad that a judge wouldn’t tear it up given the circumstances here. Topping failed in his fiduciary duties to Cardinal, its board of directors and state and federal taxpayers. His contract also guaranteed a salary that exceeded North Carolina regulatory guidelines.

It probably isn’t worth the paper it’s printed on — much less $1.7 million.

The DHHS and N.C. Department of Justice will try to claw back the outrageous severance payments, Tucker told The Charlotte Observer. We hope the agencies succeed.

Meanwhile, Cardinal Innovations will continue to manage mental health care services under close supervision from regulators. Trey Sutten has been named interim CEO.

State officials and county commissioners in Cardinal’s 20-county service area will appoint a new board of directors by Dec. 15.

It’s unclear what effect, if any, the leadership shakeup will have on a planned merger between Cardinal Innovations Healthcare and Eastpointe, the Beulaville-based mental health agency whose 11-county eastern North Carolina service area includes Wilson County.

After the stinging audit in May, we urged Eastpointe to leave its disgraced groom at the altar. We remain convinced that’s the best course here, though the installation of a brand-new board and the DHHS’ involvement is likely to keep Cardinal flying right, at least in the near term.

If Eastpointe can’t or won’t back out of the deal, the next best thing is for it to become the surviving entity in the merger. Initial plans called for Cardinal to take over the smaller agency and Eastpointe’s board of directors to be converted to a regional service advisory board.

Instead of Cardinal swallowing up Eastpointe, regulators overseeing the agencies’ union could put Eastpointe in charge of Cardinal’s services. Mental health stakeholders in eastern North Carolina shouldn’t cede control of patient care to an institution with a record of reckless spending.

While there’s much left to be done to stabilize and reform Cardinal and reassure patients and providers, the General Assembly and Department of Health and Human Services deserve credit for stepping in to clean up this mess.

The state’s stern response sends a clear message to private agencies entrusted with Medicaid funds and state tax dollars: Malfeasance and mismanagement will not be tolerated.