What’s going on with Cardinal Innovations Healthcare, explained

The Charlotte company in a prominent South End location has been taken over by the state amid allegations of improper spending.

Both Cardinal’s mission and corporate status are confusing. Here’s a quick explainer on everything that has happened.

What is Cardinal Innovations Healthcare?

Cardinal Innovations Healthcare is a “managed care services” company that works with patients on Medicaid and other state- and county-funded health plans. Cardinal is one of seven such companies in North Carolina.

Basically, here’s how it works. The state decides how much it’s going to spend on publicly funded healthcare. Then they give a lump sum payment to Cardinal and the six other companies, who then provide services in their region.

Cardinal has roughly 850,000 patients and primarily deals with mental health and disability treatments. The company has about 800 employees and annual revenue of about $680 million, per its latest financial report.

In 2016, $587 million of that came from Medicaid. The rest came from state, local and other federal funding.

Cardinal is incentivized to drive down the cost of healthcare because if they treat people for cheaper than what the state’s giving them, they make more profit.

The company is in a weird position, though, because it is a private company, but one created by North Carolina law and primarily funded by public money. It’s often called “quasi-governmental.”

Their office is just south of Uptown, across from the Midnight Diner.

Why are they in trouble?

Cardinal come under fire last May when State Auditor Beth Wood published a report highly critical of the company’s spending. There were three main areas that together “could erode public trust,” she wrote.

1) Spending $1.2 million in “unauthorized” CEO pay over several years.

The state had set a guideline for salaries for this position between $105,000 and $187,000. But Cardinal paid $240,000 to its CEO in 2014, and dramatically increased it over the next three years. By 2016, the Cardinal CEO was making $635,000.

The $1.2 million figure comes from what Cardinal paid minus that maximum recommended $187,000 salary.

2) Spending to pursue business opportunities.

Cardinal had several people on staff whose job was to explore options nationally and to expand beyond mental health into other healthcare areas. This was beyond the mission outlined by the state, Wood said.

3) Spending on board retreats and parties.

Wood pulled numbers for several out-of-town board retreats at luxury hotels, charter flights for executives, company Christmas parties, and somewhere around $10,000 worth of alcohol purchases.

What was the last straw?

The state’s report caused turmoil inside Cardinal.

The board voted to cut Topping’s pay, and he then threatened to resign — which would trigger a big severance payout under his contract. The board then restored his pay, according to a state report.

Cardinal’s board then fired Topping in mid-November.

That move led to the last straw, from the state’s perspective.

In that move, Cardinal authorized spending $3.8 million on severance to a handful of departing executives. That included $1.7 million to outgoing CEO Richard Topping.

Cardinal’s board at the time defended its actions, saying they simply paid market-rate salaries and benefits.

How did the state respond?

The N.C. Department of Health and Human Services formally took over control of Cardinal in late November, claiming that the company acted “unlawfully” in the executive spending. All of Cardinal’s board members were ousted and executives were legally prevented from interfering with the company any longer.

Could more people have been helped?

In many programs, yes.

While some programs administered by Cardinal were capped by the state, Cardinal maintained wait lists for many others. Cardinal presumably could have used profits to take care of them.

What happens next?

Cardinal Innovations is getting a brand new board and executive team.

Health and Human Services Secretary Mandy Cohen told the General Assembly this week that a new board of directors is currently being trained, according to the Associated Press.

The new board and executive team should take over in the next few months.

Cover photo by Cardinal Innovations Healthcare via Facebook.