Richard Topping, chief executive officer of Cardinal Innovations Healthcare (Cardinal) is very well-paid. His annual salary of $635,000, moreover, is significantly more than that of his peers.
According to an audit released Thursday, his pay and other expenditures by Cardinal may be violating state guidelines.
The Office of State Auditor Beth Wood released its performance audit Thursday on Cardinal, pointing out several key areas of concern. One of those areas is the salary it has paid to its CEOs. From 2014-2016, Cardinal paid $1.2 million in CEO salaries, and did so without state approval or scrutiny.
As the largest of seven regional Local Management Entities/Managed Care Organizations (LME/MCO) in North Carolina, Cardinal provides mental health, developmental disability and substance abuse care for some 850,000 patients across 20 counties. The largest share of its funding comes from Medicaid.
The Office of State Human Resources (OSHR) is tasked with oversight of these providers, but apparently has allowed Cardinal to pay exceedingly more than the salary range it has established.
Noting the $1.2 million paid over three years in CEO salaries, the audit states, “Cardinal was able to exceed the established CEO salary range without consequence because OSHR did not enforce the general statutes that required OSHR oversight and approval.”
In 2010, OSHR established the salary range for CEOs at $105,576 to $187,364. North Carolina law requires that OSHR grant prior approval to any CEO salary that exceeds the maximum allowable salary range.
The audit states that Cardinal did not seek prior approval because it did not think that prior approval was required.
Cardinal issued a response to the audit, disputing the allegations that it had overpaid its CEOs without prior approval.
The response states that OSHR had not established a salary range for LME/MCO directors, but that the range was a recommendation. Regarding a 2010 memorandum that OSHR had sent regarding the salary range of the CEOs, the response quotes the memorandum as “being for informational purposes only.”
Also, the response states that on the OSHR website, the CEO position is listed as “NG,” meaning no salary grade.
Cardinal’s response further states, “No LME/MCO could pay its CEO above a salary range that does not exist.”
The audit makes two recommendations regarding the salary of Cardinal’s CEO. First, “The Office of State Human Resources should immediately begin reviewing and approving Cardinal CEO salary adjustments.”
Second, “The Department of Health and Human Services should determine whether any Cardinal CEO salary expenditure should be disallowed and request reimbursement as appropriate.”
This is not the first time Cardinal’s pay plan for its CEOs, and more specifically, Topping, has come under scrutiny. In a December 16, 2016 story about a Joint Legislative Oversight Committee on Medicaid and NC Health Choice, the Charlotte Observer reported on a board meeting that Cardinal held in which Topping’s pay plan was set. The story said:
“At that meeting, the board raised Topping’s salary from $400,000 in fiscal year 2016 to $635,000 for 2017. The board also will give him a bonus of zero to 40 percent that could mean $254,000. The board also approved a long-term incentive package of $412,000 that could be paid over several years. If Topping receives everything, it would total $1.3 million.”
Sen. Tommy Tucker (R-Waxhaw) is quoted in the report as having said, “How in the world do I tell somebody, ‘I’m sorry. I can’t get you off the (waiting) list,’ but the guy at Cardinal can make $1 million a year?”
The audit also calls into question expenditures that Cardinal made, stating that Cardinal has not demonstrated accountability in the use of its federal and state resources as evidenced by some of its spending.
The report states, “This type of unreasonable spending erodes the public’s trust in Cardinal’s ability to deliver quality healthcare to a vulnerable population.”
These dubious expenses are wide ranging and fall into several different categories including spending for board retreats, board meetings, parties at high-end locations, charter flights, CEO benefits, and miscellaneous credit card expenditures.
In its response, Cardinal stated that the audit did not find any violations of any statute or legal requirement, and were subjective judgements as to whether the expenditures were reasonable or appropriate.