Hostile Takeover: Cardinal Usurped by DHHS! Any Possible Relief to Providers for Misconduct?

DHHS has ousted and taken over Cardinal Innovations!

And may I just say – Finally! Thank you, Sec. Cohen.

Cardinal is/was the largest of seven managed care organizations (MCOs) that was given the task to manage Medicaid funds for behavioral health care recipients. These are Medicaid recipients suffering from developmental disabilities, mental health issues, and substance abuse; these are our population’s most needy. These MCOs are given a firehose of Medicaid money; i.e., tax dollars, and were entrusted by the State of North Carolina, each individual taxpayer, Medicaid recipients, and the recipients’ families to maintain an adequate network of health care providers and authorize medically necessary behavioral health care services. Cardinal’s budget was just over $682 million in 2016. Instead, I have witnessed, as a Medicaid and Medicare regulatory compliance litigator, and have legally defended hundreds of health care providers who were unlawfully terminated from the MCOs’ catchment areas, refused a contract with the MCOs, accused of owing overpayments to the MCOs for services that were appropriately rendered. To the point that the provider catchment areas are woefully underrepresented (especially in Minority-owned companies), recipients are not receiving medically necessary services, and the MCOs are denying medically necessary services. The MCOs do so under the guise of their police power. For years, I have been blogging that this police power is overzealous, unsupervised, unchecked, and in violation of legal authority. I have blogged that the MCOs act as the judge, jury, and executioner. I  have also stated that the actions of the MCOs are financially driven. Because when providers are terminated and services are not rendered, money is not spent, at least, on the Medicaid recipients’ services.

But, apparently, the money is spent on executives. This past May, State Auditor Beth Wood wrote a scathing performance audit regarding Cardinal’s lavish spending on CEO pay as well as on expensive Christmas parties and board retreats, charter flights for executives and “questionable” credit card purchases, including alcohol. All of that, her report said, threatened to “erode public trust.” Cardinal’s former CEO Richard Topping made more than $635,000 in salary this year. On Monday (November 21, 2017), DHHS escorted Topping and three other executives out the door. But they did not walk away empty handed. Topping walked away with a $1.7 million severance while three associates left with packages as high as $740,000 – of taxpayer money!

This overspending on salaries and administration is not new. Cardinal has been excessively spending on itself since inception. This has been a long term concern, and I congratulate Sec. Cohen for having the “cojones” to do something about it. (I know. Bad joke. I apologize for the French/Spanish).

In 2011, Cardinal spent millions of dollars constructing its administrative facility.

cardinaloutside

cardinal4 Break Room

cardconference Conference Room

According to Edifice, the company that built Cardinal Innovations’ grand headquarters, starting in 2011, Cardinal’s building is described as:

“[T[his new three-story, 79,000-square-foot facility is divided into two separate structures joined by a connecting bridge.  The 69,000-square-foot building houses the regional headquarters and includes Class A office space with conference rooms on each floor and a fully equipped corporate board room.  This building also houses a consumer gallery and a staff cafe offering an outdoor dining area on a cantilevered balcony overlooking a landscaped ravine.  The 10,000-square-foot connecting building houses a corporate training center. Computer access flooring is installed throughout the facility and is supported by a large server room to maintain redundancy of information flow.” How much did that cost the Medicaid recipients in Cardinal’s catchment area? Seem appropriate for an agent of the government spending tax money for luxurious office space? Shoot, my legal office is not even that nice. And I don’t get funded by tax dollars!

In 2015, I wrote:

On July 1, 2014, Cardinal Innovations, one of NC’s managed care organizations (MCOs) granted its former CEO, Ms. Pam Shipman, a 53% salary increase, raising her salary to $400,000/year. In addition to the raise, Cardinal issued Ms. Shipman a $65,000 bonus based on 2013-2014 performance.

Then in July 2015, according to the article in the Charlotte Observer, Cardinals paid Ms. Shipman an additional $424,975, as severance. Within one year, Ms. Shipman was paid by Cardinal a whopping $889,975. Almost one million dollars!!!!

I have been blogging about MCO misconduct for YEARS. Seeblog, blog, blog, blog, and blog.

Now, finally, DHHS says Cardinal Innovations “acted unlawfully” in giving its ousted CEO $1.7 million in severance, and DHHS took over the Charlotte-based agency. It was a complete oust. One journalist quoted Cardinal as saying, “DHHS officials arrived at Cardinal “unexpectedly and informed the executive leadership team that the department is assuming control of Cardinal’s governance.”” Unexpected they say? Cardinal conducted unexpected audits all the time on their providers. But, the shoe hurts when it’s on the other foot.

The MCOs are charged with the HUGE  fiscal and moral responsibility, on behalf of the taxpayers, to manage North Carolina and federal tax dollars and authorize medically necessary behavioral health care services for Medicaid recipients, our population’s most needy. The MCOs in NC are as follows:

  1. Vaya Health
  2. Partners Behavioral Health Management
  3. Cardinal Innovations (formerly)
  4. Trillium Health Resources
  5. Eastpointe
  6. Alliance Behavioral Health Care
  7. Sandhills Center

The 1915 (b)(c) Waiver Program was initially implemented at one pilot site in 2005 and evaluated for several years. Two expansion sites were then added in 2012. The State declared it an immediate success and requested and received the authority from CMS to implement the MCO project statewide. Full statewide implementation is expected by July 1, 2013. The MCO project was intended to save money in the Medicaid program. The thought was that if these MCO entities were prepaid on a capitated basis that the MCOs would have the incentive to be fiscally responsible, provide the medically necessary services to those in need, and reduce the dollars spent on prisons and hospitals for mentally ill.

Sadly, as we have seen, fire hoses of tax dollars catalyze greed.

Presumably, in the goal of financial wealth, Cardinal Innovations, and, maybe, expectantly the other MCOs, have sacrificed quality providers being in network and medically necessary services for Medicaid recipients, Cardinal has terminated provider contracts. And for what? Luxurious office space, high salaries, private jets, and a fat savings account.

I remember a former client from over 5 years ago, who owned and ran multiple residential facilities for at-risk, teen-age boys with violent tendencies and who suffered severe mental illness. Without cause, Alliance terminated the client’s Medicaid contract. There were no alternatives for the residents except for the street. We were able to secure a preliminary injunction preventing the termination. But for every one of those stories, there are providers who did not have the money to fight the terminations

Are there legal recourses for health care providers who suffered from Cardinal’s actions?

The million dollar question.

In light of the State Auditor’s report and DHHS’ actions and public comments that it was usurping Cardinal’s leadership based on “recent unlawful actions, including serious financial mismanagement by the leadership and Board of Directors at Cardinal Innovations,” I believe that the arrows point to yes, with a glaring caveat. It would be a massive and costly undertaking. David and Goliath does not even begin to express the undertaking. At one point, someone told me that Cardinal had $271 million in its bank account. I have no way to corroborate this, but I would not be surprised. In the past, Cardinal has hired private, steeply-priced attorney regardless that its funds are tax dollars. Granted, now DHHS may run things differently, but without question, any legal course of action against any MCO would be epically expensive.

Putting aside the money issue, potential claims could include (Disclaimer: this list is nonexhaustive and based on a cursory investigation for the purpose of my blog. Furthermore, research has not been conducted on possible bars to claims, such as immunity and/or exhaustion of administrative remedies.):

  • Breach of fiduciary duty. Provider would need to demonstrate that a duty existed between providers and MCO (contractual or otherwise), that said MCO breached such duty, and that damages exist. Damages can include actual loss and if intent is proven, punitive damages may be sought.
  • Unfair and Deceptive Trade Practices. Providers would have to prove three elements: (1) an unfair or deceptive act or practice; (2) in or affecting commerce; (3) which proximately caused the injury to the claimant. A court will first determine if the act or practice was “in or affecting commerce” before determining if the act or practice was unfair or deceptive. Damages allowed are actual damages, plus treble damages (three times the actual damages).
  • Negligence. Providers would have to show (1) duty; (2) breach; (3) cause in fact; (4) proximate cause; and (5) damages. Actual damages are allowed for a negligence claim.
  • Breach of Contract. The providers would have to demonstrate that there was a valid contract; that the providers performed as specified by the contract; that the said MCO failed to perform as specified by the contract; and that the providers suffered an economic loss as a result of the defendant’s breach of contract. Actual damages are recoverable in a breach of action claim.
  • Declaratory Judgment. This would be a request to the Court to make a legal finding that the MCO failed to follow certain Medicaid procedures and regulations.
  • Violation of Article I, NC Constitution (legal and contractual right to receive payments for reimbursement claims due and payable under the Medicaid regulations.

To name a few…

About kemanuel

Medicare and Medicaid Regulatory Compliance Litigator

Posted on November 29, 2017, in "Single State Agency", 1915 b/c Waiver, Access to Care, Accountability, Administrative code, Administrative Costs, Administrative Remedies, Agency, Alleged Overpayment, Alliance, Appeal Deadlines, Appeal Rights, Audits, Behavioral health, Beth Wood, Cardinal Innovations, DHHS, EastPointe, Federal Government, Federal Law, Gordon & Rees, Harassment, Health Care Providers and Services, HHS, Knicole Emanuel, Lawsuit, Legal Analysis, Legal Remedies for Medicaid Providers, Legislation, Managed Care, Medicaid, Medicaid Advocate, Medicaid Appeals, Medicaid Attorney, Medicaid Audits, Medicaid Providers, Medicaid Reimbursements, Medicaid Services, Medicaid Spending, Medical Necessity, North Carolina, Office of State Auditor, Performance audit, Post-Payment Reviews, Suspension of Medicaid Payments, Tax Dollars, Taxes, Taxpayers, Termination of Medicaid Contract, Trillium and tagged , , , , , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink. 13 Comments.

  1. Lock them up!. Is this not conspiracy?

    Ousted Cardinal leaders tried to keep control of taxpayer money, state attorney says

    Read more here: http://www.charlotteobserver.com/news/politics-government/article187085953.html#storylink=cpy

  2. Unfortunately DHHS did not take over soon enough. Cardinal terminated my 31 year old autistic son’s services on August 31. I’m going to a state hearing, but Cardinal was very underhanded in the way they terminated his services. Knowing he’s medically fragile, they terminated me as relative provider and required outside help to come in. It put him back into seizures and ultimately in the hospital for several days. I stopped having outside care come in to protect him and lost his services in the process. These people should be doing hard time.

  3. How is it “legal” to have $271 million of taxpayers dollars banked when there is a 7-10 year consumer waiting list for services? Who owns the facilities for these MCOs? This appears to be a much larger problem than exorbitant salaries and expenses. How did this continue for YEARS before someone said “we have a problem”?

  4. Why did Richard Topping hire Joe Ford ?
    The fleecing of our tax dollars was facilitated by sellout politicians that betrayed the community.

    A mayoral candidate helps lead agency criticized for its spending. Should it matter?
    Read more here: http://www.charlotteobserver.com/news/politics-government/article154082599.html#storylink=cpy

  5. I hope Alliance is next they cost us severely. Withdrawing our contract for no reason.

    Paula Fleming LPCS (NC), LPCS (SC), LCAS, CCS, CCSOTS, DCC, CESP, ICCS Vice-President/Clinical Director Family First Support Center 110 Southwest Center Street Mt. Olive, NC 28365-2124 paulafleming@familyfirst1.com http://www.familyfirst1.com Office: 919.635.3344 Cell: 919.656.1163 Fax: 919.635.3388

    “Our mission is to improve individual and family strengths by promoting positive communication and the development of problem solving skills.”

    “Let us not grow weary in doing good, for in due season, we shall reap, if we do not lose heart” -Galatians 6:9

    *”What we think, we become”* * -Buddha.*

    *The information transmitted is intended only for the person or entity to which it is addressed and may contain confidential and/or privileged material. Any review, retransmission , dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient is prohibited. If you receive this in error, please delete the material from any computer . Thank you for your compliance to this request.*

  6. Hi Knicole,
    I’m an elder law/special needs planning attorney in Cardinal’s service area. A client just told me about your blog very recently. I am really enjoying your posts. When I see a new story about Cardinal in our paper, I come here to see what you have to say about it. I’m very knowledgeable about Medicaid eligibility and programs on the consumer side but in the dark about how it works on the provider end. I have never understood how MCOs are supposed to keep Medicaid costs down when it seems like we’re just adding in a layer of profit and administrative costs that wouldn’t otherwise be there. It makes me so angry that people in need go without services while $3.8 million of Medicaid funds are spent on severance packages for 4 or 5 executives.

  7. Thank you, Aimee. Much appreciated. Obviously, I am as perplexed as you are re: the MCO system.

  8. Where has everybody been at any level in this state? This did not happen over night. A look at their building and the stories in the paper painted an obvious picture of abuse and neglect to the consumers; One can not be so extravagant and others not know what is occurring. People have been hurt. Services have gone undone. Programs have been cut. Was everybody blind or did they want to be blind? Are they just losing their jobs or does anyone see this as criminal? Seems like they knew what they were doing and doing wrong but continued. They have grossly misused Medicaid funds on non Medicaid items, knowingly. One day the individuals who are to be served will be number one instead at the end of this equation.

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