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MCO CEO Compensated $400,000 Plus Bonuses with Our Tax Dollars!

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.

$400,000 a year, plus bonuses.  Apparently, I got into the wrong career; the public sector seems to pay substantially more.

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!!!! To manage 16 counties’ behavioral health care services for Medicaid recipients.

For comparison purposes, the President of the United States earns $400,000/year (to run the entire country). Does the CEO of Cardinal equate to the President of the United States? Like the President, the CEO of Cardinal, along with all the other MCOs’ CEOs, are compensated with tax dollars.

Remember that the entire purpose of the MCO system is to decrease the risk of Medicaid budget overspending by placing the financial risk of overspending on the MCO instead of the State. In theory, the MCOs would be apt to conservatively spend funds and more carefully monitor the behavioral health care services provided to consumers within its catchment area to ensure medically necessity and not wasteful, unnecessary services.

Also, in theory, if the mission of the MCOs were to provide top-quality, medically necessary, behavioral health care services for all Medicaid recipients in need within its catchment area, as the MCOs often tout, then, theoretically, the MCOs would decrease administrative costs in order to provide higher quality, beefier services, increase reimbursement rates to incentivize health care providers to accept Medicaid, and maybe, even, not build a brand, new, stand-alone facility with top-notch technology and a cafeteria that looks how I would imagine Googles’ to look.

Here is how Cardinal’s building was described in 2010:

This 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.

The MCOs are not private companies. They do not sell products or services. Our tax dollars comprise the MCOs’ budget. Here is a breakdown of Cardinal’s budgetary sources from last year.

Cardinals budget

The so-called “revenues” are not revenues; they are tax dollars…our tax dollars.

78.1% of Cardinal’s budget, in 2014, came from our Medicaid budget. The remaining 21.7% came from state, federal, and county tax dollars, leaving .2% in the “other” category.

Because Cardinal’s budget is created with tax dollars, Cardinal is a public company working for all of us, tax paying, NC, residents.

When we hear that Tim Cook, Apple’s CEO, received $9.22 million in compensation last year, we only contributed to his salary if we bought Apple products. If I never bought an Apple product, then his extraordinarily high salary is irrelevant to me. If I did buy an Apple product, then my purchase was a voluntary choice to increase Apple’s profits, or revenues.

When we hear that Cardinal Innovations paid $424,975 to ousted CEO, Pam Shipman, over and above her normal salary of $400,000 a year, we all contributed to Shipman’s compensation involuntarily. Similarly, the new CEO, Richard Toppings, received a raise when he became CEO to increase his salary to $400,000 a year. Again, we contributed to his salary.

A private company must answer to its Board of Directors. But an MCO, such as Cardinal, must answer to tax payers.

I work very hard, and I expect that my dollars be used intelligently and for the betterment of society as a whole. Isn’t that the purpose of taxes? I do not pay taxes in order for Cardinal to pay its CEO $400,000.

For better or for worse, a large percentage of our tax dollars, here in NC, go to the Medicaid budget. I would venture that most people would agree that, as a society, we have a moral responsibility to ensure that our most vulnerable population…our poorest citizens…have adequate health care. No one should be denied medical coverage and our physicians cannot be expected to dole out charity beyond their means.

Hence, Medicaid.

We know that Medicaid recipients have a difficult time finding physicians who will accept Medicaid. We know that a Medicaid card is inferior to a private payor card and limits provider choice and allowable services. We know that certain services for which our private insurances pay, simply, are not covered by Medicaid. Why should a Medicaid-insured person receive sub-par medical services or have more difficulty finding willing providers, while privately insured persons receive high quality medical care with little effort?  See blog or blog.

Part of the trouble with Medicaid is the low reimbursements given to health care providers. Health-care consulting firm Merritt Hawkins conducted a study of Medicaid acceptance rates which found that just 45.7 percent of physicians are now accepting Medicaid patients in the U.S.’s largest 15 cities and the numbers worsen when you look at sub-specialties.

The reimbursement rates are so low for health care providers; the Medicaid services are inadequate, at best; and people in need of care have difficulty finding Medicaid physicians. Yet the CEO of Cardinal Innovations is compensated $400,000 per year.

Cardinal has 635 employees. Its five, top-paid executives are compensated $284,000-$400,000 with bonuses ranging $56,500-$122,000.

Richard Topping, Cardinal’s new CEO, told the Charlotte Observer that “it doesn’t cut into Medicaid services.”

He was also quoted as saying, “It’s a lot of money. It is. You’ve just got to look at the size and the scope and the scale.”

In contrast, Governor McCrory is compensated approximately $128,000.  Is McCrory’s “size, scope, and scale” smaller than the CEO’s of Cardinal?  Is the CEO of Cardinal “size and scope and scale,” more akin to the President of the US?

“We are a public entity that acts like a private company for a public purpose,” Toppings says.  Each MCO’s Board of Directors approve salaries and bonuses.

Cardinal is not the only MCO in NC compensating its CEO very well.  However, according to the Charlotte Observer, Cardinal’s CEO’s compensation takes the cake.

Smokey Mountain Center (SMC) pays its Chief Medical Officer Craig Martin $284,000 with a $6,789 longevity bonus.

Four years ago, before the initial 11 MCOs, the administrative cost of the MCOs was nonexistent (except for the pilot program, Piedmont Behavioral Health, which is Cardinal now).  Implementing the MCO system increased administrative costs, without question.  But by how much?  How much additional administrative costs are acceptable?

Is it acceptable to pay $400,000+ for a CEO of a public entity with our tax dollars?

DMA, LIke the Titanic, Has Difficulty Changing Course

At a preliminary injunction hearing today, I realized that NC Division of Medical Assistance (DMA), like the Titanic, has difficulty changing its course.

It is my contention (and, I argue, the 4th Circuit’s position, as well) that a Managed Care Organization (MCO) does not have the authority, without DMA’s express authorization, to terminate, suspend or refuse to contract with any provider.  PERIOD.  I don’t care if the provider has phantom clients and is billing Medicaid 34/hr/day.  (People, I am obviously against Medicaid fraud. I am trying to make a point).

An MCO cannot, without express authorization from DMA, terminate, suspend, or refuse to contract with any provider.

Why do I think this? (besides the fact that this is a better position for my clients). And why do I think DMA is Titanic-like?

On or about May 10, 2013, the 4th Circuit published K.C. v. Shipman (“Shipman”).  The second sentence of Shipman says it all, “PBH [the MCO at-issue in this particular case], a local subdivision of the state that  manages the delivery of plaintiffs’ Medicaid services pursuant to a contract with NCDHHS.” Hmmmm…too legalese-like?

FYI: NCDHHS = NC Dept. of Health and Human Services (DHHS), which is the state agency that manages DMA, which is the division that manages Medicaid.  For a complete list of DHHS’ divisions, click here.

Shipman goes on to say, “states should enjoy both an administrative benefit (the ability to designate a single state agency to make final decisions  in the interest of efficiency) but also a corresponding burden (an accountability regime in which an agency cannot evade federal requirements by deferring to the actions of other entities).” (emphasis added).  Accountability, People!!!  That’s what I am talking about!

In other words, DMA, as the single state entity, cannot contract with a third-party and NOT carry the burden of supervising that third-party and insuring that the third-party follows federal law. Or even simpler, the single state entity cannot contract out of (or divorce itself from) federal laws and hide behind a contract.  Or even simpler, a teacher at a school cannot suspend a student without the authorization of the principal/school.

Yet, despite Shipman, MCOs are still contending that, “DMA cannot tell us what to do.”

Yet, despite Shipman, MCOs are still terminating, suspending and refusing to contract with providers without the express authority of DMA.

Yet, despite Shipman, TODAY, in my preliminary injunction hearing (the transcript of which will be a public record), the MCO’s attorney argued that (per case law from 1941) the MCO is an independent contractor (hence DMA having no control over the MCO).  The DMA attorney piggy-backed the MCO argument and pointed out that DMA had taken no action in this case (i.e., the provider’s Medicaid contract was NOT terminated according to DMA).  In other words, the teacher tried to expel a student from school without the school/principal authorizing the expulsion…or even backing it up.

It is as if Shipman came out May 10, 2013, and, here on now May 28, DMA (or its agents the MCOs) is struggling to change its course.  But, like the Titanic, DMA is too big, too heavy and too dinosaur-ish to move quickly adapt or change to comply with new federal law (although, even prior to Shipman, I argued it is absolutely obvious that an MCO is the agent of the state…it’s just nice to have some “auth-or-i-TIE” to back my argument).

“Iceberg!” (Shipman)

At the moment that someone yelled, “Iceberg,” what did the Titanic do?

1. Some say the officer in charge had a 30 second delay in giving the order to change the ship’s course after the spotting of the iceberg.  Apparently, he was dumbfounded for 30 seconds.  Can’t say I blame him.  Pretty scary stuff!  But, some say, that 30 second delay sunk the Titanic.

2. Some say when the iceberg was spotted, the steersman, Robert Hitchins, went into a panic and turned the Titanic the wrong way.  Remember, the Titanic was launched back when sailors were more used to sailing ships.  They learned on “Tiller Orders.”  If you want to go one way, you push the tiller the other way.  So it is not surprising that, in a panic, Hitchins would have resorted to Tillers Orders.

3. Some say the Titanic sank because it was the largest ship afloat.  The Titanic was only the second of three Olympic class ocean liners operated by White Star Line.  It carried 2,224 passengers.  Because of the Titanic’s massive size, the hull plates buckled inward along her starboard side and opened 5 of 16 watertight compartments to the sea.

4. Some say (this has nothing to do with sinking, but with loss of life), the Titanic lacked enough lifeboats.  The Titanic had enough lifeboats for 1,178 people, slightly more than 1/2 of the passengers.  Supposedly, the reason the Titanic had insufficient lifeboats was because of outdated maritime safety regulations.

Similarly, DMA, like the Titanic, has made some “sink-able” errors, but with administration committed to change, let’s hope we can correct the “sink-able” errors before the Medicaid behavioral health system sinks.  Because, instead of 2,224 passengers, Medicaid carries 1.5 million passengers.

Let’s review  the Titanic-like errors of DMA. For the sake of this blog, the “Iceberg!” moment was the publication of K.C. v. Shipman.

1. K.C. v. Shipman was published May 10, 2013.  It is now May 28, and DMA and the MCOs are still arguing in court that MCOs are not agents of DMA.  An 18 day delay is a bit more than a 30 second delay, but the similarity is there nonetheless.

2. A panicked turn the wrong way…Shipman came out and legal advocates for DMA and the MCOs instantly begin to argue, “Yeah, but…”  Yeah, but Shipman does not apply to providers…Yeah, but Shipman only applies to managed care, not fee-for-services…Yeah, but just because PBH is an agent of the state, it does not mean that all MCOS are agents. Folks, an agent is an agent is an agent.  A panicked turn the wrong way is merely a way of denial (and I am not talking about the river De-Nile).  And, some say, the panicked turn the wrong way sunk the Titanic.

3.  Largest ship afloat; large bureaucratic agency.  I do not have the data, but I am willing to bet that DHHS/DMA is one of the biggest NC governmental agencies.  In January, the State Auditor released a Medicaid audit.  According to the January audit, “[i]n SFY 2011, North Carolina Medicaid incurred administrative expenses of approximately $648.8 million which when compared to MAP spending of $10.3 billion produced an ADM/MAP percentage of 6.3 percent. This percentage was significantly greater than the ratio for states with comparable spending.”  With that much spending on administration, the agency can’t be small!  Like the Titanic, big things are hard to maneuver or change course.  The hull plates begin to buckle. Imagine an elephant going through an obstacle course at top speed…it just isn’t pretty.

4.   Like too few lifeboats, Medicaid’s mental health system has too few providers and too many wanting for a seat on the lifeboat.  Not to mention, the MCOs seem to have taken it upon themselves to insure there are too few providers by terminating Medicaid contracts, suspending Medicaid contracts and refusing to enroll providers.  Today, my client informed me (and, folks, this is not verified; it is hearsay) that during the time in which this provider’s certain Medicaid contracts were terminated by this one MCO, that this one MCO also terminated 27 other providers’ Medicaid contracts.  It’s as if, prior to setting sail, a person brought the captain an extra few thousand lifeboats, and, instead of putting the lifeboats on the ship, the captain said, “No thanks. We don’t have room.”  But as to Medicaid behavioral health, we have too many in need and not enough providers providing services.  (Again, this does not go to the reason of the sink-age  (I know that is not a word) of the Titanic, but rather to the number of deaths/recipients not receiving medically necessary mental health services.

In sum, today I decided that DMA is like the Titanic.  So big that both were/are very difficult to change its course.  Since Shipman, DMA has had an 18 day delay digesting the decision (and counting).  Since Shipman, DMA has panicked and turned the wrong way.  Since Shipman, DMA has shown it is just too big to move quickly (and it’s hulls may be buckling).  Since Shipman, DMA has proven too little providers and too many Medicaid recipients in-need is not a healthy combination.

Remember the saying, “[T]hose that do not learn from history are doomed to repeat it?”

People, the Titanic sank!