‘Hard lessons’: Cardinal Innovations has seen big changes — and braces for more

Feb. 12--It's been just over a year since new management arrived at Cardinal Innovations, a Charlotte-based health care group whose extravagant spending and inflated salaries led to an unprecedented state takeover.

"In the past year, we've learned some hard lessons and made big changes," CEO Trey Sutten said in a report marking the anniversary.

Cardinal is the largest of seven N.C. organizations that oversee treatment of people with mental health issues, developmental disabilities and substance abuse problems. Known as Local Management Entity/Managed Care Organizations, or LME/MCOs, they contract with the state's Department of Health and Human Services to serve some of North Carolina's neediest residents. Cardinal, which oversees treatment programs in Mecklenburg and 19 other counties, had a 2018 budget of $853 million.

Cardinal still has its critics. It also faces big challenges in North Carolina's changing health care landscape. This month the state announced the start of an effort to move all its 2.1 million Medicaid recipients into privately run managed care programs. Cardinal eventually will have to compete with private companies.

But some say they like the changes they see at Cardinal a year after getting a new board and new management.

"I see the organization becoming more well-grounded in their core mission," says former Sen. Tommy Tucker, a Union County Republican and frequent critic of the old Cardinal. "They also realize that they continue to be under a microscope from the public and DHHS. So they're doing everything they can to make the right moves."

'Unreasonable spending'

Tucker was among the earliest critics of Cardinal and its then-CEO Richard Topping over what they saw as excessive costs.

The criticism accelerated in May 2017 when state Auditor Beth Wood issued a report detailing Cardinal's "unreasonable spending" that included two taxpayer-funded retreats at a luxury Charleston hotel that cost a total of $133,155, with a $2,127 bar tab. There was also an $18,000 Christmas party, in-state charter flights for executives and tens of thousands of dollars in questionable credit card payments.

The audit identified $1.2 million in unauthorized salary to Topping. In 2017 he made $635,000. His benefits included an annual $12,000 car allowance, payment for gas with the company credit card and monthly car detailing.

In November 2017, Cardinal's old board fired Topping and paid him and three other executives $3.8 million in severance. That's when DHHS came in, fired the board and took over the Charlotte-based organization.

"The culture starts at the top with leadership," DHHS Secretary Mandy Cohen said at the time. "Obviously we went into Cardinal because we saw a pattern of continued noncompliance with the law."

Sutten, 42, said he's tried to change what he calls a "culture of fear" where employees felt constrained by administrators.

"I would say by and large it's gone," he told the Observer. "I think there was a culture of fear where folks weren't pushing back, weren't asking questions, weren't sharing their perspective . . . You've got to push one another to come to the best conclusions, the best ideas. And that wasn't happening before. I think it was a far more command and control structure. What I and the rest of the executive team are pushing for is the best idea wins."

Three lawsuits stemming from the 2017 controversies are still pending in court.

Doug Sea, who has represented Cardinal clients as an attorney with the Charlotte Center for Legal Advocacy, said he's seen a difference.

"The culture is different," he said. "They have some new people that seem more committed to patients as opposed to fund balances. Starting from that baseline, there's no question that they've improved."

Measuring success

Paula Yost disagrees.

She's a lawyer who chairs the Cabarrus County Child Protection and Fatality team, a group of professionals focused on child welfare. She believes even under new leadership, Cardinal has assigned children the wrong level of care, posing a risk to the child as well as to the community.

"Everything about it is a mess," she said of Cardinal. "They're grossly under-serving people."

Sutten said the dispute with Yost stems from different clinical philosophies: What level of care is best for the child? He acknowledges that Cardinal could strengthen its network of service providers but said state budget cuts have made that harder.

Rep. Verla Insko, a Chapel Hill Democrat who once chaired the mental health oversight committee, said while its administrative costs still appear too high, Cardinal seems to making efforts to improve. But she said there are few benchmarks by which to measure progress, such as the number of people who don't end up in emergency rooms.

Sutten said Cardinal has done surveys and gathered anecdotal data from the communities it serves. For example, more than 200 of its clients have moved out of group homes into communities over the past year. "But frankly we need to do a better job on that," he said of measuring success. "We don't have a lot of baseline data."

Corye Dunn, director of public policy for Disability Rights N.C., said there are still systemic problems in providing appropriate care. She said she's concerned about fixing those ahead of the system's wholesale privatization.

"We're grateful that the distraction of scandal has seemed to be resolved," Dunn said, "so that we can all focus on making the system work for people with behavioral health needs especially as we head into Medicaid transformation."

Challenges ahead

This month DHHS awarded five health insurance organizations contracts totaling $6 billion a year to provide health care under a privatized state Medicaid program. The General Assembly authorized the switch to managed care in 2015 as a way to control rising costs. The new program will begin phasing in in November.

About 500,000 of the 2.1 million Medicaid patients, those with more severe mental or physical disabilities, will continue to need care from groups such as Cardinal. Those groups will create "tailored plans" that take responsibility for a patient's overall health. Sutten said Cardinal will have to expand its repertoire of services to include prescription benefits and other health care needs.

"From my perspective it's exciting," he said, "because we haven't been in a position to care for the whole person."

That change is still a couple of years away. And for four years after that, LME/MCOs such as Cardinal will have the playing field to themselves.In 2025, other nonprofits will be able to compete.

For Sutten, that's a challenge.

"We've got to get faster, we've got to get better," he said. "We've got to get more customer service-focused and we've got to have the provider network to support the needs of our members. They'll be able to vote with their feet."

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