Review of Maryland hospital network finds more no-bid contracting, faults former CEO for 'Healthy Holly' deal

Baltimore Sun |

--A review of contracts the University of Maryland Medical System had with members of its board of directors and their companies revealed more no-bid and self-dealing practices -- including that executives pressured staff to use board members' products -- and blamed former CEO Robert Chrencik and other system leaders.

"Many of these contracts were not competitively bid, were not declared to be necessary by the board or senior leaders, and, if vetted, were without full transparency to the entire board," concluded the review by Nygren Consulting, which was hired and paid by the 13-hospital network.

The report released Wednesday reviewed business deals with nine board members and found:

* Seven of nine of the deals were entered into without competitive bids;

* In four cases, the board of directors was not properly informed of the business relationships;

* The board member who was in charge of auditing financial dealings himself had a no-bid deal;

* In at least two instances, staff felt pressured to promote the use of software from companies that benefited individual board members financially.

The report focused its harshest criticism on deals with four board members that hospital officials described as "personal services" contracts: Former Baltimore Mayor Catherine Pugh, who was paid $500,000 for her self-published children's books; Robert Pevenstein, a consultant who was paid more than $100,000 a year; John W. Dillon, who was paid $892,000 since 2013 for providing "healthcare consulting services," and Dr. Scott Rifkin, who runs a health care software company.

The system commissioned the review in response to revelations in The Baltimore Sun, beginning in March, about the contracting practices.

"These arrangements reflect a pattern by management of making decisions without full board approval," the report found of members' contracts. "The board was insufficiently informed and, for the most part, had no specific advance knowledge that would have caused the board to consider alternatives that would have forestalled or eliminated perceived and real self-dealing."

Since the scandal broke, Pugh has resigned as mayor and Chrencik and four other system officials quit: Megan Arthur, its primary lawyer; Jerry Wollman, chief administrative officer; Christine Bachrach, chief compliance officer, and Keith Persinger, chief performance improvement officer. The Democrat-controlled Maryland General Assembly also passed legislation this spring to reform the board and Republican Gov. Larry Hogan signed it into law.

The report said that members of UMMS management appeared "to have taken upon their own authority the right to enter into contracts with board members that resulted in personal gain to the director."

"Those personal contracts violated policy. They never should have happened," acting CEO John W. Ashworth III said Wednesday in an interview with the Sun. "It won't happen in the future."

As the report was released, the system's flagship hospital, University of Maryland Medical Center, dropped plans to seek more revenue from patients. It submitted a request in January to state regulators that would have generated about $75 million from patients who sought services at the downtown Baltimore hospital, or a nearly 5 percent boost in revenue. The Sun reported last week that the system was earning above-average profits even as the medical center sought the increase. On Wednesday, it withdrew the application.

Nygren reviewed system documents and interviewed about 60 people, including current and former board members, executives and staff.

According to the review, Chrencik entered into an agreement to buy Pugh's "Healthy Holly" books without approval from the board.

"Our review has determined management did not present the book purchases to the board of any committee for prior approval," consultants David Nygren and Kevin LeGrand wrote in the report. "The purchase was not subject to any competitive bidding process."

The system's payments to Pugh are the subject of criminal investigations by the FBI and the Office of the State Prosecutor.

Pevenstein, who was chairman of both the board's audit and finance committees, had several deals with the system, including for-profit relationships for the firms Profit Recovery Partners and Optime, as well as the consulting deal.

"Most board members stated they had little awareness of Mr. Pevenstein's multiple financial arrangements either directly with UMMS or with entities that did business with UMMS," the report states.

The review found Chrencik and then-Chief Financial Officer Hank Franey made the decision to enter into the contract with Pevenstein without consulting the board. Franey served in senior leadership positions at UMMS since 1992; he transitioned from CFO to a senior advisor role in March, before the scandal broke.

"It was reported that Mr. Pevenstein and Mr. Persinger exerted pressure on various departments to implement software from Optime, a firm with which Mr. Pevenstein had a financial relationship," the report states. "Staff on whom the pressure was reportedly exerted felt they could not reject Mr. Pevenstein's and Mr. Persinger's insistence, even though they questioned appropriateness of the director's influence and the merits of the business transaction."

Coverage of University of Maryland Medical System board deals and former Baltimore Mayor Catherine Pugh's "Healthy Holly" books »

Moreover, the review found, "interviewees reported some difficulties with the implementation" of Pevenstein's software.

Dillon was paid hundreds of thousands for helping to obtain donations to system hospitals on the Eastern Shore; the report noted that "fundraising is an expectation of all volunteer, nonprofit directors."

Rifkin, the founder of Real Time Medical Solutions, provided his software for free to the medical system, but the review found he sought to leverage the relationship to grow his company.

"Certain members of the staff reported that they felt compelled to implement Real Time software and to engage in promoting it to skilled nursing facilities," the review found. "A letter from UMMS encouraging operators of skilled nursing facilities to subscribe to Real Time software was sent in ."

The pressuring of staff to use products associated with board members' companies will "not be tolerated," Ashworth said.

In an interview, Rifkin said he never intended to make money off his relationship with UMMS and didn't seek to influence anyone in the system to push his software on other care providers.

From 2010 to 2018, a company owned by former state Sen. Francis Kelly, a longtime and influential board member, generated about $16 million in revenue for managing insurance and benefits for UMMS and some of its affiliate hospitals, according to disclosures with the Maryland Health Services Cost Review Commission and estimates by company officials to the Sun.

"It does not appear that the services provided by Kelly Benefit Strategies have been rebid or marked to market since 2012," the report stated.

However, the review found the company provided "a fair market value" for its work. Still, the report stated that the system would seek bids going forward for those services.

"UMMS plans to extend the contract by one year while an RFP process is conducted," the report said. A request-for-proposal process is one that solicits bids from potential contractors.

On Wednesday, the UMMS board voted to ask four members who took voluntary leave to return: Kelly; August J. Chiasera, an executive with M&T Bank, which has contracts with the system; James A. Soltesze, CEO of a civil engineering firm that had a contract with the system, and Walter A. Tilley Jr., CEO of Home Paramount Pest Control, which had a contract with the system.

The "business relationships" of those board members "will be competitively bid under stringent guidelines," UMMS said in a statement.

The UMMS board hired Nygren, a consulting firm based in Santa Barbara, California, in April to document and review contracts awarded to board members. The firm was charged with evaluating the system's policies and procedures related to conflicts of interest and contracting. UMMS declined to say how much it paid for the report.

It also made recommendations on how the board can better govern the system, which generates $4.4 billion in annual revenue. They included that the hospital network should adopt a new conflict-of-interest policy -- as the system did last month -- barring it from granting sole-source contracts to board members or their businesses. The new policy also precludes it from having any business with certain board leaders.

Meanwhile, a team of state auditors has begun a forensic examination of the medical system, as mandated by state legislators under a new law. Its audit is distinct from the Nygren review, and designed to be more robust, according to legislators, who said they wouldn't be satisfied with an internal review by UMMS or the company it hired.

The law also requires board members to resign by the end of the year. Hogan appointed 11 new members Wednesday.

In a separate action, the UMMS board elected new leadership Wednesday morning. James "Chip" DiPaula Jr. is the new chairman and Alexander Williams Jr. will be vice chairman. They'll serve in those roles for the remainder of the year.

DiPaula is a former state budget secretary and chief of staff to then-Gov. Robert L. Ehrlich Jr., a Republican. Williams is a retired federal judge.

In a statement released by UMMS, DiPaula said members of the board "regret the actions and poor decisions which have jeopardized confidence in the system."

Baltimore Sun reporters Meredith Cohn, Kevin Rector and Pamela Wood contributed to this article.

luke.broadwater@baltsun.com

twitter.com/lukebroadwater

___

(c)2019 The Baltimore Sun

Visit The Baltimore Sun at www.baltimoresun.com

Distributed by Tribune Content Agency, LLC.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Comments

Watchlist

Symbol Last Price Change % Change
AAPL

     
AMZN

     
HD

     
JPM

     
IBM

     

What Is Petrolithium?

MGX Minerals explains the advantages of petrolithium and how they are helping to solve future problems today.