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Maryland legislative audit to evaluate coronavirus spending, including purchases of tests from South Korean firm

A state legislative audit will evaluate the Hogan administration’s acquisition of COVID-19 tests from a South Korean company, plus the purchase of masks and ventilators from a politically connected vendor, the state’s acting health secretary said Wednesday.

The scrutiny by Department of Legislative Services auditors is part of an overall examination begun in June of millions of dollars in emergency procurements during the coronavirus pandemic, officials said.

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Additionally, the department said in a letter Tuesday that it planned to expand its inquiry and produce a “special report” on the issue. It said its findings likely won’t be available until after the 2021 General Assembly session, which ends in April.

Del. Shane Pendergrass, a Howard County Democrat, and Sen. Paul Pinsky, a Prince George’s County Democrat, requested the audit of the state Department of General Services on June 22. They asked the legislative services agency to review emergency purchasing in general and the purchases of the tests from Lab Genomics and personal protective equipment and ventilators from Blue Flame Medical in particular.

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Because the state continues to make emergency purchases related to the pandemic, and because other agencies in addition to the Department of General Services are involved in doing so, the legislative services department will expand its work beyond an agency audit to produce the special report, Legislative Auditor Gregory Hook wrote Tuesday to Pendergrass and Pinsky.

Acting Health Secretary Dennis Schrader discussed the audit and the South Korean tests Wednesday in an appearance before the state Board of Public Works.

The first batch of half a million South Korean tests, which were purchased in April for $9 million, were returned to the manufacturer after officials determined they were slow to reveal results, he said. About 3,500 of those tests were used before the batch was sent back to the manufacturer, Schrader said.

“The formula we had gotten was an early formula, and was not consistent with what the FDA [Food and Drug Administration] had on its website,” Schrader said.

The state had to spend an additional $2.5 million to get a new batch of 500,000 tests. Since then, it has used about 430,000 of them, Schrader told the board.

State Comptroller Peter Franchot, a Democratic member of the board, pressed Schrader over that cost.

“Why did we pay $2.5 million more than we originally agreed to?” Franchot asked.

“We were under pressure and we were negotiating with the manufacturer,” Schrader said. “And the manufacturer was not willing to just replace the tests. They felt they were entitled to some remuneration.”

The second batch of tests also drew attention. In September, nursing homes raised questions about a spate of false positive results. The issue was reported to the state’s Office of Health Care Quality, which found several problems with how a University of Maryland lab was processing the test.

“There was no indication that there was a problem with the tests,” Schrader said.

“There are a lot of different reasons for why a test could be a false positive,” Schrader said. “It could be how the sample is collected. ... It could have been how they were handled at the lab. So, there were a number of recommendations to the UMB lab.”

The lab has stopped processing the tests. The state has entered into a $42.1 million contract with CIAN Diagnostics in Frederick to process them instead.

Franchot raised a concern about the cost of processing these tests. Schrader said CIAN knocked $5 per test off the processing price, since the state provides the tests, to lower the cost to $93. The state is paying many other labs, which use their own tests, $90 to $100 per test, he said.

In the case of Blue Flame Medical, the state agreed to pay $12.5 million for N95 masks and ventilators and gave the company half the money upfront. The company’s founders were Republican political consultants and fundraisers who hadn’t worked in the medical supply field before the pandemic. State officials said they had to adjust the contract after the supplies were delayed. The state settled the dispute with the vendor in October.

Pendergrass said Wednesday that requesting the audit was “exactly the right thing to ask.”

“In hindsight, it’s even more clear how important it is to have asked those questions,” she said.

In his letter Tuesday, Hook noted that his team has “experienced some difficulty in obtaining timely information” from state agencies for the inquiry, including the health department.

“We have spoken with legal counsel to the General Assembly about difficulties in gathering information and have reason for hope in a general improvement in state agencies’ cooperation as historically has been the case,” Hook told the legislators.

Health department spokesperson Charlie Gischlar said Thursday that there was no lag in obtaining information that was requested by the legislative auditors.

“The Maryland Department of Health (MDH) has and will continue to cooperate fully with the legislative auditor,” he said.

Democratic Sen. Clarence Lam of Howard County, chair of the Joint Committee on Audit and Evaluation, said he hoped that was “only a temporary blip in the department being transparent to state auditors.”

“We need to see how these contracts were handled during the pandemic,” he said.

Despite the necessary speed for procurement during the pandemic, Lam said he feels there was a lack of transparency regarding decisions.

“We’re hoping to understand how the taxpayer money was spent. We’re not faulting anyone unless there was malfeasance. We need to learn lessons so the legislature can put proper guardrails in place if we need to undergo emergency procurements again.”

Baltimore Sun reporter Meredith Cohn contributed to this article.

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