Several of Maryland’s largest hospitals engage in business transactions with members of their governing boards while avoiding — for the most part — the type of political dealings that ensnared the University of Maryland Medical System in management turmoil this week.
The medical system has faced intense scrutiny since The Baltimore Sun revealed last week that a third of its 27-member board of directors have business dealings with the health care network.
UMMS CEO Robert A. Chrencik and four board members were put on temporary leave while an independent firm reviews the system’s contracting practices, including those that did not involve competitive bids. Three other board members have resigned, including Baltimore Mayor Catherine Pugh, whom the medical system paid $500,000 without a contract to purchase 100,000 of her children's books.
The General Assembly is contemplating more oversight of the medical center because of the financial support Maryland provides UMMS, unlike private hospitals. The most recent audit for UMMS shows that the state last year provided $18.2 million in support for health centers and $23 million for construction projects, equipment purchases and other capital programs.
House Speaker Michael Busch said Thursday that proposed reform legislation applies only to UMMS because of its quasi-public nature: The medical system’s board of directors is appointed by the governor; some state lawmakers are board members; and it receives millions in taxpayer funds.
The Baltimore Sun’s review of state disclosure records and federal tax forms for MedStar Health, LifeBridge Health, Mercy Medical Center, Greater Baltimore Medical Center and St. Agnes Hospital showed all have some dealings with board members.
GBMC said it always uses competitive bidding when awarding contracts.
LifeBridge Health officials said in a statement that board members with “conflicts may be required to be recused from any discussion where the potential conflict may influence their vote and are recused from any vote where a conflict may exist.” In addition, they said, an “audit and compliance committee also oversees conflicts of interest to ensure that there is no undue influence on any contract or vote.”
MedStar Health, which has seven hospitals in Maryland, reported business transactions with board members at five of its hospitals: Franklin Square Medical Center, Good Samaritan Hospital, Union Memorial Hospital and Harbor Hospital in the Baltimore area and St. Mary’s Hospital in Leonardtown in Southern Maryland.
Dr. P. Justin Tortolani, who serves on Union Memorial Hospital’s board and is director of MedStar’s spine program, reported receiving royalties of nearly $155,000 last year from contracts with two companies he is associated with.
At LifeBridge, relationships ranged from catering services with no reported value provided by Miss Shirley’s owner David Dopkin, a Sinai Hospital of Baltimore board member, to $9.2 million in leasing and construction services from the company of Thomas Obrecht, who serves on the boards of LifeBridge Health and Northwest Hospital Center Inc. In an email, Obrecht said he joined the board to use his experience in business and real estate to help guide “an organization focused on helping people in Baltimore and across Maryland.”
“I strictly follow the conflict of interest regulations and have always been transparent in my transactions with LifeBridge Health and other organizations,” he wrote.
The Maryland Daily Record first reported on some of MedStar’s and LifeBridge’s board dealings Thursday.
State disclosure forms filed by Johns Hopkins Health System Corp. showed no insider deals. But its tax forms showed the only political dealings among the hospitals.
The Hopkins system reported to the Internal Revenue Service in its annual tax forms that it gave a $6,250 “grant” to Pugh’s inaugural committee in the year ending 2017 and provided a $25,000 “grant” to the inaugural committee of Gov. Larry Hogan and Lt. Gov. Boyd Rutherford in the year ending 2015. Both of the grants were described as “promoting and advancing health care.”
Hopkins did not respond to a request for comment about the grants, instead issuing a statement that said: “Throughout our organization, we are vigilant about identifying and managing any potential conflicts that might arise.”
Pugh and Hogan do not serve on the Hopkins system’s board. But scrutiny of Pugh’s business dealings have increased after the Democratic mayor failed to disclose to the state ethics commission her $500,000 deal with UMMS while she served as a state senator on a powerful committee that approves funds for the medical system. She amended seven years of those forms last week after being contacted by The Sun about them.
UMMS also reported on its federal tax form covering the year ending in June 2015 that it had provided a $25,000 “grant” to the inaugural committee of Hogan and Rutherford.
Business deals between hospitals and board members are common and permissible as long as they are disclosed and board members who stand to benefit abstain from discussions or votes related to their interests, according to the American Hospital Association’s guide to board governance.
Board members are “not automatically disqualified from serving on a corporation’s board simply because he or she conducts business with the organization,” the guide states. “Conflicts of interest are not rare and the law in most states permits organizations to conduct business with their board members so long as certain preconditions are met to make sure that the organization’s interests prevail in the board’s decision-making.”
Tax-exempt hospitals are required to submit detailed annual reports to the IRS that disclose the identities, positions and compensation of top executives, board members and their highest-paid independent contractors. Nonprofits also are required to report any business transactions, grants, loans or other financial benefits that are provided to “interested persons” such as board members, according to IRS rules.
The state also requires hospitals to submit disclosure forms with the Health Services Cost Review Commission.
Before striking any deals with insiders, boards need “to investigate the purchase of goods or services, whether they are in fact needed, should have competitive bids, and otherwise above board,” said Paul Streckfus, editor of EO Tax Journal.