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'What we've done is nothing wrong': Former UMMS board member defends deals amid scandal

'What we've done is nothing wrong': Former UMMS board member defends deals amid scandal
Robert L. Pevenstein, shown in this 2003 file photo in Annapolis, says he and his former colleagues on the University of Maryland Medical System's volunteer board of directors have done "nothing wrong." (Barbara Haddock Taylor / The Baltimore Sun)

Robert L. Pevenstein, one of a handful of University of Maryland Medical System board members who resigned in the wake of a self-dealing scandal related to lucrative contracts their companies held with the system, said this week that he and his former colleagues have done “nothing wrong.”

“I know what was disclosed in our committees,” said Pevenstein, who chaired the financial and audit committees that oversaw the board’s operations. “What we’ve done is nothing wrong.”

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Pevenstein, a UMMS board member for 16 years before his resignation last month, said the board is not subject to state procurement laws — “we’re not part of the state” — and that members complied with internal rules governing conflicts by disclosing contracts internally and to the Maryland Health Services Cost Review Commission.

Pevenstein’s defense of his and other board members’ contracts comes amid a scandal that erupted when The Baltimore Sun reported in March that Pevenstein, then-Baltimore Mayor Catherine Pugh and seven other board members had contracts with the system they oversaw on a volunteer basis. The Sun this week revealed a no-cost contract with a 10th board member.

In a statement Friday responding to Pevenstein’s comments, interim President and CEO John Ashworth said contracts like those held by Pevenstein “will never happen again.”

“Let me be clear,” Ashworth said, “this organization has made mistakes and we are working to rectify those as quickly as possible.”

State and local leaders have denounced the business relationships, the General Assembly passed a new law to bar such self-dealing and Republican Gov. Larry Hogan signed it into law. Meanwhile, federal, state and Baltimore city agencies are investigating Pugh’s deals, and the medical system has hired a contractor for an internal review.

Pevenstein is the founder of technology companies and president of a consulting firm. He said his companies’ contracts with the system, some of which date back years, were legitimate.

He said UMMS executives approached him about a contract to provide consulting to the system, for which he reported earning more than $100,000 last year.

“It was at the request of the CEO and the CFO. They came to me,” said Pevenstein, referring to then-CEO Robert Chrencik, who recently resigned, and Chief Financial Officer Henry Franey. “They wanted me on retainer.”

He did not respond to a question about whether the arrangement was subject to competitive bidding.

UMMS officials have deferred questions about the specifics of contracts until its contractor’s review is finished. But Ashworth on Friday emphasized the system is “fully committed to an outcome that demonstrates transparency, firm accountability, and a higher-functioning organization.”

“Regardless of the findings, the financial arrangements, like the kind engaged in by Mr. Pevenstein and UMMS, that took place previously will never happen again,” Ashworth said. “There is nothing more important than the trust of those who depend on us, and it will be restored.”

UMMS grew out of the state-owned University Hospital. It is a private, nonprofit institution with more than a dozen hospitals and medical institutions across Maryland. It receives state funding, and the governor and other elected leaders appoint the voting members of the board. Hogan re-appointed Pevenstein in 2015.

Pevenstein’s resignation from the board was announced March 19 along with that of another board member — John W. Dillon — one day after Pugh’s resignation from the board. However, Pevenstein said he actually stepped down prior to Pugh for reasons that had nothing to do with what happened to her. He said he decided to step down because his term was set to expire this year anyway.

Dillon had reported on disclosure forms that his health care consulting firm, Dillon Consulting, generated more than $150,000 a year through a UMMS contract for “capital campaign and strategic planning.” He could not be reached for comment.

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Pugh, a Democrat, made $500,000 from the system on a no-bid contract for 100,000 copies of her self-published “Healthy Holly” children’s books. After the deals were revealed, she returned $100,000 to the system, took leave from her mayoral duties and then resigned last week from the office of mayor — a week after FBI and IRS investigators raided her City Hall office, two homes and other locations seeking documents about her dealings. They took copies of her “Healthy Holly” books and other items related to her service on the UMMS board, as well as her involvement with the nonprofit Maryland Center for Adult Training.

Since then, several other UMMS board members — including board chairman Stephen Burch — have announced their resignations from the panel. Several other members have taken leaves of absence.

State officials, including Hogan, blasted the UMMS board and its executives for allowing such self-dealing to occur. Democratic state Senate President Thomas V. Mike Miller criticized the board’s audit committee, saying that “apparently there was no oversight.”

In addition to beefing up restrictions on board members having business with the system, the new law passed by the Maryland General Assembly requires the entire board to be replaced by the end of the year.

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Pevenstein and his son have earned hundreds of thousands of dollars from the system over the past decade.

For instance, in 2017, Pevenstein reported in state financial disclosure forms that his firms earned more than $150,000 from UMMS contracts, and that he took in more than $108,000 on commissions.

Most of that came from commissions he took on a contract between UMMS and The Optime Group, which handles workforce management. The rest came from commissions on a system contract with Profit Recovery Partners, which focuses on cost reductions for big companies.

Pevenstein reported in disclosure filings that his son, Scott Pevenstein, made more than $100,000 from commissions related to UMMS employees enrolling in and paying for Aflac supplemental benefit insurance programs.

In 2018, in addition to his more than $100,000 consulting profit, Pevenstein earned more than $50,000 from his work for Optime and between $10,000 and $50,000 from his work with Profit Recovery Partners, according to his disclosure forms. His son again made more than $100,000, he reported.

Pevenstein said he had asked Chrencik about his profiting from his contracts with the system — “‘Is it OK if I make something?’” he said he asked — and that Chrencik gave his approval.

Chrencik could not be reached for comment.

Pevenstein said he earned his compensation.

“I worked and did stuff for that,” Pevenstein said. “I tried to bring in solutions and brought in solutions to save them lots and lots of money.”

He said he saved UMMS $12 million a year in “back office costs,” but provided no breakdown of those savings.

Pevenstein made his latest comments during a brief phone interview Wednesday.

He declined to answer questions about Pugh’s deal with the medical system, and wrote in an email Thursday that it “makes sense to forego any further discussion” pending the completion of the UMMS review by Nygren Consulting.

“I would like to reiterate that all of my activities for the University of Maryland Medical System (UMMS) were done upfront, above board and appropriately fully disclosed in accordance with UMMS policies,” he wrote.

He wrote that the work was “preapproved” by Chrencik and Franey “and/or directly performed at their request.” He also wrote that he recused himself from all meetings regarding “remuneration for UMMS executives.”

Board-approved bonuses for Chrencik are partly responsible for his receiving a 77 percent jump in compensation over four years, from $2.4 million in 2013 to $4.3 million in 2017.

Ashworth halted the awarding of bonuses for senior executives, typically approved by the board, pending the conclusion of Nygren’s review.

Pevenstein remains a member of the Board of Regents at the University System of Maryland.

Baltimore Sun reporter Doug Donovan and research librarian Paul McCardell contributed to this article.

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