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Acting UMMS CEO freezing millions in executive bonuses pending review of insider contracts

The acting chief of the University of Maryland Medical System is halting the award of bonuses for senior executives that are typically approved by the board of directors until an independent review examines whether the hospital network’s embattled governing body properly followed its policies.

“I have made the decision to not distribute performance-based corporate system senior executive bonuses until the independent review is complete and results interpreted,” acting CEO John Ashworth said in a statement responding to questions about bonuses from The Baltimore Sun.

The UMMS board awarded $2.7 million in bonuses to seven top executives in 2017, the most recently reported year.

Maryland lawmakers who devised legislation to reform the board have expressed concern about whether members whose companies have medical system contracts voted to award lucrative bonuses for executives who signed off on those deals.

Over the weekend in Annapolis, members of the House Health and Government Operations Committee grilled UMMS executives about salaries and bonuses as the General Assembly completed work on a bill to replace the current board at the end of the year. The legislation followed reports that nine members or their businesses held contracts with the medical system.

“It’s extremely troubling,” said Sen. Jill P. Carter, a Baltimore Democrat who helped draft the reform legislation. “No bonuses or salary increases should happen there until there’s an audit. They’ve completely destroyed any type of public confidence or trust.”

Board-approved bonuses for longtime CEO Robert Chrencik have been part of why he received a 77 percent jump in his total compensation over four years — from $2.4 million in 2013 to $4.3 million in 2017.

Chrencik’s bonuses during the period grew faster than his base pay. His $1.1 million bonus in 2017 nearly matched his $1.3 million pay that year. His total compensation included the value of a deferred $1.9 million contribution to his retirement plan.

Bonus growth for the other six highest-paid UMMS executives over the same period also outpaced raises to their base pay — although Chrencik’s bonus made up 40 percent of all the extra pay awarded to those top employees in 2017.

As CEO, Chrencik had to initiate or at least sign off on the contracts the system was awarding to its board members.

UMMS board chairman Stephen Burch said only board members without conflicts serve on a committee that decides executive pay and bonuses.

But, Burch added, the full board ultimately votes to approve or reject those decisions.

It remains unclear whether members with conflicts participated in those final votes or whether they recused themselves. The deliberations are recorded in board meeting minutes, but UMMS has not released such reports while the independent review is underway.

Scrutiny of the board started last month after Carter introduced reform legislation and The Sun reported that several prominent board members have earned millions for their companies through deals with UMMS — including $500,000 the medical system paid Baltimore Mayor Catherine Pugh for her “Healthy Holly” children’s books.

Reaction was swift and fierce. The board placed Chrencik and four board members on temporary leave while the internal review continues. Three board members with contracts resigned — including Pugh, who last week announced she was taking a temporary leave of absence as mayor due to illness as two investigations into her book deals got underway. The City Council on Monday called on her to resign.

Outraged by the revelations, the Democratic leaders of the General Assembly and Republican Gov. Larry Hogan agreed to fast-track reform legislation that will terminate the terms of all UMMS board members by the end of the year. The board members, who sit on the board as unpaid volunteers, would have to apply for reappointment if they wanted to return. The bill also will prohibit board members from getting no-bid contracts from the system, and require them to submit financial disclosure forms to state leaders in Annapolis, not just regulators.

Burch said board members decide bonuses using a strict formula linked to goals tied to the medical system’s performance.

“It’s not based on whether you like someone or not like someone,” Burch said. “If they meet the formula, they get a bonus.”

Chrencik, a 35-year veteran of UMMS, has been president and CEO since 2008. Over the past four years the medical system’s finances have boomed under his helm.

Gross revenue has increased 25 percent from nearly $4 billion in fiscal year 2014 to nearly $5 billion in fiscal year 2018. More impressively, profits over that period quintupled — from $24 million to $119 million, according to hospital annual reports.

The board has rewarded him.

Five years ago his base pay was $1.16 million and his bonus was $995,000. In 2017, his base pay jumped 8.5 percent to $1.26 million while his bonus increased 11 percent to $1.1 million

High pay is not “a worry of mine in isolation,” said Barak Richman, a Duke University business administration professor. “If certain compensation packages are imbued with self-dealing concerns, then yes, that’s problematic,” Richman added.

Other experts expressed surprise that such a large medical system finds itself in a controversy involving contracts awarded to its board members or businesses associated with them.

Two board members who resigned — John W. Dillon and Robert L. Pevenstein — both reported in mandatory disclosure forms filed with state regulators that their companies held contracts with UMMS. Dillon Consulting reported making more than $150,000 a year. Pevenstein reported his technology business also was paid more than $150,000.

Other board members with contracts who are currently on leave are August J. Chiasera, Francis X. Kelly, James A. Soltesz and Walter A. Tilley Jr. Tilley’s Home Paramount Pest Control reported receiving $160,000 last year for pest control services. And Kelly reported his insurance company took in about $16 million for managing health insurance benefits for the system’s employees.

“I’m surprised that in 2019 this is still being discussed,” said Fredric J. Entin, former general counsel to the American Hospital Association and a consultant based in Chicago.

Entin said policies against conflicts for board members have become more stringent over the past decade since he helped to write the AHA’s Guide to Good Governance for Hospital Boards.

He said it was unusual not only that the entire UMMS board wasn’t formally notified that fellow members have contracts, but that they were awarded contracts at all. Such deals were more common over a decade ago, Entin said, but most boards have moved away from that entirely.

Boards in recent years have more aggressively terminated contracts with insiders or let them expire and sought bids from companies without conflicts, he said.

While state lawmakers have expressed concern that a conflicted board could be influencing bonuses, experts said total compensation for UMMS executives does not appear out of line compared to other similarly sized nonprofit health systems that include academic hospitals.

For example, Delos “Toby” Cosgrove, CEO of the Cleveland Clinic system, which includes 12 hospitals and has $8.4 billion in operating revenue, took in $7.6 million in total compensation in 2017. And Robert C. Garrett, CEO of Hackensack Meridian Health, with 14 hospitals and $5.5 billion in revenue, was paid $4.5 million.

The Maryland system has 13 hospitals and had $4.4 billion in revenue last year.

And in Maryland, other medical system chief executives are paid more than Chrencik. For instance, MedStar Health’s Kenneth Samet earned $7.7 million in the most recently reported year. In addition to his $1.7 million base pay, Samet received a $3.8 million bonus.

Donna L. Jacobs, a senior vice president with UMMS, told lawmakers over the weekend that the hospital network generally tries to keep executive pay in the middle range for compensation in the hospital industry.

“The board engages in outside consultants to evaluate what the salaries should be,” she said. While Chrencik’s compensation “sounds like a big number, it is middling or thereabouts within this industry.”

Del. Nic Kipke, an Anne Arundel Republican who is House Minority Leader, supported a freeze for bonuses until after the consultant’s audit. But he also said he wants to review salaries and bonuses among other hospital executives to make sure money is being used for patient care first and not lavish pay.

“We need to take a look statewide at all hospitals and hospital systems,” Kipke said. “Because in my opinion the salaries and compensation are outrageous.”

Ashworth said that during the freeze, executives will still receive cost of living raises of 1 percent to 2 percent.

Baltimore Sun reporter Meredith Cohn contributed to this article.

ddonovan@baltsun.com

twitter.com/dougdonovan

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