Gov. Larry Hogan and Senate President Thomas V. Mike Miller called Friday on the University of Maryland Medical System to put an end to any conflicts of interest in business deals for members of the system’s board of directors.
From the Senate dais, Miller — the powerful, long-serving Calvert County Democrat — called the hospital system’s actions a “huge disaster” for the state with board members “self-dealing, benefiting from their relationship on the board.”
Shortly afterward, Hogan, the Republican governor recently elected to a second term, said the board’s behavior is “not just unseemly, it is appalling, and I have called for an immediate and full review.”
The Baltimore Sun reported this week that the companies of nine members of the 30-member board had contracts with the system — including Baltimore Mayor Catherine Pugh, whose Healthy Holly LLC took in $500,000 in revenue selling self-published children’s books to the medical system.
Miller promised to address the board’s actions this legislative session, without endorsing a specific proposal. The Senate is considering a bill proposed by Baltimore Sen. Jill P. Carter that would prohibit such business arrangements.
“We’re going to solve that problem,” Miller told senators. “You’re going to be on top of it.”
The calls for reform came as further investigation by the Sun showed Pugh did not disclose her deal with the medical system to the ethics commission when she was a state senator.
She filed amended forms for seven years Friday night with the state ethics commission to report her company Healthy Holly LLC. She established the company in 2011 to sell the books, which she says the hospital system distributed to city schools and daycare centers. Pugh did report that she owned a firm called Catherine E. Pugh & Co. and her board seat with the medical system.
The medical system has said it spent a total of $500,000 to purchase 20,000 books in each of the following years: 2011, 2013, 2015, 2017 and 2018. A review of different forms the state’s Health Cost Review Commission had on record from Pugh between 2010 and 2018 only turned up two reports that showed the revenue from the sale of the books.
On Friday night, a spokesman for Pugh supplied six years of forms he said she filed with the state health commission that were not in the state files.
A city schools spokeswoman confirmed that the system received copies of Pugh's book but did not have any documentation showing how many were distributed or when they were distributed. The school system didn’t ask for the books and they were not used for instruction. Anne Fullerton said she recalls district officials delivering them several years ago to city elementary schools to give to students.
In addition to Pugh, several current and former public officials are voting members of the board, including former Baltimore County Sen. Francis X. Kelly, whose insurance company has been awarded millions by the hospital system.
Seven other board members reported to the state having a financial interest in companies doing business with the hospital system for services ranging from consulting to pest control.
As Senate president, Miller has a position on the board, which he has delegated to the Senate’s budget committee chair. He said he’d consider an appointee with different expertise if the system doesn’t resolve any conflict of interest issues.
“If they don’t, my representative is going to be a former U.S. attorney on that board,” Miller said.
Hogan said he, Miller and House Speaker Michael Busch are demanding a meeting with medical system leaders to “provide answers regarding these arrangements.”
Members of the 30-person board are appointed by Maryland’s governor to five-year, volunteer terms. But board members remain on the body past the end of their terms unless the governor appoints a replacement. They oversee the network’s hospitals and health systems across the state.
Busch, who sits on the board, said the individual deals board members entered into with system management were not brought up at meetings or disclosed to other board members.
Robert Chrencik, the system’s CEO — who receives $4.2 million in compensation authorized by the board — has defended what he described as appropriate business relationships. While some were competitively bid, others were “sole source” contracts, he said.
“These contracts pass through our audit and compliance committee and then that’s reviewed in aggregate at one of our full board meetings,” he added.
Carter said she began looking into the issue when a minority contractor who works in her district told her he was unable to win work with the system.
“He had a suspicion that there was something wrong with the procurement process,” said Carter, declining to name the person.
Carter said she was surprised to learn from the Sun’s reporting that the mayor was among the board members with a business deal with the system.
“It’s a problem with quasi-public entities; they escape accountability,” Carter said. “It’s clear that there’s a real problem; it was never about the mayor.”
Of the business deals between board members and the hospital system they govern, Kelly’s is among the most lucrative.
But his firm argued its arrangement was different from those of some other members, in that it was fully disclosed to the Internal Revenue Service and the Maryland Health Services Cost Review Commission.
From 2010 through June 30, 2018, Kelly & Associates Insurance Group generated about $16 million in revenue from commissions, consulting fees and administrative costs it earns from managing insurance and benefits for the system’s hospitals and medical centers, according to the annual disclosure forms it files with the commission.
Approximately $12 million was collected over the last five years, according to the forms reviewed by the Sun. The additional $4 million is based on estimates provided by company executive John Kelly, who is the son of Francis Kelly.
The older Kelly has helped the hospital system grow into a network of more than 14 academic, community and specialty hospitals that generated $4.4 billion in 2018.
John Kelly said the company worked for various hospitals that are now part of the system before UMMS acquired them, including the former North Arundel Hospital (now Baltimore Washington Medical Center), Maryland General (now called UMMC Midtown Campus) and Mt. Washington Pediatric Hospital, which is now operated jointly with Johns Hopkins Medicine. Even though the senior Kelly served on the UMMS board, the company earned the business it generated with the hospitals when they were independent, John Kelly said.
The company has held onto managing the complex health insurance operations for decades because it delivers costs savings across the entire system,” he said.
Nonprofit experts say that hospitals can conduct business deals with board members as long as the relationships are fully disclosed in federal tax forms and in mandated state disclosures and that the board members abstain from participating in any decisions that would favor their companies.
“Senator Kelly abstains from all discussions and votes relative to any business that the University of Maryland Medical System maintains with Kelly & Associates Insurance Group,” he wrote on his state disclosure forms.
But John Kelly said state officials were right to be concerned about board members who do not fully disclose fiscal relationships.
“That’s a problem,” he said. “We don’t want to be painted with a broad brush. We are proud of the things we do. We bring value to the system. We have nothing to hide.”
Baltimore Sun reporter Talia Richman contributed to this article.