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University of Maryland Medical System pays members of volunteer board hundreds of thousands in business deals

Nine members of the University of Maryland Medical System’s Board of Directors — including Baltimore Mayor Catherine Pugh — have business deals with the hospital network that are worth hundreds of thousands of dollars each, a review by The Baltimore Sun has found.

Members of Maryland’s business and political elite hold unpaid, voting seats on the nonprofit system’s 30-member board. They govern more than a dozen hospitals that bring in more than $4 billion annually in revenue.

But as they oversee the hospitals’ work, about a third of appointed members receive compensation from the medical system through contracts with their businesses. They provide goods and services to the system, ranging from consulting to pest control and civil engineering, according to financial disclosure forms reviewed by The Sun.

The state Senate’s Finance Committee is scheduled to hear testimony Thursday afternoon on legislation that would make it illegal for board members to profit from contracts with the hospitals they govern.

Sen. Jill P. Carter, a Baltimore Democrat, sponsored the bill. She argues there need to be strict controls over how business is conducted at taxpayer-backed hospitals.

If board members benefit from side deals with the hospital system, they could be less likely to scrutinize corporate spending with an eye toward keeping costs low for patients, Carter said. And hospital management could feel pressure — even implicitly — to give work to a board member’s firm, rather than looking for other options, she said.

Carter said her bill is designed to bring about a “renewed commitment” to the “best practices of public and private service to the University of Maryland Medical System.”

More: Baltimore Mayor Pugh says $100,000 book deal with University of Maryland Medical System was aboveboard »

Carter’s bill would bar board members from having a financial interest in a business that is negotiating a contract, has a contract or is a subcontractor on a contract with the system. It also would bar members from “intentionally using the prestige of office or public position for that member’s or another’s private gain.”

The bill also would require members to file financial disclosure statements with the State Ethics Commission, which has a searchable, online database. The board currently files financial disclosure forms at the Maryland Health Services Cost Review Commission; they are not available online.

The University of Maryland Medical System opposes the legislation.

Michael Schwartzberg, a spokesman for the medical system’s management, said the contracts are legal and fully disclosed. Each board member fills out forms detailing revenue greater than $10,000 for their companies from the medical system.

Schwartzberg argued that if the legislation were to pass, board members likely would resign — causing the board to lose expertise.

“The UMMS Board of Directors is comprised of incredibly talented individuals, many of whom are preeminent in their fields,” he wrote in a statement. “Similar to other private sector boards, UMMS benefits greatly from the board’s ongoing governance, business counsel and objectivity. The system has a consistently enforced Conflict of Interest Policy and complies with all financial disclosure requirements that are required of every hospital in Maryland.”

Moreover, he argued, the legislation would block hospital leaders from serving on the board, since they are paid by the medical system. The bill “would deprive UMMS of expertise, and even preclude essential, employed administrative and clinical leadership from serving on its board.”

The system was created in 1984 when the state-owned University Hospital became a private, nonprofit organization.

But it continues to receive taxpayer money, including $50 million for the expansion of The University of Maryland Medical Center.

In addition to Pugh, several current and former public officials are voting members, including House of Delegates Speaker Michael Busch; state Sen. Nancy King, who chairs the powerful Budget and Taxation Committee; and James T. Smith, a former Baltimore County executive who is one of Pugh’s top aides. Former Baltimore County Sen. Francis X. Kelly, former Del. Bruce Poole and former federal judge Alexander Williams Jr. also sit on the board.

The voting members have been appointed by Maryland governors. There are also six ex-officio members who are high-ranking university system and hospital officials.

Kelly — who owns an insurance company — reported receiving income from hospital sources. In 2017, Kelly reported his company generated more than $1.6 million in revenue from system contracts. Last year, Kelly disclosed that Kelly & Associates Insurance Group made $2.8 million in revenue from such deals.

He did not respond to a request for comment.

Pugh, who has been a member of the board since 2001, reported on her 2017 financial disclosure form making a profit of $100,000 after the hospitals bought 20,000 copies of her children’s book.

“UMMS purchased 20,000 ‘Healthy Holly’ books and $100,000 was my profit,” Pugh wrote on her disclosure form, listing her address as the mayor’s office.

Through a spokesman, Pugh said Wednesday that system buys her books when she “publishes or when there is a need.” She wrote the “Healthy Holly: Exercising is Fun” paperback in 2011.

In an interview, the mayor said board members do not vote on their own contract awards, and her compensation met with legal requirements for “full disclosure.”

“There are disclosure forms. We fill them out. We make them available,” Pugh said. “There’s certainly some expertise on the board that is very much needed.”

In a second interview late Wednesday, Pugh said that her 2017 form, as filed with the Health Services Cost Review Commission, incorrectly lists revenue as profit and that her profit is less than $100,000.

After purchasing the books, the hospital system gives them to schools and day care centers for the children there to read, the mayor added.

Pugh said the board would abide by any new laws.

“I’m not against the bill,” Pugh said. “We’ll follow whatever the legislature decides.”

In addition to Kelly and Pugh, seven other board members reported having a financial interest in companies doing business with the hospital system. Attempts to reach them Wednesday for comment were unsuccessful.

They include:

>> August J. Chiasera, an executive at M&T Bank, reported on his 2017 form that his bank had eight deals with the medical system, resulting in more than $3 million in revenue and fees. In 2018, the bank received $4.4 million from the system.

>> John W. Dillon reported in both 2017 and 2018 that his health care consulting firm, Dillon Consulting, generated more than $150,000 annually through a contract with the system for a “capital campaign and strategic planning.” He reported the contract was paying his firm $13,000 a month.

>> Wayne L. Gardner Sr. reported in 2017 and 2018 that his company, Best Care Ambulance Inc., garnered more than $100,000 annually though a contract with the system.

>> Robert L. Pevenstein, the founder of technology companies, reported in 2017 his firms pulled in more than $150,000 through system contracts, including more than $108,000 in pay for himself. In 2018, Pevenstein reported his son also made more than $100,000 from the system.

>> Roger E. Schneider, a medical doctor, reported that his practice, Vascular Surgery Associates, generated more than $300,000 in revenue in 2017 through three contracts with the system.

>> James A. Soltesz, CEO of Soltesz Inc., reported in 2018 the company provided civil engineering services for the system for more than $100,000.

>> Walter A. Tilley Jr., the CEO of Home Paramount Pest Control, reported in 2018 that his firm provided pest control services to the system and received about $160,000 last year.

Two of these deals — Kelly’s and Dillon’s — were listed on the system’s most recent filing with the Internal Review Service. Kelly’s deal was reported to the federal government under the heading “Business Transactions Involving Interested Persons.” The system reported paying Dillon $156,456 in compensation.

Damon Effingham, director of Common Cause Maryland, the government watchdog group, called Carter’s legislation “straightforward” and said it “makes a lot of sense.”

Even though the system board is not a state agency, he argued, it should act with the public’s interest in mind.

“Folks that are put in positions of authority should not also be in a position to financially benefit from them as well,” Effingham said. “It’s going to raise red flags.”

luke.broadwater@baltsun.com

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