General Assembly leaders expressed outrage Thursday and called for reforms and an audit of the University of Maryland Medical System after learning members of the system’s board — including Baltimore Mayor Catherine Pugh — have business deals with the hospital network that are worth hundreds of thousands of dollars each.
The calls for reform came as the mayor’s office provided more information during the course of the day Thursday about Pugh’s arrangement with the system to sell it her children’s books. The additional information about the value and scope of the relationship was more than Pugh offered Wednesday in defending it.
The system has paid a private company owned by Pugh $500,000 since 2011 to order 100,000 copies of her self-published “Healthy Holly” book series, which she said were distributed to schools and day care centers. An aide to the mayor said she’s netted, after expenses, about $100,000 from five orders of the books.
House of Delegates Speaker Michael Busch, who also sits on the board, said the individual deals board members entered into with system management were not disclosed to other board members.
“Candidly, I was shocked,” Busch said of the contracts. “I’m outraged the University of Maryland Medical board had individuals on it who were greasing their whole palms by getting contracts with the medical [system]. It was never, ever brought up in a meeting that there were these contracts.”
Senate President Thomas V. Mike Miller likewise expressed concerns about people “making huge profits from their position on the board.”
“There needs to be an audit,” Miller said. “There needs to be a self-examination and there need to be bids put out, so we can make sure they’re getting the lowest price and the best deal and that everybody has an opportunity to bid on these projects.”
Mike Ricci, a spokesman for Gov. Larry Hogan, who appoints members to the board, said the administration has “serious concerns about conflicts of interest that could exist within an institution which has received massive levels of state funding.”
Robert Chrencik, the system’s CEO, went to Annapolis Thursday to push back against legislation that would bar board members from having a financial relationship with the organization.
He defended the system’s actions — including the purchases of Pugh’s books. He said some deals with board members went through competitive bidding, while others were “sole-source” deals.
“These are business relationships between a trustee and an organization,” Chrencik said in an interview with The Baltimore Sun. “There’s no intent to do something that’s inappropriate.”
Chrencik — who receives $4.2 million in compensation authorized by the board — said he couldn’t recall whether he approached Pugh about buying the books or she approached him.
“We were concerned about one thing: What would be good for the kids of Baltimore city?” Chrencik said. “These books, if you’ve seen them, are excellent. We felt that was a good thing to do. We said, ‘We’ll make it happen.’”
He acknowledged there was no competitive process for buying the books, and a system spokesman said there is no formal contract with Pugh, who was a state legislator from the city when the system began buying her books.
“There’s no other book like it,” Chrencik said. “It was a win-win for the kids.”
Members of Maryland’s business and political elite hold unpaid, voting seats on the nonprofit system’s 30-member board. They govern about a dozen hospitals that bring in billions each year from patients.
The system, which reported $4.4 billion in revenue in 2018, has contracts with the companies of about a third of the board’s appointed members. The firms provide goods and services to the system, ranging from banking and consulting to pest control and civil engineering, according to state financial disclosure forms reviewed by The Sun.
“We should stop it,” Busch said. “It shakes people’s confidence in the institution. If you’re a Maryland citizen and you’re served by the University of Maryland and its hospital system, you expect things to be done on the up and up. I don’t know how they're going to explain their way out of this.”
The controversy arose after Sen. Jill P. Carter, a Baltimore Democrat, filed the bill that would make it illegal for board members to profit from contracts with the hospitals they govern. Busch said the board as a whole did not know about the contracts until Carter’s legislation was introduced.
While other board members’ businesses had more lucrative deals with the system, as Carter noted, the disclosure of the practice brought increased scrutiny to Pugh.
A review of records by The Sun showed Pugh had not reported on disclosure forms filed with the city’s ethics office that she sits on the board — despite instructions telling public officials to report any “directorship” with “any business entity that was doing business with the city.” Additionally, the University of Maryland Medical System did not disclose on its federal tax form for the year ending June 30, 2017, that it had purchased books from Pugh.
“That’s incredibly concerning,” said Damon Effingham, executive director of Common Cause Maryland, a government watchdog organization. “That’s certainly something Baltimoreans should know about.”
Disclosure reports that Pugh filed with Baltimore’s Board of Ethics covering 2016 and 2017 make no mention of the director seat. She has been on the nonprofit hospital system’s board since 2001.
The University of Maryland Medical System does business with the city, one of the reasons for reporting membership on the board of an organization.
In 2016, the University of Maryland Medical Center and the Midtown Campus were part of a $60 million decade-long agreement the city struck with 14 nonprofit hospitals to help pay for public safety and other city services. Both facilities are part of UMMS. Most recently, the city’s spending board, which Pugh leads, approved a $100,000 agreement Oct. 24 with the medical system for a violence prevention program and a 10-year deal last May for maintaining hospital signs on city streets.
City Solicitor Andre Davis said in a letter that Pugh has not been required to report her board position because the city did not conduct any business with UMMS until last year. Those two deals in 2018 will require Pugh to list the board seat on the ethics form due April 30, which will cover last year.
“Regardless of whether there are any further business relationships between UMMS and other University of Maryland entities with the city of Baltimore, Mayor Pugh will list her membership on the board of UMMS going forward in all future financial disclosure statements in the interest of full transparency and disclosure,” Davis wrote.
Pugh’s spokesman, Gregory Tucker, said the business transactions with the University of Maryland Medical Center did not require the mayor to disclose her board seat because the hospital is not the same as the medical system which governs it.
The city’s ethics board requires public officials to report “other sources of earned income,” and Pugh listed Healthy Holly LLC as such a source on her city ethics disclosure. But she is not required to report to the city that the corporation received money from UMMS, ethics officials said.
Still, Effingham said that for transparency, Pugh should have reported the book deal.
In her 2016 and 2017 city ethics reports, the mayor does detail she received two fruit basket gifts worth $50 from Chrencik.
While the medical system’s federal tax forms do not disclose the book deal with Pugh, the documents do report deals with other board members’ companies, including one with former Sen. Francis X. Kelly’s insurance company and one with M&T Bank. M&T Executive Vice President August Chiasera is on the board.
Such business deals with board members are common in the business world, though public companies must disclose them in filings with the federal Securities and Exchange Commission.
Michael Schwartzberg, a spokesman for the medical system, said the hospitals are “in compliance with all IRS filing requirements” and noted the threshold for reporting such transactions is $100,000 per year.
Marc Owens, the former director of the IRS division governing charities, said best practices have long favored disclosing deals with board members, even when they do not exceed the threshold.
Chrencik said the system is happy to award work to qualified trustees.
“Where there’s expertise, we’re happy to try to leverage it,” he said.
The system CEO said he believes board members would resign if they had to give up their business deals with the system.
“This has been portrayed as bad business dealings. It’s not,” he said. “It’s totally disclosed. If we cannot access the business community for board members, we’re competitively harmed.”