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After ‘Healthy Holly’ scandal involving no-bid deals, University of Maryland Medical System sticks with company it knows

More than a year after the University of Maryland Medical System came under scathing criticism for a series of no-bid contracts with its own board members, the system said it would award a new deal to one of the largest recipients of those deals.

The deals eventually led to the resignation of top system executives and board members, and to sweeping legislation last year in the General Assembly to reform the system’s board of directors.

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Revelations about contracts with a third of the board members detailed by The Baltimore Sun also led to the resignation and conviction of former Baltimore Mayor Catherine Pugh, who had a no-bid contract for her amateurish Health Holly children’s books.

The new deal is with Kelly Benefit Strategies, a division of the Baltimore County firm Kelly & Associates Insurance Group, which manages health insurance and other benefits for employees. It’s headed by former state Sen. Francis “Frank” Kelly Jr.

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Kelly is no longer a board member but helped shape the hospital system over decades in his role on the panel, despite rules mandating turnover.

The new deal already has irked lawmakers, including Sen. Jill P. Carter, a Baltimore Democrat who initially introduce the UMMS legislation out of concern minority businesses were being shut out.

The optics of Kelly being awarded a contract that he “monopolized for years as a board member” were not good.

One review by a consultant hired by UMMS blamed the hospital system rather than Kelly for the contracts worth millions, many of which were not competitively bid. Kelly eventually was invited to return as a board member, but he declined. His sons also gave up seats on a half dozen boards affiliated with the system.

A spokeswoman for the company said Kelly and his son, John Kelly, head of the benefits business, were out of town and could not comment. The company did provide a statement on the request for proposal process and award:

“After participating in a thorough RFP process, we are honored to have been selected to continue serving as the group benefits broker and consultant, and benefits administration and technology solution for the University of Maryland Medical System. We look forward to continuing to serve the people of UMMS with the same level of excellence that they, and our thousands of other benefits clients, have come to expect from us.”

UMMS officials said the system has undergone sweeping changes and chose Kelly after a bidding process that began last year.

“Over the course of the last 12 months, UMMS has implemented fundamental changes to governance and ethics policies throughout the system in order to ensure that the awarding of contracts and other key decisions are completely free of inappropriate influence,” said Michael Schwartzberg, a system spokesman, in a statement.

“UMMS issued an RFP last year for the system’s employee benefits program and actively solicited competing bids from multiple vendors, in a process that was overseen by independent consultants and followed the strict parameters of the system’s new contracting policy,” he said. “A selection and evaluation team comprised of UMMS employees at all levels identified eight potential vendors, ultimately selecting Kelly Benefit Strategies.”

Schwartzberg said Kelly’s bid offered the “most well-rounded suite of offerings” and the “most competitive marketplace pricing.”

Under the three-year contract, Kelly will manage benefits such as health and dental insurance and other services to employees of the system.

The system is one of the state’s largest employers with more than 28,000 workers, according to UMMS’ website, and the contract covers about 75 percent of them. Revenue was $4.2 billion last year for the nonprofit system, which is composed of 13 hospitals, including the flagship University of Maryland Medical Center in Baltimore and several in the Washington, D.C., suburbs and on the Eastern Shore.

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Schwartzberg said there would be no further comment from the system or its board members. He also said the value of the contract was proprietary. He did not provide details about the other bidders and their bids.

From 2010 to 2018, Kelly & Associates generated about $16 million in revenue for managing insurance and benefits for UMMS and some of its affiliate hospitals, according to disclosures with the Maryland Health Services Cost Review Commission and estimates by company officials provided last year to The Baltimore Sun. The total includes about $12 million collected in the prior five years.

Kelly continued to hold the benefits contract during the RFP process.

UMMS paid Pugh more than the $500,000 for her self-published “Healthy Holly” books. Pugh began serving a three-year sentence in federal prison in Alabama last week after pleading guilty to fraud and tax evasion charges.

The state legislation that resulted from the scandal aimed to reform the medical system’s board and bar members from holding no-bid contracts with the system.

Carter questioned whether the General Assembly should take another look at the bill and strengthen it so that the prohibition also includes past board members.

“While this procurement does not violate the letter of the law, it does appear to violate the spirit of the law,” she said Thursday.

She also said the issue of fair access for minority businesses persists.

Sen. Clarence K. Lam said the decision to award Kelly & Associates this contract calls into question “how much the board of UMMS has really cleaned up its act.”

The hospital system must now disclose more details about the bidding process, he said, including who vetted the contracts.

“The UMMS board does not have a good track record,” said the Democrat who represents parts of Baltimore and Howard counties. “This is one of those situations where we can’t take them at their word.”

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