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The University of Maryland Medical Center in Baltimore, part of the University of Maryland Medical System, is shown in this 2006 photo.
The University of Maryland Medical Center in Baltimore, part of the University of Maryland Medical System, is shown in this 2006 photo. (Jed Kirschbaum / The Baltimore Sun)

An audit commissioned by new members of the University of Maryland Medical System’s board of directors has determined that top system officials never read former Mayor Catherine Pugh’s “Healthy Holly” books for children or checked to see if they were printed before paying her $500,000 in five installments.

“There is no evidence that any UMMS executive ever read one of the installments to support a belief that the books would serve that population health goal,” concluded the audit, released Friday. “There is no evidence that there was a process in place to evaluate the fair market value of the books or whether other alternative books would be more effective in serving the health education goal.”

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The lack of oversight of insider deals with the Baltimore Democrat was among the findings in a 34-page report released Friday by the system’s board of directors. To produce the audit, the law firm Latham & Watkins interviewed 38 people, including many current and former top officials of the hospital network.

Pugh sold the clumsily produced books — which contain grammatical and spelling errors, such as a main character’s name being spelled two different ways and the word “vegetable” appearing as “vegetale” — to the medical system to distribute to city schoolchildren. School officials, however, said they hadn’t asked for the books, never used them for instruction and had thousands sitting unread in a warehouse.

Though her customers, including UMMS, ordered more than 100,000 copies of the books, federal prosecutors say Pugh failed to print thousands of copies, double-sold others and took some to use for self-promotion. Pugh, 69, used the profits to buy a house, pay down debt, and make illegal straw donations to her campaign, she acknowledged in her plea agreement last month.

In an interview Friday, new medical system board chairman James C. “Chip” DiPaula Jr. called the report “troubling and distressing.”

“It’s difficult to read,” DiPaula said. “No one can be proud of this activity.”

Nevertheless, DiPaula said, he hoped the audit would serve as a “significant turning point” for the Baltimore-based organization from which it can move forward.

“We should be for selfless service on behalf of the institution,” DiPaula said.

Pugh declined to be interviewed for the audit, according to the report, as did former board chairman Stephen Burch; Robert Pevenstein, who was chairman of the board’s audit committee; and Scott Rifkin, who was among the board members with deals with the system.

A spokesman for Rifkin denied that he had ever declined to be interviewed.

The audit concluded that certain board members overstayed their five-year terms on the volunteer board, allowing them to “exercise disproportionate influence” over the system. They included former state Sen. Frank Kelly, who was on the board for 33 years; Pugh, who was on the board for 17 years; Pevenstein, who was on the board for 16 years; and John Dillon, who was on the board for 13 years.

Pugh pleaded guilty last month to four counts of conspiracy and tax evasion, acknowledging wrongdoing involving her “Healthy Holly” book deals for the first time since The Baltimore Sun began exposing them in March.

The plea in federal court came one day after prosecutors alleged in an 11-count indictment that Pugh’s self-publishing enterprise amounted to little more than a criminal racket. It came eight months after The Sun’s revelations, followed by FBI raids on Pugh’s homes and City Hall, torpedoed her political career and forced her from office.

Pugh’s political fall was accompanied by a massive shake-up of UMMS leadership, with CEO Robert Chrencik and several other executives stepping down.

Cherncik also was not interviewed in the report.

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“The Special Committee cannot make a conclusion as to Mr. Chrencik’s motive or purpose in agreeing to the purchases” of Pugh’s books, the report states.

The hospital network has promoted Dr. Mohan Suntha to CEO.

The new audit singles out some previous board arrangements for criticism, including Pevenstein’s role as audit committee chairman when he had deals with the system.

Pevenstein, who was chairman of both the board’s audit and finance committees, had several deals with the system, including for-profit relationships for his firms Profit Recovery Partners and Optime, as well as a consulting deal. He received more than $100,000 a year.

“Placing the responsibility to review and analyze disclosed financial relationships with the [audit committee] was particularly problematic because there were multiple conflicted transactions between UMMS and the then-chair, Mr. Pevenstein,” the report stated.

The report also questioned the actions of Dr. Scott Rifkin, who founded a health care software company called Real Time Medical Solutions that provided software for free to the medical system. But the review found his actions "could be viewed as an inducement or reward for recommending or requiring skilled nursing facilities to purchase the software.

“To the extent nursing facilities were required to purchase the software as a gateway to access UMMS referrals, the arrangement could violate existing law,” the audit said.

Rifkin said in a statement that the report “correctly states that the business interactions with RTMS were provided for free and fully disclosed and approved as per the rules in place at the time.”

Additionally, the audit found that certain board members were the frequent guests of top system managers to attend "social events and outings, including sporting events in and outside of Maryland."

“Some board members interviewed expressed their perception that favoritism was involved in selecting who to invite to these events and that these social interactions between a subset of management and select directors reinforced a culture of concentration of power amongst a few,” the audit stated.

The review recommended a number of areas for reform, including: reducing the size of the board, implementing stronger enforcement of term limits for members, increasing turnover of committee chairs, conducting an annual review and new rules to “claw back” bonuses to top staff if they violate policies.

Mike Ricci, spokesman for Gov. Larry Hogan, said the report was delivered to the governor’s office Friday.

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“Governor Hogan has consistently said that UMMS has a lot of work to do to restore its reputation," Ricci said. "This is another step in the process as UMMS moves forward under a new CEO committed to reform and accountability.”

It’s the second time the system has submitted to an outside review. A first review of contracts ― conducted by Nygren Consulting and released in June ― revealed additional no-bid and self-dealing practices among the board, including that executives pressured staff to use board members’ products.

Meanwhile, the system is undergoing a state legislative audit, although the state’s top legislative auditor criticized the hospital network as “hindering” the work of his staff as it tried to gather information.

DiPaula said Friday that network officials are complying with that review.

“We disagree with the characterization that was out there,” DiPaula said. “We remain cooperative with DLS. We’re on it. It’s a new day.”

Baltimore Sun reporter Kevin Rector contributed to this article.

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