Those who know the 79-year-old businessman say he treasured his roles with the system, including as longtime master of ceremonies for the annual black-tie fundraiser for the Maryland Shock Trauma Center. But in April, amid an investigation into Kelly and other hospital system board members securing business contracts with the organization they oversaw, he did not attend that event.
The contract that has captured the most attention involved former Baltimore mayor Catherine E. Pugh, who was paid $500,000 for her self-published “Healthy Holly” children’s books. She resigned her board seat and later stepped down as mayor. But the episode also brought attention to other board members whose personal businesses were mingled with the hospital system.
One of the largest contracts with the health system is held by Kelly & Associates Insurance Group, which Kelly and his wife founded in 1976. Kelly listed the multimillion-dollar transactions on required disclosure forms since at least 2005, the first year for which records are available, but they were not widely known until March.
Kelly’s many supporters say his passion for the hospital system is unmatched, his dedication instrumental to its growth and success. They describe him as an aggressive businessman who wanted the system to do well, but not for his own sake.
“Frank Kelly is to UMMS what Cal Ripken was to the Orioles,” said U.S. Rep. C.A. Dutch Ruppersberger (D-Md.), a longtime friend. “It’s like another son to him.”
But Kelly’s critics, including several former hospital system officials and board members, say he wielded power in unhealthy ways — supporting the ouster of those who disagreed with him and elevation of his allies, while expanding his business along the way.
“I have no doubt that Frank Kelly cost me my job,” said Vincent Pellegrini, an orthopedist and former president of the medical staff at the University of Maryland Medical Center who says he was forced to resign after challenging Kelly. “Frank Kelly abused his position to the detriment of the university.”
Kelly and Michael Schwartzberg, a spokesman for the medical center, declined to answer questions about Kelly’s contracts because of a pending independent review, which is supposed to be finished this month. Kelly and two of his sons have taken leaves of absence from the five UMMS-affiliated boards on which they sat.
“UMMS and all of our clients know of our integrity, the ethical way we conduct business, and the value we provide them, and that is why we have earned their business,” Kelly said in a statement.
He did not respond to questions about Pellegrini or assertions from former board members that he exerted power inappropriately.
A growing system
The hospital began growing shortly after Kelly championed its privatization in 1984, buoyed by significant state investment. As part of a new nonprofit hospital system, its staff worked alongside the University of Maryland School of Medicine to build up the academic teaching hospital.
Today, the system includes 13 hospitals and 28,000 employees. Kelly’s supporters say he played a key role in that transformation, promoting growth and helping turn around hospitals that were brought into the network.
John Ashworth — who was named interim chief executive of the system when Robert A. Chrencik stepped down in April amid outrage over the investigation into self-dealing — said he was “disappointed” that Kelly and his sons took leave, citing their investment as “instrumental in providing high-quality care and establishing UMMS as a national leader in health-care delivery.”
But as the system grew, so too did the size of the contracts held by Kelly’s company, financial disclosure forms show. The firm administers the hospital system’s self-insurance programs for employee health and long-term disability. In disclosures, Kelly says he abstains from board discussions and votes relative to his company’s business with UMMS.
John Erickson, board chair from 2002 to 2008, said Kelly’s contracts were competitively bid and vetted by the board during his time on it. Kelly & Associates handled premiums with four hospitals totaling $2.18 million in 2005, the earliest year for which financial disclosure records are kept by the Health Services Cost Review Commission.
Around 2003, Erickson said, Kelly approached him about expanding his company’s work to hospitals UMMS was acquiring. Erickson said he replied that contracts had to be competitively bid and that there would be “no inside dealings,” but Kelly could negotiate with individual hospitals directly.
Erickson and former board member Rick Hoffman said that during their two terms, contracts between board members and the system were disclosed to the full board.
Former chief executive Edmond F. Notebaert, who headed UMMS from 2003 until 2008, said he understood — but was never told explicitly — that Kelly wanted to expand his insurance services to other hospitals in the network. He said he remembered Kelly’s allies praising the company.
Notebaert said he, too, made clear that any contracts would have to be competitively bid and vetted by the board.
Notebaert, Erickson and others left the board during a shake-up in 2008. Kelly’s premiums with the system rose from $3.48 million that year to $12.9 million in 2013. Last year, Kelly reported that his company handled premiums worth $15.3 million and received revenue of $2.8 million from UMMS.
Asked about the increased size of the contracts, Schwartzberg, the UMMS spokesman, said he could not “verify that information at this time.”
Kelly’s company has more than 9,000 corporate clients, according to his statement; he said the arrangement with UMMS “is a small percentage of our overall business.”
Some former members say the 2008 shake-up helped lead to governance issues that may have facilitated self-dealing.
After years of clashing over expanding the system, tensions between executives at the medical system and doctors at the University of Maryland School of Medicine were especially high over a proposed new hospital building in Baltimore.
Notebaert, then chief executive, resigned that August, prompting a succession battle.
At a board meeting, Erickson and a majority of his board colleagues voted to install John McDaniel, a former chief executive at Columbia, Md.-based MedStar Health, as interim CEO, pending a national search, according to several former board members.
But Kelly, then-Gov. Martin O’Malley (D) and top university officials wanted a different interim chief executive: Chrencik, then financial officer of the system.
Erickson said Kelly pulled out a letter from O’Malley removing five board members who opposed Chrencik’s elevation and appointing five new members. Erickson said he adjourned the meeting because he wanted to consult with a lawyer.
A few days later, he and 12 others resigned, upset by what they perceived as political meddling and hesitant to fight with the governor, Erickson and two other members said. The exodus bolstered the influence of Kelly and other remaining board members, whose views aligned with the new appointees, several former board members said.
The new board appointed Chrencik interim chief, then made it permanent. Schwartzberg said Kelly “had a single vote just like every other board member. Any presumption that one board member held more power than another is not accurate.”
Chrencik did not respond to requests for comment. O’Malley said in an interview that he did not remember details of the board shake-up.
William E. Kirwan, then chancellor of Maryland’s public university system, said leaders at the university thought Chrencik would “be more supportive of the academic medical center” than Notebaert had been.
“There was a period of stability on the board following [Chrencik’s] appointment,” Kirwan said. “Now, of course, some of the things that were going on look very questionable.”
Among the members who remained on the board after the shake-up were Kelly, John Dillon, Robert Pevenstein and Pugh — then a state senator. All had contracts with the system in recent years.
Dillon and Pevenstein could not be reached for comment. Pugh’s attorney, Steve Silverman, declined to comment. Pugh has previously apologized for her book deal with the system, calling it a “regrettable mistake.”
Several more recent board members, who spoke on the condition of anonymity because of ongoing probes, said they were not aware of those contracts and did not think they had been disclosed to the board.
“The board lost its independence,” Erickson said. “You could’ve expected the result.”
'A significant change'
Kelly pushed in 2012 for the system’s acquisition of St. Joseph Medical Center in Towson, where many of his grandchildren were born and which was at the time beset by legal and financial difficulties.
After a passionate speech by Kelly in favor of the acquisition during a January board meeting, Pellegrini, who was chair of the university medical center’s orthopedics department, questioned whether the deal made sense. Pellegrini said in an interview that he was relaying the concerns of the vast majority of clinical department chairs, whom he had polled. Two people in the board room that day, who spoke on the condition of anonymity because of ongoing reviews, said Pellegrini’s comments to Kelly were not out of line.
Quickly, Pellegrini said, he realized he had offended the wrong board member.
“Your comments were insulting to Senator Frank Kelly,” Albert Reece, dean of the medical school, wrote in a letter to Pellegrini the following day. “And many members of the board expressed outrage by your comments, lack of respect and sensitivity.”
Pellegrini — who, according to a document he provided to The Washington Post, had received a $94,000 bonus and a positive evaluation from Reece the month before — was now on probation, Reece said in the letter. The letter demanded “a significant change” in Pellegrini’s “behavior and attitude.”
That spring, Reece asked Pellegrini to step down by fall and immediately appoint a vice chair, who would deal with any issues related to St. Joseph.
In response to questions for Reece about Pellegrini’s departure, Joanne Morrison, a spokeswoman for the medical school, said Pellegrini’s “personnel files are strictly confidential.”
Pellegrini resigned in December, days after UMMS closed on the acquisition of St. Joseph. Kelly ultimately chaired the board of the smaller hospital.
He reported that the value of premiums handled by his company for the Towson hospital was $8.37 million from 2013 through 2018.