The former chief executive of the University of Maryland Medical System made business deals with board members — including then-Baltimore Mayor Catherine E. Pugh — that were not competitively bid or properly disclosed to the full board, an independent review released Wednesday found.
The agreement that Robert A. Chrencik made with Pugh to purchase her Healthy Holly children’s books was part of a “pattern by management of making decisions without full Board approval,” said the report by Nygren Consulting, a California-based firm.
Pugh resigned as mayor, and Chrencik resigned as head of the $4.4 billion hospital network amid the fallout from the scandal, which has led to an exodus of top UMMS officials.
The review was sent Wednesday afternoon to Maryland’s top elected officials. It marks the first public accounting of the deals since March, when the Baltimore Sun reported that nine board members had deals with the system they oversaw. Pugh’s book deals are now under state and federal investigation.
“Members of management appear to have taken upon their own authority the right to enter into contracts with board member that resulted in personal gain . . . interacting with board members in ways that overstep the standard understanding of the role and authority of the board,” the report concluded.
In addition to Pugh, board members Robert Pevenstein and John Dillon reported making more than $100,000 annually for what the review refers to as “personal services” — essentially work or products that are not central to the daily operations of the 13-hospital system, which is privately operated but receives substantial state funding. Most board members are appointed by the governor.
The review also found that many contracts with board members for “professional services” — including employee insurance, pest control and ambulances — were not competitively bid on a regular basis, or properly vetted.
The board violated best practices by having Pevenstein chair both the financial and audit committees, the review found. It said Pevenstein exerted pressure on various departments to implement software from Optime, a firm with which he had a financial relationship.
Chrencik and former chief financial officer Henry Franey made the deal with Pevenstein without approval by the audit committee or the full board, the review found.
In addition, some hospital system staff who were interviewed by Nygren reported difficulties with implementing the software.
Starting in 2012, Chrencik agreed to pay Dillon a $13,000 monthly retainer for strategic planning and to help Shore Health System, a smaller hospital in the network, meet fundraising goals. The review said the contract was inappropriate given that help with fundraising “is an expectation” of board members.
The report also found that board member Scott Rifkin provided software from his company to UMMS for free in June 2018, but would have charged $10,000 in future years. Staff felt compelled to use the software, the report said.
Rifkin said in an interview that the contract was “clearly marked as a one-year agreement and the company has no intention of charging the institution and still hasn’t.”
Pevenstein, Dillon and Rifkin have resigned from the board, as did Pugh, who was a state senator when she first made a deal with Chrencik to provide books to the hospital system. Chrencik, as well as lawyers for Pevenstein, Dillon and Pugh, did not respond to requests for comment.
“We all collectively accept responsibility for this, the board and management,” interim chief executive John Ashworth said Wednesday. “The personal services should have never, never happened. . . . And they won’t happen in the future.”
Ashworth said the professional services contracts were not vetted by the full board due to a “breakdown at the management level.”
“In the context of growing fast, our procurement policies and procedures may not have been as refined as they should have been,” he said.
Former chief executive Edmond F. Notebaert, Chrencik’s predecessor, has said he did not allow board members to hold no-bid contracts during his tenure.
The review found that a lucrative insurance contract with a company owned by longtime board member and former state senator Francis X. Kelly Jr. was competitively bid in 2008.
A consulting firm concluded in 2009 that outsourcing benefits administration to Kelly & Associates would save money for the hospital system. But it does not appear that Kelly’s contract has been reassessed in recent years. Kelly, who took leave from the board this spring, did not respond to requests for comment. UMMS plans to rebid the contract next year, the review states.
Nygren’s 10-week review included interviews with approximately 60 current and former UMMS board members and employees. An audit by the state’s Office of Legislative Audits also is underway.
The findings were supposed to be presented last month to Gov. Larry Hogan (R), Senate President Thomas V. Mike Miller Jr. (D-Calvert) and House Speaker Adrienne A. Jones (D-Baltimore County). But Ashworth decided after being briefed by Nygren that the report was insufficiently detailed.
Hogan and his predecessors had allowed some board members to remain in their roles for well past a decade, even though state law specifies that they cannot serve more than two consecutive five-year terms.
After the self-dealing contracts were revealed this spring, Hogan and other top political leaders in Annapolis expressed outrage, and Hogan vowed to replace most, if not all, sitting board members. Emergency legislation passed by the General Assembly requires that the current board be dissolved in stages, beginning July 1.
The board met Wednesday and elected James C. “Chip” DiPaula as its new chairman, replacing Stephen A. Burch, who resigned May 7. Alexander Williams was elected vice-chair. The board also voted to invite back four members — Kelly, August J. Chiasera, Walter A. Tilley Jr. and James A. Soltesz — who have professional service contracts with the hospital system and had taken leaves of absence.
Ashworth said the board believed those members should come back because the Nygren report concluded that it was primarily mismanagement within the hospital system that led to their contracts not being properly vetted.
On Wednesday, Hogan announced 11 new board members, calling the appointments “another critical step as UMMS works to restore public trust.”
They include the governor’s chief of staff, Matthew Clark; Kathleen A. Birrane, a lawyer at DLA Piper; Joseph Ciotola Jr., the health officer in Queen Anne’s County; Wanda Queen Draper, former executive director of the Reginald F. Lewis Museum of Maryland African American History and Culture; Jason Frankl, managing director at FTI Consulting Inc.; Glenn T. Harrell, a retired judge on the court of appeals; Joyce M. Johnson, a physician; Elisa Basnight, senior vice president of supply chain for the American Red Cross; Bonnie Phipp, a senior vice president of Ascension Health; Joseph T.N. Suarez, director for community partnerships at Booz Allen Hamilton; and John T. Williams, chairman of Jamison Door Co.
As part of Ashworth’s efforts to clean house, the hospital system’s primary lawyer, chief administrative officer, chief compliance officer and chief performance improvement officer all resigned last week.