Kelly’s ties to UMMS under scrutiny
He helped create medical system, and his insurance business grew alongside it
Since its inception more than three decades ago, the University of Maryland Medical System has been molded by former state Sen. Francis “Frank” Kelly Jr.
Hard-charging and sometimes brusque, Kelly used his seat in the state legislature in the mid-1980s to help create UMMS and build its world-renowned R Adams Cowley Shock Trauma Center in Baltimore. He joined the system’s board of directors in 1986 and never left, despite rules mandating turnover. And as something of an elder statesman there, he took a central role in the system’s more recent growth strategy, helping it acquire regional hospitals such as St. Joseph Medical Center in Towson.
Those efforts have long bolstered Kelly’s reputation as a civic-minded businessman. But in the past few months, they’ve also drawn scrutiny after revelations that Kelly and nine others on UMMS’ 30-member board had contracts with the medical system they oversaw. UMMS has acknowledged that some of those contracts were not competitively bid, though it has not said whether Kelly’s were.
Investigators from federal and state law enforcement agencies and government auditors are digging into the culture of the UMMS board and whether it became self-serving.
The system’s contracts with board members are “concerning,” said Rep. C.A. Dutch Ruppersberger, a Baltimore County Demo
crat and good friend of Kelly’s whose treatment at Shock Trauma years ago helped inspire Kelly’s involvement with the medical system. “There are many unanswered questions.”
According to the limited information available in state records, Kelly’s contracts were among the largest of any of the board members — and worth millions to Kelly & Associates Insurance Group, the insurance company Kelly started with his wife, Janet, in the basement of their Timonium home in 1976. The company now has nearly 500 employees and is largely run by Kelly’s four sons, three of whom hold their own board positions within the UMMS network.
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 to The Baltimore Sun. The total includes about $12 million collected over the past five years.
That’s far more than the $500,000 the system paid former Baltimore Mayor Catherine Pugh for her self-published “Healthy Holly” children’s books. The Democrat resigned from her seat on the UMMS board and eventually as mayor after the no-bid deal was revealed by The Sun.
Still, the specifics of the Kelly family’s business deals with UMMS have largely remained private. Medical system officials and the Kelly company have declined to answer questions about the contracts pending a review of board members’ business dealings by a firm UMMS hired, Nygren Consulting of California. The Kellys won’t say whether their contracts were competitively bid, disclose what percentage of their business the UMMS contracts represent, discuss the origins and longevity of those contracts, or address public concerns about the contracts in light of the Kellys’ oversight roles on system boards. They have said that some of their contracts with affiliated hospitals date to before those hospitals became part of the medical network.
Beyond the contracts, Kelly’s influence on the board is also under scrutiny. The head of a state government watchdog group is among those who question the former senator’s long tenure on the board.
Joanne Antoine, executive director of Common Cause Maryland, says the dearth of information surrounding Kelly’s contracts with UMMS and its member hospitals is unacceptable, especially since the medical system continues to receive a great deal of public money. The system reported $31 million in revenue from government grants in tax filings last year, and the state included more than $65 million in bonds for UMMS in the most recent capital budget.
Kelly’s business with UMMS “throws up a number of red flags for us,” Antoine said. “We don’t know how he managed to get that contract, what review process there was ... or how it is that he managed to remain on the board . ...
“For any average everyday Marylander, the minute they hear this, they are going to think there could be some conflicts,” Antoine said.
Neither Kelly nor his sons have resigned their positions from the boards of UMMS or its affiliates, as some other board members with contracts have, though they have taken leaves of absence. All UMMS board members are mandated under new legislation to step down by the end of the year. Gov. Larry Hogan has said he doesn’t expect to reappoint many — if any.
UMMS board rules prohibited members from serving more than two consecutive five-year terms, but allowed them to continue serving beyond their terms until being replaced. According to state records, Kelly was appointed to a seat reserved for a state senator in 1986, then to a seat reserved for a member of the state university system’s Board of Regents in 2005. Kelly also is chairman of the board of the St. Joseph Medical Center, and in 2016 he remained on the main UMMS board by taking a seat reserved for a hospital affiliate. He also held an undesignated seat in the 1990s.
Kelly declined to comment for this article.
In a statement, Frank Kelly III, who is CEO of the company, said he and his family “respect and enthusiastically welcome” the Nygren review.
“Our family members, including my father and brothers, have served, and still serve, on many nonprofit and community boards,” he wrote. “The reason we serve is simple: we all care deeply about people, our community, and those in need.”
He said the company’s more than 9,000 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.”
UMMS officials have said they expect the Nygren review to be completed in June. In the meantime, they have declined to discuss Kelly’s contracts.
“While UMMS is confident the proper disclosure and conflict of interest requirements have been met, it would be inappropriate to discuss, in detail, each business relationship with an independent, exhaustive review process pending,” said Lisa Clough, a system spokeswoman.
Growing a hospital system
Kelly’s supporters say his influence at UMMS has helped transform a single indebted public hospital in Baltimore — then known as University Hospital — into a nonprofit system of more than a dozen hospitals across Maryland.
In 1984, when UMMS was created, it had revenue of $165 million, had 3,000 employees and admitted 19,000 patients. In 2018, the system had $4.4 billion in revenue, more than 28,000 employees and more than 122,000 admissions.
Friends and admiring colleagues say the 79-year-old Kelly — who is semiretired, lives part time in Florida and has largely left the family business to his sons — has wanted only to provide quality service to his company’s clients and to help UMMS thrive. Sometimes he can be a tough negotiator with strong opinions at the board table, but it’s always to advance the hospital system’s interests, not his own, they said.
“He’s got expertise that’s necessary. He’s a very honest, fair guy . ... He’s a straight shooter, so he’s a good addition to the board,” said John Coale, an attorney who has served alongside Kelly on the UMMS and St. Joseph boards.
“There has never been a moment in my years of knowing Frank and his connectivity to UMMS — or St. Joe or anything else he has been supportive of — [where there] has been a mix of benevolence and a ‘What’s in it for me?’ ” said Mike Gill, the former Maryland commerce secretary and acting chairman of the St. Joseph board during Kelly’s leave. “I’ve never seen anything like that.”
Some critics of Kelly, including a current UMMS board member and two former members, said they have been concerned he has had an outsized influence overseeing the medical system. They said system executives often show deference to him given his long tenure on the board and his political connections, and because he can be tenacious. They requested anonymity to talk about Kelly because UMMS asked them not to comment.
Kelly was a state senator from 1979 to 1991, serving as a conservative Democrat, though he later switched to Republican. He has long been a political donor and fundraiser — including for Pugh, a Democrat, and for Hogan, a Republican.
Ruppersberger said he agreed with Kelly’s decision to take a leave of absence during the ongoing review, but also believes that Kelly and his wife succeeded in growing their family business “because they worked hard, not because they had connections.”
The company
Kelly & Associates’ business dealings with UMMS are not generally open to the public, but details can be gleaned from public records required of health care and insurance providers and nonprofits. That includes the annual financial disclosure forms that Kelly and his sons were required to file with state hospital regulators as board members for UMMS and its affiliates.
The company functions as a third-party administrator of health benefits, managing things such as health care enrollment and claims for employees of the self-insured system.
A review of Frank Kelly’s disclosure forms dating back more than a decade show he has held business with UMMS affiliate hospitals at least since 2006, though the amount of revenue his company received through those contracts is not always clear.
In 2007, for instance, Kelly disclosed that the company provided insurance brokerage and administrative services for five entities under the system. He said it collected nearly $3 million in premiums as part of that work — money passed on to insurance carriers — but did not outline the revenue his company took through commissions, fees or other payments.
In his most recent disclosures, Kelly reported that his company provided services for nine hospitals and affiliates within the UMMS network, and he included a chart that showed more than $15 million in premiums as well as $2.8 million in revenue from various commissions, fees and bonuses. He wrote that he abstained from board discussions and votes on his business.
Some experts in the health care field said the Kelly company’s contract at UMMS is somewhat unusual in that many large institutions use bigger, national companies to administer their employee plans.
Health care policy experts said they would expect a system such as UMMS to put its insurance contracts up for bid to be sure it is getting the best deal. They also would expect it to periodically re-bid those contracts to compare them with other options.
“This is people’s health care, so you need to make sure you’re getting the best possible deal for them and for you,” said Carol Berry, CEO of the Health Care Administrators Association.
If the contract was not competitively bid, “you have to ask who is underserved by it,” Berry said.
According to insurance filings with the U.S. Department of Labor by Kelly clients and interviews with several former Kelly employees, Kelly & Associates has a mix of small and large customers throughout the Baltimore region. One of its larger accounts is with the Allegis Group, the staffing company owned by Steve Bisciotti, who is also majority owner of the NFL’s Baltimore Ravens. The UMMS account is another big one.
Smaller accounts include Calvert Hall, a Catholic boys school in Towson where the deeply religious family is heavily involved; the Fellowship of Christian Athletes, with which the Kellys have a long affiliation, and Ripken Baseball, the company of Baltimore Orioles Hall of Fame shortstop Cal Ripken Jr. and his family.
The Kelly insurance company also does business with other UMMS board members, including car dealer Len Stoler and Alan Butler of Erickson Living, who both declined to comment.
Brother John Kane, the president of Calvert Hall, said that when he arrived in Baltimore five years ago, Kelly was one of the first people he met.
Kelly’s four sons and several of his grandsons have gone to the school and played lacrosse there. Kelly’s son Bryan is the school’s winning varsity lacrosse coach, and Frank III has served along with his father on the board of trustees. The lacrosse field is named for the family.
Kane said the family’s support of the school is not what won Kelly & Associates the contract it holds to handle the school’s payroll and health benefits — the work was competitively bid, he said — but he feels the school benefits from the relationship.
“They are connected to us,” Kane said. “They want us to do well and continue to do well.”
Baltimore Sun reporters Doug Donovan and Luke Broadwater and research librarian Paul McCardell contributed to this article. krector@baltsun.com meredith.cohn@baltsun.com twitter.com/rectorsun twitter.com/mercohn