Experts say UPMC's financial dealings with insiders seem 'cozy'
By Walter F. Roche Jr.
Sunday, May 23, 2010
Some experts question the propriety of UPMC's business deals with board members' companies and the hiring of relatives, which federal tax returns reveal cost the health care giant more than $10 million last year.
"It seems a little cozy and is probably not in the best interests of the organization," said attorney Thomas Bakewell of St. Louis, who advises nonprofits. "Conflict of interest is a real issue."
Tax records released last week detailed the payments for the first time, thanks to new federal reporting requirements. Tax records detailed more than $5 million in transactions between businesses connected to board members for West Penn Allegheny and its affiliated nonprofits.
Officials of both health care firms say they adhere to strict disclosure and conflict-of-interest guidelines and that board members never vote or take official action on matters affecting their own financial interests.
"Transactions involving any organization or entity UPMC has a relationship with are negotiated at arm's length, at fair market value and competitively bid. We have stringent policies, procedures and oversight in place to manage this," UPMC spokesman Paul Wood said in an e-mail.
He said UPMC, one of Pennsylvania's largest employers, exceeded IRS requirements.
Patricia Mogan of the Pennsylvania Association of Nonprofit Organizations said the number and type of potential conflicts listed by UPMC raise concerns.
"We would want to see some assurance that there is a mechanism in place for the full disclosure and review of all these arrangements," Mogan said. "We really encourage the full board to review the entire" tax return.
UPMC's tax returns revealed that relatives of CEO Jeffrey A. Romoff collected about $3 million in salaries and contracts during fiscal 2009. Romoff was paid more than $5 million in salary during that period.
One of those was his brother, Douglas Romoff, who headed The Paradiso Group. That advertising company was paid $2.48 million.
In a telephone interview, Douglas Romoff said his UPMC contract was terminated nine months ahead of time "with a half-paragraph letter from a lawyer."
He said he was never given a reason for the termination and has not spoken to his brother in some time.
"It didn't help our relationship, but he's still my brother and I love him," he said.
Wood, in an e-mail response, said Paradiso's contract was terminated in October 2008 because of economic conditions.
"It speaks volumes for UPMC that when these difficult decisions were needed, they were done thoughtfully to preserve jobs and patient care and no one — not even Mr. Romoff's brother — was immune," Wood wrote.
Douglas Romoff, who has relocated to Florida, is working on a television production about Napa Valley winegrowers. He said he was forced to shut down The Paradiso Group after losing the UPMC contract.
"It basically finished my business," he said. "I love Pittsburgh. It certainly wasn't my wish to leave. I'll be forever proud of the work we did."
He said that he got the UPMC contract legitimately and lost it the same way.
"But I know my last name helped me get it," he said.
Bakewell, who has authored articles on corporate governance and conflicts of interest, said the disclosures about UPMC raise serious questions.
"It's not a pretty picture. The real question is what is in the best interests of the organization. It certainly suggests a lot of coziness. It seems like a cozy little family affair," he said.
UPMC's filings show two Downtown law firms connected to board members were paid more than $1.1 million in legal fees.
West Penn reported that it paid a little over $5 million to a laundry company headed by a board member of one of its foundations.
Douglas Romoff, who ran UPMC's advertising efforts for seven years, said he has no bad feelings.
"Life goes on. I decided to leave the scene of the crime."