In January, The Indy revealed that UMHS had signed a 5-Year $45M deal with Life Technologies (LIFE), that Dr. Pescovitz held stock in LIFE and served on LIFE’s Board.
ON MARCH 17 Dr. Ora Pescovitz sent an email to her system’s faculty and staff in which she announced her resignation: “I have been thinking about my future – both professionally and personally. I have been honored to lead this organization, which is what made this decision very difficult for me.”
Dr. Pescovitz’s contract was set to expire in June 2014. Her hire marked the first time a woman led the University of Michigan health system. Dr. Pescovitz headed the Riley Hospital for Children in Indianapolis prior to her appointment with the UMHS in 2009.
In January 2014, The Ann Arbor Independent reported that at the October 2013 Board of Regents meeting, that group was asked to approve a $45 million contract between the UMHS and Life Technologies.
At the time of the article, Securities and Exchange Commission records showed Dr. Pescovitz owned 5,083 shares of Life Technologies shares worth approximately $385,189.
She was appointed to the Life Technologies Board of Directors in April 2011. In May 2011, Dr. Pescovitz purchased 200 shares of company stock at $55.24 each. In August of 2011, she purchased another 500 shares at $36.16 each. The remaining shares she owns were accumulated by Dr. Pescovitz quarterly between July 2011 and October 2013, in acquisitions known as non open market buys.
Between May 2011 and October 2013, the stock doubled in value. Since her appointment to the Life Technologies Board, Dr. Pescovitz’s shares in the company have paid out close to $40,000 in earnings.
Not all of the members of the Life Technologies Board of Directors held stock in the company. In fact, three of the ten directors held no stock at all in Life Technologies as of the January 2014 article.
On February 24, 2014, former AnnArbor.com education writer David Jesse published a piece in the Detroit Free Press about Dr. Pescovitz’s stock holdings in Life Technologies, the contract with Life Technologies approved by the Board of Regents in October 2013 and whether Dr. Pescovitz had a conflict of interest that should have been revealed to the Regents at that October 2013 meeting which Dr. Pescovitz attended.
David Jesse reported:
The University of Michigan awarded a $45-million contract last fall to a medical research supply firm for which the head of the university’s medical system sits on the board of directors.
A U-M spokesman said the university did nothing wrong: Dr. Ora Pescovitz was not involved in the selection of the company, and the university’s conflict of interest disclosure rules were followed.
On Oct. 18, the contract was awarded to Life Technologies to provide a variety of medical research supplies. Some of those supplies come from contracts that were competitively bid out originally, some were not. The largest user of the supplies is U-M’s health system.
The contract was awarded 17 days after Pescovitz was awarded 359 shares of stock for her work on the Life Technologies board of directors. As of Jan. 3, Pescovitz had 6,201 shares of Life Technologies stock. In February, Life Technologies was acquired by Thermo Fisher Scientific, at $76.13 per share. At that price, Pescovitz would have received a little more than $470,000. Pescovitz left the company’s board after the merger, U-M officials said.
U of M officials repeated to the Free Press and David Jesse what they’d told The Ann Arbor Independent in late-December when asked about the Life Technologies transaction: U of M did nothing wrong, and there was no conflict of interest.
However, The Ann Arbor Independent’s January 7 article revealed that the transaction raised issues of perceived conflicts. The February 24 article in the Free Press included this:
“Legal experts agree that U-M did nothing illegal, but said it raises perception issues for the university. They said it is a reminder to organizations that they need to be careful in monitoring how outside work might raise issues with a person’s main job.”
Dr. Pescovitz’s service as a member of the Life Technologies Board of Directors, industry experts suggest, made it not only appropriate but crucial to examine the particulars of the October 2013 award of the contract between the University of Michigan Hospitals and Health Centers and Life Technologies.
While The Ann Arbor Independent submitted a Freedom of Information Act request for emails between Pescovitz and other University of Michigan hospital officials concerning the Life Technologies contract, the request was denied on the grounds that the emails were “responsive.”
This is a broad category of denial with respect to the Freedom of Information Act, and The Ann Arbor Independent was preparing a follow-up request when news of Dr. Pescovitz’s resignation was released.
In response to The Indy’s December 2013 email questions about whether Dr. Pescovitz had exercised any influence in the choice of Life Technologies, Rick Fitzgerald, a spokesman for the University of Michigan responded: “Life Technologies is a company formed by the merger of two other companies, Invitrogen and Applied Bio Systems. My understanding is that there now is a merger pending between Life Technologies and Thermo Fisher Scientific. Dr. Pescovitz ended her service on the Life Technologies board at the end of 2013.”
When asked whether Dr. Pescovitz knew either in her capacity as a Life Technologies Board member or as the head of the University of Michigan Hospitals, that Life Technologies was under consideration prior to the award of the contract, Rick Fitzgerald said, “No.”
He again pointed to what he referred to as the “added context provided”—the claim that Dr. Pescovitz had ended her service on the Life Technologies Board as of “the end of 2013.”
However, contrary to Fitzgerald’s repeated assertions that Dr. Pescovitz’s appointment to the Life Technologies Board “had ended” in December 2013, Dr. Pescovitiz’s service on the that board did not end in December 2013. She served on the Life Technologies board until the merger of Life Technologies and Fisher Scientific was finalized in February 2014.
It’s unclear why University of Michigan officials incorrectly claimed Dr. Pescovitz had stepped down from the Life Technologies Board when she had not.
Was Dr. Pescovitz’s position on the Life Technologies Board problematic? Experts are clear that it was in the sense that there was a “perception problem”—in other words, it wasn’t illegal, but it looked suspect.
Free Press reporter David Jesse asked Peter Henning, a Wayne State University law school professor and a former attorney for the Division of Enforcement at the U.S. Securities & Exchange Commission, about Pescovitz’s situation.
Henning affirmed that “it’s not illegal to have people in conflict positions.”
He went on to say:
“The key is disclosure and no involvement,” he said. “What you also have to be worried about is atmospheric. You have to make sure that no one feels like a contract should go to a company on which a high ranking official is on the board.
“You have to be fair to both sides — to the public and the public dollars at a university and to the shareholders.
“Not only do you have to disclose it to the university, you also have to disclose it to the company.
“It’s not having a conflict of interest that is wrong — it’s when it turns into self-dealing and self-profiting.”
U of M President Dr. Mary Sue Coleman wrote in an email to faculty: “I want to express my deep appreciation to Dr. Pescovitz for her commitment to Michigan. The Health System remains sound and strong, which is an enormous accomplishment given our complex environment and the changing national health care landscape.”
Dr. Pescovitz said she had made the choice not to renew her contract. In 2012 she earned $885,000 in wages and benefits.
The U of M Health System has a $3.3 billion annual operating budget, but a projected $250 million deficit by 2017.