The largest hospital network in Prince George’s County continues to pay six-figure severances to former executives and big fees to outside lawyers, totaling a combined $1.7 million last year, despite its worsening financial situation.
For the second time in three years, a former chief executive officer for Dimensions Healthcare System received more than $400,000 in severance pay and benefits, at a time when the company is pleading with Maryland and county officials for a steady source of funding to avoid closure.
A recently filed 2006 tax return for Dimensions, which runs Prince George’s Hospital Center and Laurel Regional Hospital, shows the company paid a total of $800,000 in pay and benefits to former executives, including roughly $400,000 to former chief executive Patrick Mutch. In addition, rising legal fees paid to outside attorneys cost Dimensions nearly $1 million last year.
The Washington Times reported in 2005 on a similar severance arrangement in which the company disclosed to the IRS that it paid former chief executive Winfield M. Kelly Jr. $454,683 in pay, plus $60,000 in benefits, mostly after he left Dimensions.
The company has been mired in financial problems for years, even with the help of state and county bailout money totaling more than $50 million. According to 2006 tax records, Dimensions lost $27 million last year, despite $21 million in contributions from the Prince George’s government.
Dimensions officials say their management decisions often were based on recommendations from consulting firms hired to streamline and improve operations.
“We want to comply with the consultants, and we’ve made every change we’ve been asked to make,” said Dimensions spokeswoman Suzanne Almalel.
She said all of the executives are paid less than those at other facilities and that the severance is “something that is in a contract, and it’s all negotiated prior to them coming here.”
Miss Almalel also said the county government had input on the issue of executive-compensation agreements.
However, a county spokesman criticized the company’s management decisions.
“They need to come up with new ways to save money, not waste it,” said Jim Keary, a county spokesman.
The 2006 tax records also showed the company’s legal fees increased sharply last year, with contract lawyers doing the bulk of the work once handled by Dimension’s in-house legal counsel years earlier.
In 2002, Steven Smith earned a salary of $220,000 as the staff lawyer before leaving the next year for a job at the Baltimore-based law firm Ober Kaler Grimes & Shriver, according to tax records.
While Dimensions never replaced Mr. Smith, it continues to use his services regularly, paying his firm $952,000 in fees last year.
Ober Kaler Grimes & Shriver, which employs Mr. Smith, earned $560,000 in legal fees in fiscal 2002, when Mr. Smith served as the in-house general counsel for Dimensions.
Dimensions officials say they’re contractually obligated to pay the severance deals, and that the company eliminated Mr. Smith’s position to scale back on upper management.
“That was requested by one of the consulting firms,” Miss Almalel said.
“We were told we can’t keep our in-house attorney. But we still needed an attorney who had an institutional knowledge of the system,” she said, explaining the rationale for retaining Mr. Smith after he went to work at Ober, Kaler, Grimes & Shriver.
Mr. Smith said he chose to leave Dimensions on his own.
“I left voluntarily in October 2003,” he said. “And frankly, I left because I saw a circumstance with the county getting more involved with the organization, and I didn’t think I was going to care for that if I stayed.
“I still do a lot of the general counsel kind of work for the company. I sit with the board and advise the board with regard to difficult issues. I’m very well-suited to provide that advice and perform those services because of my track record with the institutional knowledge.”
Mr. Smith said that although he performs many of the functions of his old job as general counsel, he does not refer legal work to himself or to his employer.
“It is work that comes from the client,” he said.
Mr. Smith also said it’s not appropriate to compare the company’s legal costs when he was staff lawyer to the fees Dimensions pays now.
As in-house attorney, Mr. Smith said, he was paid a regular salary, but also had a separate budget to assign pending legal matters to outside law firms.
Mr. Smith’s firm was retained to represent Dimensions in perhaps its most high-profile legal battle in recent years.
The company recently sued Prince George’s officials, saying they improperly withheld millions of dollars in bailout money.
Most of the lawsuit was dismissed last week, but Dimensions’ attorneys said they are considering an appeal.
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