Minnesota DHS official served on nonprofit's board while approving public payments

A senior official at the Minnesota Department of Human Services (DHS) approved thousands of dollars in payments to a private organization while he was serving on its board of directors, according to documents obtained by the Star Tribune.

Former Assistant Commissioner Nathan Moracco signed contracts and payment authorizations with the nonprofit Minnesota Health Action Group, an organization that ran a quality improvement program to provide better care for Medicaid enrollees. Moracco has been on its board since 2004 and was the board chair in 2015 and 2016.

The episode appears to violate Minnesota state ethics policies, which say, "As individuals, all state employees must ensure that neither they nor their agency are put in a situation where a potential conflict of interest exists or gives the appearance of existing."

The case is under examination by the Minnesota Legislative Auditor, which confirmed the existence of the inquiry on Monday but declined to give specifics. "Our office is in the late stages of completing a special review that looks at similar issues," said Joel Alter, who oversees special reviews at the auditor's office.

State officials defended Moracco Monday, saying that there was no conflict because he was representing the state's interests with an organization that was trying to lower health care costs and improve quality.

"When somebody is serving in their capacity for the state, that is not a conflict of interest," said Commissioner Myron Frans of Minnesota Management and Budget.

Furthermore, Moracco did not personally benefit financially and DHS was aware of the arrangement, state officials said. "Nothing that Nathan did was unknown to DHS," Deputy Commissioner Chuck Johnson said in an interview Monday.

However, in late 2016 Moracco told Johnson in an e-mail that he would separate his DHS financial duties from his work at the Action Group, according to an e-mail obtained under a public records request. By that time he had signed three contract extensions which more than doubled the value of the multiyear contract to $979,000. Moracco also approved at least two $10,000 membership payments to the organization.

He stopped approving membership payments after 2016 and last year asked Johnson to approve the annual dues because of his dual roles. "As a board member I want to avoid a conflict of interest," he wrote in December 2018.

Moracco did not respond to requests for comment for this story.

Before he started at DHS in 2013, Moracco led the state employee health insurance program, which also had contracts with the Minnesota Health Action Group. In his role there, he also signed contracts with the Action Group, Frans said.

Moracco was replaced as assistant commissioner, where he oversaw the Medicaid program, earlier this year when then-DHS Commissioner Tony Lourey took over the agency. DHS ended the contract with the Action Group shortly after Moracco disclosed the conflict.

He remains at DHS as a technology director, a new $121,000 job that was not open to other candidates. In a statement, the agency said it was not required to advertise the position.

Ethics policy

The contracts approved by Moracco helped fund a program that provided 85% of the Action Group's total revenue in 2016, according to its nonprofit filings. Payments from other groups, including the state's employee health insurance program, also contributed to that total.

At the time, Moracco was one of only five outside directors on the Action Group's board. The organization is a consortium of public and private employers, including the University of Minnesota and Best Buy, that advocates for health insurance market reforms.It employs lobbyists at the state capital.

The Action Group received administrative fees from the state to run the program, which was targeted at improving care for patients with diabetes, vascular disease and depression.

DHS did not extend the Action Group contract in 2017 because it was achieving quality improvement through its own programs.

Under state policy, state employees must act "immediately" when they become aware of a conflict "to remove the conflict and, if necessary, separate the employee from the acquisition."

Johnson acknowledged that questions were raised within DHS about Moracco's actions.

"Someone had raised a concern about whether he had been signing this or not," Johnson said.

As a result, Moracco consulted a DHS ethics officer. She did not have "specific concerns," Moracco told Johnson in an e-mail, but recommended that he no longer sign off on payments to the Action Group.

"Obviously we could have done that previously but we didn't identify that as in issue," Johnson said Monday.

Glenn Howatt • 612-673-7192 Twitter: @GlennHowatt

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