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.

Documents obtained by the Star Tribune show that 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 action 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 Minnesota Legislative Auditor's office confirmed Monday that it's looking into the potential conflict 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 on Monday defended Moracco, 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.

Although there are no allegations of financial improprieties in this case, Minnesota's laws were written to avoid even the appearance of a conflict, said Annastacia Belladonna-Carrera, executive director of Common Cause Minnesota.

"The statute is clear on that," she said. "Regardless of whether there was personal benefit or gain … Even if there is an appearance of a potential conflict you are to walk away."

Sen. Jim Abeler, R-Anoka, chairman of a key Senate health committee, said that "this is one more example of how things have become casual and lax at the department."

"They have not been committed to tight programming and doing things the way they should be doing them," he said.

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 that 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.

Moracco did not respond to requests for comment for this story. He is no longer on the board but does serve in an advisory capacity, according to a statement from the Action Group.

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 it.

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 Capitol.

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 improving quality through its own programs, according to Johnson.

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."

"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 an issue," Johnson said Monday.