The Department of Health and Human Services took the extraordinary step of bringing in outside counsel earlier this year to investigate allegations of sex discrimination, Axios has learned — a sign of how badly the working relationship had deteriorated between Secretary Alex Azar and Medicare chief Seema Verma.

Why it matters: While the outside lawyer investigating the claims ultimately described them as unsubstantiated, the revelation of the investigation is more evidence that bad blood between the nation's top two health officials has sidetracked one of the biggest arms of the federal government.

The investigation also has raised questions about Verma's management style at the Centers for Medicare and Medicaid Services.

Azar and Verma are charged with executing President Trump's agenda on prescription drug prices, the Affordable Care Act, Medicare and Medicaid. The distractions come ahead of an election year when health care is expected to be a driving issue.

Key quote: "There is no evidence to suggest that anyone in a leadership position at HHS discriminated against Ms. Verma because of her gender or otherwise created a hostile work environment at HHS. Based on the absence of evidence to support a suggestion of discrimination or a hostile work environment, I recommend that this matter be closed," the investigator, Heather Flick, concluded, per two sources familiar.

Flick was previously a deputy general counsel and acting general counsel for HHS under the Trump administration as well as an acting assistant secretary for administration. She now works out of the law firm, The Flick Group.

"I found no evidence supporting allegations of sex discrimination at HHS," she told Axios.

“Secretary Azar’s and Administrator Verma’s top priority is to advance the President’s health care agenda through lowering drug costs, advancing competition in the marketplace and ensuring Americans have access to high quality, affordable health care,” an HHS spokesperson told Axios.

Background: The allegations of sex discrimination arose over the summer amid a personnel dispute between Verma and Azar, according to two sources with direct knowledge. The events were detailed in the memo described to Axios. They include:

Verma wanted to name Brady Brookes, who was the deputy chief of staff at CMS, as chief of staff. But But Azar's office said that they wanted another candidate — who is also a woman — to also be considered. This candidate had more experience and had spent more time at CMS headquarters. Brookes ended up getting the job.

Verma then told two people that she could file suit for sex discrimination if Brookes wasn't chosen as the chief of staff. Verma added that she herself could be a party to that litigation.

In the same week, she told a third person that the decision to not immediately name Brookes as chief of staff borders on outright discrimination.

The sources said the HHS leadership took the allegations seriously and does not tolerate discrimination.

The outside investigator then tried to talk to Verma about her allegations, but Verma didn't want to speak with her, according to the sources’ description of the investigator’s conclusions.

Verma told HHS's general counsel that she hadn't intended to file a complaint.

She told the third-party counsel that she didn't want to participate in the investigation.

An earlier memo from August 2017, obtained by Axios, shows that the administration received multiple complaints about the workplace environment inside CMS.

The memo described an exit interview with a former chief of staff to Verma who left after three months. The former chief of staff, Brian Colas, was said to want to defend himself, staff and then-HHS Secretary Tom Price should Verma or her staff make accusations against them — and to say is Verma is "insecure" and "lashes out."

Colas, in an interview with Axios, took issue with details included in the memo, saying, "It does not portray my full experience of working at CMS. I have respect for and a good relationship with the administrator and her team, and have worked with them since leaving."

The name of the author of the memo was redacted in the copy obtained by Axios.

A source familiar said Flick conducted the interview, and told Colas that giving one would protect him in the future should any hostile workplace claims arise. Flick declined to comment about this.

The big picture: Azar and Verma's contentious relationship has recently spilled into the public spotlight following Politico's extensive reporting on their disagreements.

The situation is so bad that both Trump and Vice President Mike Pence have become involved, urging them to find a way to work together.

The involvement of outside counsel takes the conflict — which reportedly centered on policy disagreements, recognition for ideas and achievements and power within the department — to a much more serious level.

What's next: Both officials have powerful allies and committed detractors at the highest level of the administration, meaning it's unclear which — if either — of them will become a casualty of this increasingly untenable situation.

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Trump and Pence intervene in clash between top health officials