AUGUSTA – The state Department of Health and Human Services is $66 million over budget in payments to hospitals because it did not properly convert to a new payment system in October.

Mary Mayhew, who became DHHS commissioner in February, briefed lawmakers on the problem Thursday morning.

In an interview, she said the error occurred because the department did not take the proper accounting steps in its transition from one type of payment system to another.

“Changes to the hospital payment system that should have been made by the previous administration were not made,” she said. “We have been overpaying hospitals based upon what was budgeted for payments.”

Last year, the state began to convert to a payment system based on services rendered, rather than estimated payments spread over the course of a year. The new system is designed to be more accurate and to prevent the kind of backlog of debt that piled up for years under the previous system.

However, the department failed to make the switch properly, and in some cases used the old payment system and the new system at the same time, Mayhew said. Also, it did not set aside enough money in the budget to cover all of the costs of the new system.

“More than $66 million in state and federal money have been paid out over budget for hospital payments,” she said. “We need to remedy the situation.”

Letters to hospitals were scheduled to go out Thursday to inform them that the state will stop certain types of payments until the problem is resolved. Each hospital in the state has been affected differently by the payment errors, and the state will adjust future payments to reflect the money already disbursed, Mayhew said.

In remarks to legislators later in the day, Mayhew said that by the end of the fiscal year June 30, the state will be within its budget for hospital payments.

Hospitals could have cash flow problems because of the state’s remedial steps, said Jeff Austin, a lobbyist with the Maine Hospital Association. But he noted that hospitals will benefit from money in the recently passed state budget for the rest of this fiscal year, which includes an additional $248 million in state and federal funds to pay down past-due debt.

“Thank God they did the settlement payment,” Austin said. “That will provide cash to hospitals for the fourth quarter that softens the real-world impact.”

In recent weeks, Mayhew also has told lawmakers of two funding shortfalls in the DHHS that will likely require a second supplemental budget for this fiscal year.

One is an increase in Medicaid use and continued problems with a computerized billing system. Those issues could cost the state as much as $30 million.

Another is a court decision that will require the state to repay the federal government nearly $30 million, because in 2002 and 2003 the state overbilled for services to children in foster care.

The state may appeal the decision in federal court in Boston.

Sen. Margaret Craven, D-Lewiston, a member of the Legislature’s Health and Human Services Committee, said hospitals should have come forward to tell the state about the overpayment mistakes.

“They knew they were receiving (both payments) and they still continued to badger us for not paying them,” Craven said. “It’s shameful.”

But Austin said the hospitals shouldn’t be expected to oversee the accounting operations of a state agency.

“I think it’s a little rough to expect us to collectively audit that which we don’t control,” he said.

Mayhew, a former lobbyist for the hospital association, said she will foster a renewed sense of fiscal leadership in the DHHS.

“These are absolutely problems we inherited from the previous administration,” she said. “I am extremely confident in the team that is being assembled that is going to be focused on financial management and fiscal integrity for the Department of Health and Human Services.”

MaineToday Media State House Writer Susan Cover can be contacted at 620-7015 or at:

scover@mainetoday.com

 

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