Last week’s announcement that the LePage administration had uncovered a $66 million budget error at the Department of Health and Human Services surprised two of the agency’s former leaders.

“We knew that that was an issue back in July and August,” Brenda Harvey, the former DHHS commissioner, said Monday. “I was confused that this was called an accounting error, because there was no error.”

Harvey said her department had warned the Maine Hospital Association as early as last summer that the state expected to overpay for Medicaid claims and would have to reduce payments before the end of the year to stay within budget.

The department’s former deputy of finance said he told the LePage administration about the issue in January.

Harvey also said her department wanted to reduce payments in the fall to keep from exceeding its budget, but the hospital association argued to maintain the payments.

“The hospitals cannot pretend this was an unknown issue for them,” she said. “They have known all along.”

The hospital association never argued that the state should overspend its budget, said association President Steven Michaud.

“When we met with them, we literally looked at them and said, ‘So what are you going to do (to avoid going over budget)?’ They said they’ll get back to us,” Michaud said. “No matter what gymnastics they want to perform, there is no earthly way this is the hospitals’ fault.”

The fact that DHHS overspent its Medicaid budget by $66 million was highlighted by Gov. Paul LePage’s office Thursday in a news release titled “New DHHS Leadership Uncovers Budget Errors.”

The administration said the department moved to a pay-as-you-go hospital reimbursement system in the fall but failed to reduce or stop payments made under its previous, estimated-costs system. The department also began paying out more for physicians’ claims without making corresponding adjustments to other payments, it said.

“We inherited a big mess, but we are going to get it fixed, ” LePage said in the news release.

Mary Mayhew, the new DHHS commissioner, said last week that the previous administration failed to make accounting changes that were needed to keep spending within budget. The department will now balance the budget by reducing future hospital payments, she said.

Harvey, who is now executive director of The New England States Consortium Systems Organization, said the news release only served to increase the distrust in state government.

“It is a situation to be addressed for sure, but it isn’t because it’s a mess,” she said.

The DHHS launched a new, more accurate payment system in the fall, Harvey said. Rather than ceasing or reducing payments under the previous system, the department gave in to pressure from the hospitals to keep both payment systems going during a transition period, she said.

Harvey said she attended two meetings in July or August, when the association said hospitals could not afford a disruption in payments. She also was present in November when representatives from one hospital, Inland Hospital in Waterville, met with then-Gov. John Baldacci on the issue, Harvey said.

“The administration made a decision that we would (reduce the payments) in January, when we had six months of real data to work with,” she said. “This is not something new they just discovered.”

Michaud, the hospital association director, said he didn’t argue for the state to put off switching payment systems or balancing its budget at the meetings in the summer and November. He expected the DHHS to make adjustments immediately, if necessary.

“We weren’t shocked” when the problem was announced, he said. “However, if they knew it in July, why didn’t they do anything? We assumed they must have taken care of it.”

Russell Begin, former deputy director of finance for the DHHS, said he first told Mayhew about the issue in January, when Mayhew was an adviser to LePage.

Begin, who served briefly as acting commissioner under LePage, became the latest DHHS manager to be fired, on Wednesday. Begin declined to talk about his departure, but said that he was praised for his service and that the issue of hospital payments did not come up.

The news release about DHHS budget errors was released the next day.

“I was really surprised at the way it was characterized,” Begin said. “This wasn’t a secret.”

Mayhew said she became aware of the issue in mid- to late January, when Begin told her about it.

She was the longtime lobbyist for the Maine Hospital Association, but left that job last summer. Those involved said she was not at the meetings about the issue last summer and fall.

When she was told about the issue, Mayhew said, she immediately asked how much money was paid out over budget, but could not get a full answer.

“Even in January, I was not informed of the full extent of the problem,” she said. “It took a while to develop the scope of the problem.”

Mayhew said the problem should not have been allowed to grow so large or been left to a new administration. In fact, she said, the Baldacci administration should have prevented the problem when it launched the new payment system.

Staff Writer John Richardson can be contacted at 791-6324 or at: jrichardson@pressherald.com